Ch 14
What are the three basic functions of money?
A medium of exchange, a unit of account, and store of value
The chairperson of the Federal Reserve Board is selected by the
US president and confirmed by the senate
Excess reserves are equal to
actual reserves minus required reserves
Subprime mortgage loans were one of the facts that exacerbabted the financial crisis of 2007-2008 because they resulted in
an increase in demand for housing and a rapid increase in home prices that was unsustainable
Excess reserves
can be lent out, increasing the money supply
The major claims on a commercial bank's balance sheet are
checkable deposits
The major categories of firms that make up the US financial services industry include
commercial banks, thrifts, insurance companies, and securities related firms
The Federal Reserve Board of Governors
coordinates policies for the 12 Federal Reserve Banks
Between 1980 and 2007, the bank and thrift share of the financial services market
declined substantially
A single commercial bank can safely lend only an amount equal to its excess reserves, but the commercial banking system can lend by a multiple of its excess reserves because
one bank loses reserves to other banks, but the system does not
The face value of a coin is greater than its intrinsic value because
otherwise people would sell it for its intrinsic value
An asset on a bank's balance sheet is something
owned by the bank, whereas a liability is something owed by the bank
In runaway inflation
people revert to barter because money fails as a medium of exchange
Mortgage backed securities were one of the factors that exacerbated the financial crisis of 07-08 becuase they
reduced the risk exposure, or cost, that banks faced after issuing these subprime loans, and encouraged thi type of lending
The Federal Reserve requires that commercial banks have reserves because
reserves provide the Fed a means of controlling the money supply
The major assets on a commercial bank's balance sheet include
reserves, securities, loans, and vault cash
The categories of financial firms have become more blurred as these firms are trying to
retain their market share
The Federal Open Market Committee (FOMC) includes
the Board of Governors members and 5 of the 12 presidents of the Federal Reserve banks, of which he president of the NY fed has a permanent voting seat
When economists say that the Federal Reserve Banks are central banks, this means that
the policies are coordinated by the Federal Reserve Board of the Governors
When economists say that the Federal Reserve Banks are quasi-public banks, this means that
they are a blend of private ownership and public control
When economists say that the Federal Reserve Banks are banker's banks, this means that
they perform the same functions for banks as banks perform for the public
Suppose that Serendipity Bank has excess reserves of $10,000 and checkable deposits of $150,000. If the reserve ratio is 1%, what is the size of the bank's actual reserves?
$25,000
What is the monetary multiplier?
1/ reserve ratio
Which two of the following financial institutions offer checkable deposits included within the M1 money supply
Commercial banks, thrift institutions
What is the largest componenet of M1?
Currency
Which of the componenets of M1 is legal tender
Currency
Which of the following items is not included in either M1 or M2
Currency held by banks
What are the components of the M1 money supply?
Currency in circulation and checkable deposits
Which of the following are included in the functions of the Federal Reserve System?
Issuing Federal Reserve Notes, providing for check collection, and supervising the operation of banks
What near-moneys are included in M2 money supply?
Noncheckable savings deposits, money market deposit accouonts, smll time depositis, and money market mutual fund balances
TARP is the
Troubled Asset Relief Program funded with general tax revenue and the issuance of government debt
A balance sheet must always balance because the sum of
assets must equal the sum of liabilities plus net worth
Compared to a decade ago, there are
fewer bank fims
Government loans create moral hazard because there is a tendency
for financial services firms to take on greater risks because they assume they are at leas partially insured against losses
The purchasing power of the dollar is
inversely related to the price level
The monetary multiplier is
inversely related to the reserve ratio
American International Group (AIG) exacerbated the financial crisis of 07-08 by
issuing billions of dollars of collateralized default swaps that had embedded mortgage-loan risk
The Federal Open Market Committee (FOMC)
votes on the Fed's monetary policy and directs the purchase or sale of government securities
The financial crisis of 2007-2008 was excacerbated by subprime mortgage loans. These loans were made to borrowers
who were more likely to default on their loans
