FINAL REVIEW MACROECONOMICS (CH. 14-16), MACROCEONOMICS CH. 16, MACROECONOMICS CH. 15, MACROECONOMICS CH. 14, MACROECONOMICS EXAM #3, MACROECONOMICS CH. 13, MACROECONOMICS CH. 12, MACROECONOMICS CH. 11
If a bank has actual reserves of $110,000, checkable deposits of $100,000, and a reserve ratio of 20%, its excess reserves are ______.
$90,000
assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day, Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply money changed
1.) deposit Sm 2.) clear or check --> Sm 3.) loan-->Sm UP <-- buy bonds money increased by $1,200
If Johnson Bank has actual reserves of $200,000 and $200,000 in demand deposits with a reserve ratio is 10%, what is the amount of excess reserves?
10%--200,000=20,000 200,000-20,000= $180,000
If the reserve ratio is 10% and a bank accepts $50,000 in demand deposits from the public, then it would have to keep $ _______ as reserves.
5,000
Whom are bond markets open to?
All buyers and sellers of corporate and government bonds
Which of the following equals total demand for money?
Asset demand + Transactions demand
True or false: Expansionary monetary policy will increase the interest rate to bolster borrowing and spending, which will increase aggregate demand and expand real output.
False
What are the Fed's targets used to meet the dual mandate?
Full-employment rate of unemployment Target rate of inflation
What is used as collateral in repos and reverse repos?
Government securities
monetary policy is expected to have its greatest impact on
Ig
Which of the following actions can the Fed take to reduce bank lending?
Increase interest earned on excess reserves with the Fed
Which of the following are functions of restrictive monetary policy?
Increase the interest rate Curtail the expansion of aggregate demand
What type of relationship exists between bond prices and interest rates?
Inverse
When a commercial bank grants a loan, what happens?
It creates an asset.
An increase in the supply of money will do what to the equilibrium interest rate?
Lower
An increase in the money supply will do which of the following?
Lower the interest rate Increase investment
What are true statements about a commercial bank's buying government securities from the public?
New money is created. The securities earn interest.
What term refers to the amount of reserves that a commercial bank must keep that is a percentage of the bank's checkable deposit liabilities?
Reserve ratio
Which of the following are tools of monetary control that the Fed can use to alter the reserves of commercial banks?
Reserve ratio Open-market operations Interest on reserves Discount rate
During times of rising inflation the Fed will undertake which of the following monetary policies?
Restrictive
When Federal Reserve Banks buy securities in the open market, what happens to commercial banks' reserves?
They increase.
Before 2008, what was the incentive for banks with excess reserves to lend money overnight to banks short of required reserves?
To earn some interest
Abe receives a check from Bea for fixing Bea's car. Bea's bank is Bank B. Abe deposits the check into his bank, Bank A. Select all the statements that correct describe the check-clearing process.
Total reserves in the banking system remain unchanged. Bank A increases Abe's checkable deposits by the amount of the check.
What is the term for the demand for money as a medium of exchange?
Transactions demand for money
A withdrawal of cash can decrease the bank's checkable deposit liabilities but not change the total supply of money. True false question.
True
if you write a check on a bank to purchase a sued honda civic, you are using money primarily as
a medium of exchange
A bank's excess reserves equals the bank's _________ reserves minus its required reserves
actual
which of the following best describes the cause-effect chain of an expansionary monetary policy?
an increase in the money supply will lower the interest rate, increase in investment spending, and increase aggregate demand and GDP
When a bank buys government securities, they will appear on its balance sheet as a(n) _____ called "Securities."
asset
To the extent that people want to hold money as an asset, there is ______.
asset demand for money
Bond markets are open to all buyers and sellers of corporate and government _____
bonds
suppose the Fed wants to increase the money supply by $400 billion to drive down interest rates and stimulate the economy. Assuming that the money multipliers is operating to full effect, to accomplish the desired increase, the Fed could
buy $40 billion of US securities from the banks
When a bank grants a loan, it creates __________ deposits that are money.
checkable
qualifications of M1
checkable deposits currency (coins + paper money) in circulation
Government securities are used as ______ in repos and reverse repos.
collateral
which of the following would reduce the money supply?
commercial banks sell government bonds to the public
which of the following is the basic economic policy function of the Federal Reserve Banks?
controlling the supply of money
Removing the incentive to withdraw one's deposit before anyone else can is the purpose of ______.
deposit insurance
in a fractional reserve banking system
deposit--> required reserve (fractional) + excess reserve banks can create money through the lending process
excess reserves refer to the
difference between actual reserves and required reserves
An increase in the _______ rate discourages commercial banks from obtaining additional reserves from the Federal Reserve Banks.
discount
the interest rate at which the Federal Reserve Banks lend to commercial banks is called
discount rate
suppose the reserve requirement is 20 %. If a bank has checkable deposits of $4 million and actual reserves of $1 million, it can safely lend out
ex x r=? 4,000,000 x 20% = 800,000 1,000,000-800,000=200,000
A single commercial bank can lend only an amount equal to its _________ (excess/required) reserves.
excess
The maximum amount of money that a single commercial bank can lend is equal to its ______.
excess reserves
which of the following is correct? When the Federal Reserve buys government securities from the public, the money supply
expands and commercial banks reserves increase
overnight loans from one bank to another for reserve purposes entail an interest rate called the
federal funds rate
Banks operating on the basis of ____________ reserves are vulnerable to "panics" or "runs."
fractional
A __________ in the money supply will lower the interest rate, increasing investment, aggregate demand, and equilibrium GDP.
increase
A decrease in the supply of money will ______ the equilibrium interest rate.
increase
Bond purchases from the public by commercial banks (increase/decrease) the money supply.
increase
When a commercial bank grants a loan, the assets on its balance sheet at the time of the loan will _________ by the amount of the loan.
increase
When Federal Reserve Banks buy securities in the open market, checkable deposits are _______
increased
which of the following statements is correct?
interest rates and bond prices vary inversely
the value of money varies
inversely with the price level
The reserve ratio, open-market operations, and the discount rate are tools of _______ policy used by the Fed to alter commercial bank reserves.
monetary
A single transaction that deposits money into a bank will increase checkable deposits for the bank, which will result in an increase in the bank's liabilities and assuming no loans are dispersed, ______ in the nation's total supply of money.
no change
qualifications of M2
non-checkable savings deposits currency (coins + paper money) in circulation checkable deposits money market mutual fund balances held by individuals money market mutual fund balances held by businesses
currency held in the vault of First National Bank is
not counted as part of the money supply
The calculation for total demand for money equals asset demand ___________ transactions demand.
plus
A withdrawal of cash from a bank that does not put the bank's reserves below the level of required reserves will ______.
reduce the bank's checkable deposits but not change the total money supply
The fraction of deposits that a bank is required by law to hold and not lend out is called its _____.
required reserves
Dividing a commercial bank's required reserves by its checkable deposit liabilities produces the
reserve ratio.
During times of rising inflation the Fed will undertake _______ monetary policy or "tight money policy."
restrictive
A bank _________ occurs when depositors hear a rumor that their bank is going bankrupt and rush to withdraw their monies while the bank still has reserves.
run/panic
the equilibrium rate of interest in the market for money is determined by the intersection of the
supply-of-money curve and the total-demand-for-money curve
when a bank has a check drawn and cleared against it
the amount if required reserves the bank must have will fall
the four main tools of monetary policy are
the discount rate, the reserve ratio, interest on excess reserves, and open-market operations
The 1977 congressional directive that the Federal Reserve System's highest priorities should be full employment and price level stability is known as ______.
the dual mandate
when the Fed sells bonds to the bank and the public, the expected result is that
the supply of federal funds will fall, the federal funds rate will rise, and a contraction of the money supply will occur
The demand for money as a medium of exchange is called ________ the demand for money.
transaction
An increase in a bank's checkable deposits due to a cash deposit will have what effect on the total money supply?
The total money supply will not change.
By law, all commercial banks and thrift institutions that provide checkable deposits are required to _____.
keep an amount of funds equal to a specified percentage of the bank's own deposit liabilities with the Federal Reserve Bank
If the Fed increases the interest earned on excess reserves at the Fed, the bank's lending ability will _______
decrease
hen a deposited check is drawn against another bank, the collection of that check will _____________ (increase/decrease) the reserves and the checkable deposits of the bank from which it was drawn.
decrease
The intersection of demand and supply determines the _______ price for money.
equilibrium
In the market for money, the intersection of demand and supply determines the ______.
equilibrium price of money equilibrium interest rate
There is an _________ relationship between the amount of money demanded as an asset and the rate of interest.
inverse
Interest rates and bond prices are ______ related.
inversely
The amount of money demanded as an asset varies ________ with the rate of interest.
inversely
If the reserve ratio is 20% and a bank accepts $10,000 in demand deposits from the public, then it would have to keep ______ in reserves.
$2,000
What are the two significant characteristics of fractional reserve banking?
Banks can create money through lending. Banks operating on the basis of fractional reserves are vulnerable to "panics" or "runs."
Which of the following transactions occur when the Fed sells government securities to the public?
Checkable deposits are reduced. The check written against the commercial bank is cleared. The commercial bank's reserves decline.
What are checkable deposits?
Claims that depositors have against the assets of the bank
___________ monetary policy will increase the interest rate in order to reduce borrowing and spending, which will curtail the expansion of aggregate demand and hold down price-level increases.
Contractionary/Restrictive
What is the impact on the money supply when the Fed sells securities to the public?
Direct decrease in the money supply
Commercial banks are deterred from borrowing more from the Federal Reserve Banks when which of the following occurs?
Discount rates are increased.
the asset demand for money is most closely related to money functioning as a
Dm = Dt + Da ---> i i UP ---> Da DOWN i DOWN ---> Da UP store of value
Which of the following is the correct formula for calculating excess reserves?
Excess reserves = actual reserves - required reserves
By lowering the interest rate to bolster borrowing and spending to increase aggregate demand, the Fed is instituting which type of monetary policy?
Expansionary
True or false: Checkable-deposit money created through lending by banks is not part of the money supply.
False
What is the amount of money that people want to hold as a store of value?
What is the amount of money that people want to hold as a store of value?
money functions as
a store of value, a unit of account, and a medium of exchange
A bank has stock shares of $100,000, property assets of $90,000, and cash of $10,000. If households and businesses decide to deposit $50,000 in the bank as checkable deposits, the balance sheet will be ______.
assets-cash = $60,000, property assets = $90,000, liabilities and net worth - checkable deposits = $50,000, and stock shares = $100,000.
Lowering the reserve ratio enhances the ability of banks to ______.
create new money
Lending money by banks is made possible through ______.
lowering the reserve ratio which transforms required reserves into excess reserves
if the Fed were to reduce the legal reserve ratio, we would expect
m=1/r r DOWN --> and ex. r UP --> Sm UP ---> i DOWN --> Ig UP ---> AD UP ---> GDP UP and inflation lower interest rates, an expanded GDP, and a higher arte of inflation
if, in the market for money, the quantity of money demanded exceeds the money supply, the interest rate will
rise, causing households and businesses to hold less money
a reserve ration refers to the ratio of a bank's
r=req. r/ deposit=required reserves to its checkable-deposit liabilities
