ECON QUIZZES UNIT 4
Using the information in the table, calculate the demand deposits possible if this bank complies with a reserve ratio of 20% and maintains no excess reserves. If the reserve ratio is 20%, then 1/5 of the deposits must be held as required reserves. $25,000 is 1/5 of $_______. $25,000/$_______ = 1/5, which equals 20%.
$125,000
Micro Bank has the simplified balance sheet below: Use the above table to calculate the maximum possible change in loans for this bank if the reserve ratio is 10%. HINT: On the above balance sheet, the reserves include both required and excess reserves. Since demand deposits are $150,000, 10% of $150,000 equals $15,000. Therefore, there will be $______ in excess reserves for this bank ($20,000 - $15,000).
$5,000
If a commercial bank has no excess reserves and the reserve requirement is 20%, what is the value of new loans this single bank can issue if a new customer deposits $1,000?
$800
If the required reserves are $150 and deposits are $1000, what is the required reserve ratio?
15 percent
If, upon receiving a checking deposit of $600, a bank's excess reserves increased by $510, the required reserve ratio must be: HINT: This means the RR is $90. $90/$600 x 100 = __
15%
Which of the following is an open market operation?
A central bank purchasing bonds
Which of the following will increase the demand for loan able funds?
a decrease in the interest rate
A $25,000 price tag on a new car is an example of money as
a unit of account
Which of the following contributed to the financial crisis of 2008?
all of the answers are correct
People's attitudes about the trade-off between risk and return affect how much of their wealth people hold as money. Heightened fear will lead to: HINT: The greater the fear of loss, the less people will want to hold investments that could suffer a loss, and therefore the higher the demand for money (cash and checking accounts).
an increase in the demand for money.
A highly liquid asset
cab be converted into a means of payment easily without loss of value
Liabilities, by definition, mean what is owed, not owned. Which of the following would be included as a liability on a commercial bank's balance sheet?
demand deposits
Banks lend the excess reserve created when new deposits come in because they want to
ear a profit
In the United States, the dollar is
fiat money
All of the following are components of the money supply in the United States EXCEPT: HINT: The U.S. currency is a "fiat currency", which means its value is not backed by a commodity. Thus, gold bullion (a commodity) is not a part of the money supply, even though it is WORTH money. Every other choice listed here is a more direct form of money, and is a component of the money supply.
gold bullion
When the Federal Reserve buys bonds, which of the following happens to interest rates and bond prices?
interest rates decrease; bond prices increase
If the supply of money in the money market shifts to the left:
interest rates will rise and capital investment will fall
Under a fractional reserve banking system, banks are required to:
keep part of their demand deposits as reserves.
Banks create money by
lending excess reserve that gets redeposited in other banks
If the reserve ratio was set at 100%, then banks could: -Banks are only able their excess reserve
make no loans
The fact that using money avoids the double coincided of wants necessary in a barter economy illustrates which function of money ?
medium of exchange
The functions of money are:
medium of exchange, unit of account, and store of value.
Financial intermediaries perform the vital task of:
moving funds from savers to investors
A decrease in business spending on plant and equipment with an increase in the real interest rate could be caused by:
n increase in borrowing by the federal government.
The opportunity cost of holding money refers to:
the interest that could have been earned if the money balances had been changed into an interest-bearing asset
Which of the following applies to money when it serves as a store of value? I . Money is a store of value because it is an agreed measure for stating goods' prices. II. The more stable money's value, the better it serves as a store of value. III. When money serves as a store of value, it requires a double coincidence of wants.
II only
Which of the following is true of the quantity of money demanded?
It falls when interest rates rise, because the opportunity cost of holding money increases
Which of the following is an exampled of using money as a store of value?
Keeping $200 on hand for an emergency
Which of the following is the most liquid monetary aggregate?
M1
Which of the following measures of the money supply is largest?
M2
Which of the following is true regarding short term and long term interest rates?
Short-term interest rates are more important for determining the demand for money
When the Fed sells bonds in the open market, which curve in the bond market shifts and in which direction?
The demand curve shifts right.
If a bank customer deposits $1,000 of circulating currency into her demand deposit, what will be the immediate effect on M1? HINT: M1 is the total of circulating currency and demand deposits. Since the circulating currency was deposited into a demand deposit, circulating currency decreased by $1,000, and demand deposits increased by $1,000.
no change
The minimum percentage of deposits that a bank must hold and cannot use for lending is known as the
required reserved ration
The money demand curve illustrates the relationship between the interest rate and:
the quantity demanded of money
The money demand curve illustrates the relationship between the interest rate and: HINT: Economists use the demand curve for money to illustrate the inverse relationship between the quantity of money demanded and the interest rate. It depicts how much money is demanded at each interest rate.
the quantity of money demands
Which of the following is a primary function of money?
to server as a unit of account
