Macro Chapter 10

The required reserves of a bank equal its ________ the required reserve ratio.

deposits multiplied by

A bank's largest liability is its

deposits of its customers.

Among potential stores of value, money

has the advantage of being the most liquid asset.

If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will ________ and M2 will ________.

increase; not change

Credit card balances are

not part of the money supply.

Dollar bills in the modern economy serve as money because

people have confidence that others will accept them as money.

When a financial asset is first sold, the sale takes place in the ________ market, and subsequent sales take place in the ________ market.

primary; secondary

Assets: Reserves +$7,000 Deposits +$50,000 Liabilities: Loans +$46,000 Net Worth +$3,000 Consider the above simplified balance sheet for a bank. If the required reserve ratio is 10 percent, the bank can make a maximum loan of

$2,000.

Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your back yard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of

$5,000.

If bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits, the money multiplier will increase.

False

The Fed has complete control over the money supply.

False

In an economy with money, as opposed to barter, people are more likely to specialize in the production of goods and services.

True

Most U.S. currency held outside the U.S. banking system is held by foreigners.

True

Open market operations refer to the purchase or sale of ________ to control the money supply.

U.S. Treasury securities by the Federal Reserve

A central bank can help stop a bank panic by

acting as a lender of last resort.

In economics, money is defined as

any asset people generally accept in exchange for goods and services.

The process of bundling loans together and buying and selling these bundles in a secondary financial market is called

securitization.

If the Federal Open Market Committee wants to decrease the money supply through open market operations it will

sell U.S. Treasury Securities.

Which of the following tools of monetary policy is used least often?

setting the required reserve ratio

The Federal Reserve was established in 1913 to

stop bank panics by acting as a lender of last resort.