Macro Ch. 8 HW/DSM
Suppose an increase in the monetary base of $400,000 increases the quantity of money by $1600000. Calculate the money multiplier.
$1600000/400000=4
When the Fed buys securities from a bank, a sequence of events begins. The events are listed below. Number each event in the order in which it occurs.
1. Banks have excess reserves. 2. Banks lend excess reserves. 3. The quantity of money increases. 4. New money is used to make payments. 5. Some of the new money remains on deposit. 6. Some of the new money is a currency drain. 7. Desired reserves increase because deposits have increased. 8. Excess reserves decrease.
The bank plans to hold $3 for every $100 in deposits. The bank holds actual reserves of $12000 and excess reserves of $7000. What is the bank's desired reserve ratio and its desired reserves?
3%; $5000
*Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. The table shows the quantities of the components of M1 and M2 in January 2018. In January 2018, M1 was ----- billion. In January 2018, M2 was ------billion.
3647.9; 13837.7
*Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. The table shows the quantities of M1, M2, and their components in January 2018.What is the largest component of M1? What is the largest component of M2?
Checkable deposits; Savings deposits
Choose the statement that is incorrect. A. A credit card is an ID card that lets you take out a loan at the instant you buy something, but it is not money. B. A check is an instruction to transfer money, but it is not money. C. While a check is in circulation, the quantity of money does not increase by the amount of the check. D. Deposits are not money because you cannot settle a debt with a deposit.
Deposits are not money because you cannot settle a debt with a deposit.
Choose the correct statement. A. Currency is money and credit cards are money because they are means of payment, but deposits are not money. B. A check is money because while it is in circulation the quantity of money increases by the amount of the check. C. A credit card is money because it allows you to take a loan at the instant you buy something. D. Deposits are money, checks are not money, and credit cards are not money.
Deposits are money, checks are not money, and credit cards are not money.
Choose the statement that is incorrect. A. Liquid assets include overnight loans made by one bank to other banks, U.S. government Treasury bills, and commercial bills. B. Liquid assets have a higher interest rate than securities. C. Liquid assets are the banks' first line of defense if they need reserves. D. Liquid assets can be sold and instantly converted into cash with virtually no risk of loss.
Liquid assets have a higher interest rate than securities.
*Real-time data provided by Federal Reserve Economic Data (FRED), Federal Reserve Bank of Saint Louis. The table shows the quantities of M1, M2, and the monetary base in January 2018. What are the values of the M1 money multiplier and the M2 money multiplier in January 2018?
The M1 money multiplier is : 1.2 The M2 money multiplier is: 4.4
In Australia, the quantity of M1 is $150 billion, the currency drain ratio is 33 percent of deposits and the reserve ratio is 8 percent. The monetary base in Australia is ----million.
The currency drain is 33 percent of bank deposits. So currency is 0.33 times Deposits. The quantity of money = 0.33 times Deposits + Deposits. $150 billion = 0.33 times Deposits + Deposits. Deposits = $112.78 billion. So currency = $150 billionminus$112.78 billion = $37.22 billion. The reserve ratio is 0.08, so the quantity of reserves is 0.08 times $112.78 billion, which is $9.02 billion. So the monetary base equals $37.22 billion + $9.02 billion, which is $46.24 billion.
In the United Kingdom, the currency drain ratio is 38 percent of deposits and the reserve ratio is 2 percent of deposits. The U.K. money multiplier is
The money multiplier is equal to (1 + C/D)/(R/D + C/D), where C/D is the currency drain ratio and R/D is the banks' reserve ratio. So the money multiplier in the United Kingdom is (1 + 0.38) divided by (0.0200 +0.38), which is 3.45.
Choose the statement about the Fed that is incorrect. A. There are 12 Federal Reserve banks and 12 Federal Reserve districts. B. The Board of Governors has seven members, who each serve a 14-year term. C. The policy decisions of the Federal Open Market Committee are implemented each month by a different Federal Reserve Bank. D. The main policy-making organ of the Federal Reserve System is the Federal Open Market Committee.
The policy decisions of the Federal Open Market Committee are implemented each month by a different Federal Reserve Bank.
A bank's attempts to pursue profit can sometimes lead to bank failure because _______.
a combination of all of the above
A central bank is ______. The central bank in the United States is the ______.
a bank's bank and a public authority that regulates a nation's depository institutions and conducts monetary policy; Federal Reserve System
FDIC insurance helps to minimize bank failures and bring more stability to the banking system because _______.
depositors know that money they have deposited with a bank will be repaid
The ratio of reserves to deposits that a bank plans to hold is its ______. If a bank has $10 million in actual reserves and $8 million in desired reserves, then it has ______.
desired reserve ratio; excess reserves
Suppose that Sara withdraws $1,000 from her savings account at the Lucky S&L, keeps $50 in cash, and deposits the balance in her checking account at the Bank of Illinois. The immediate change is ______ in M1 of $1,000 and ______ in M2.
increase; no change
In the short run, the quantity of real money and real GDP are given and the ______ adjusts to achieve equilibrium. In the long run, supply and demand in the loanable funds market determines the ______. In the long run, the price level financial innovation adjusts to make the quantity of real money supplied equal the quantity demanded.
interest rate, real interest rate; price level
Suppose the Fed increases the quantity of money. In the long run, supply and demand in the ______ market determines the real interest rate. The ______ adjusts to make the quantity of real money supplied equal to the quantity demanded.
loanable funds; price level
Money serves as a ______.
medium of exchange, which means that it is generally accepted in exchange for goods and services
The money multiplier is the ratio of the change in the quantity of ______ to the change in the quantity of ______.
money; monetary base
Rapid inflation in Brazil in the early 1990s caused the cruzerio to lose its ability to function as money. Which of the following commodities do you think would most likely have taken the place of the cruzeiro in the Brazilian economy?
packs of cigarettes because they are a good medium of exchange
One of the Fed's main policy tools is ______.
the last resort loan, which means that if a bank is short of reserves, it can borrow from the Fed
An open market operation is ______.
the purchase or sale of securities by the Federal Reserve System in the loanable funds market
When the Fed buys securities from a bank, ______.
the bank's reserves increase but its deposits do not change
Barter ______ a means of payment. When trading on e-Bay, barter _______.
is; is not as efficient as money because barter requires a double coincidence of wants
