money economics

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

U.S. Treasury securities by the federal reserve

The portion of ________ that a bank does not loan out or spend on securities is known as ________.

deposits; reserves

Which of the following information about fiat money is false? Fiat money

is backed by gold

The quantity theory of money seeks to explain the connection between money and

prices

Open market operations refer to the buying and selling of ________ by the ________ to control the money supply.

stocks and bonds; Federal Reserve

The Federal Reserve was established in 1913 to

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

Which of the following functions of money would be violated if inflation were high?

store of value

Which of the following describes the degree of control that the Fed has over the money supply?

the Fed has substantial control over the money supply

Which of the following determines the amount of money the banking system as a whole can create?

the quantity of bank reserves

The quantity theory of money was derived from the quantity equation by asserting that

the velocity of money was fixed.

Scenario 14-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A can make a maximum loan of

$8,000

Which of the following is a function that money serves?

- store of value - medium of exchange - unit of account

Which of the following best describes how banks create money?

Banks create checking account deposits when making loans from excess reserves.

Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent. The maximum loan your bank can made as a direct result of your deposit is

$1,800

Suppose Bill Gates deposits $20 million into his checking account at Wells Fargo Bank. If the required reserve ratio is 10 percent, what is the maximum change in money supply?

$180 million

Scenario 14-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of

$50,000

Suppose Warren Buffet withdraws $1 million from his checking account at Chase Bank. If the required reserve ratio is 20 percent, what is the maximum change in deposits in the banking system?

-$5 million

According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be

4%.

The Federal Reserve's narrowest definition of the money supply is

M1

In an economy with ________, there are more prices than in an economy with ________.

barter; money

To increase the money supply, the Federal Reserve could

conduct an open market purchase of Treasury securities.

Silver is an example of a

commodity money

Commodity money

has value independent of its use as money.

The purchase of $1 million of Treasury securities by the Federal Reserve, if there is no change in the quantity of currency, will cause reserves at banks to

increase by $1 million

The purchase of Treasury securities by the Federal Reserve will, in general

increase the quantity of reserves held by banks.

A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate.

increase; increase

A decrease in the reserve requirement ________ bank reserves and ________ the money supply.

increase; increase

If a bank receives a $1 million discount loan from the Federal Reserve, then the bank's reserves will

increases by $1 million

The quantity theory of money predicts that, in the long run, inflation results from the

money supply growing at a faster rate than real GDP.