4.The monetary system- part 2
the money supply is equal to ______ divided by ______ multiplied by B.
(cr + 1); (cr + rr)
A bank balance sheet consists of only the following items: Deposits $1,000 Reserves $100 Securities $400 Debt $500 Loans $2,000 What is the value of bank capital?
+$1,000
The reserve-deposit ratio is determined by:
business policies of banks and the laws regulating banks
In a 100-percent-reserve banking system, banks:
cannot affect the money supply
The minimum amount of owners' equity in a bank mandated by regulators is called a _____ requirement
capital
The value of banks' owners' equity is called bank:
capital
The difference between banks and other financial intermediaries is that only banks have the legal authority to:
create assets that are part of the money supply
Liabilities of banks include:
demand deposits
Bank reserves equal:
deposits that banks have received but have not lent out
The interest rate charged on loans by the Federal Reserve to banks is called the:
discount rate
The use of borrowed funds to supplement existing funds for purposes of investment is called:
leverage
The banking system creates:
liquidity
Assets of banks include:
loans to customers
In a fractional-reserve banking system, banks create money when they:
make loans
High-powered money is another name for:
monetary base
The money supply will increase if the:
monetary base increases
In a system with 100-percent-reserve banking:
no banks can make loans
The ratio of the money supply to the monetary base is called:
the money multiplier
The size of monetary base is determined by:
Federal Reserve
Banks create money in:
a fractional-reserve banking system but not in a 100-percent-reserve banking system
In a system with fractional-reserve banking:
all banks must hold reserves equal to a fraction of their deposits
The monetary base consists of:
currency held by the public, plus reserves held by banks
The preferences of households determine the:
currency-deposit ratio
The money supply will decrease if the:
currency-deposit ratio increases
The most frequently used tool of monetary policy is:
open market operations
The currency-deposit ratio is determined by:
preferences of households about the form of money they wish to hold
In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:
remains the same
If there is no currency and the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve-deposit ratio, then the total money supply is:
reserves divided by rr
The amount of capital that banks are required to hold depends on the:
riskiness of the bank's assets
Financial intermediation is the process of:
transferring funds from savers to borrowers
In the United States, bank reserves consist of:
vault cash; deposits at the Federal Reserve