chap 8

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

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's reserves immediately increase by

10,000

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's required reserves increase by

2,000

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%.

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

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

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's excess reserves increase by

8,000

The most liquid measure of money supply is

M1

Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic?

Required reserves would increase.

A car dealer sells you a car today in exchange for money in the future. This illustrates which function of money?

Standard of deferred payment

Liquidity is defined as

The ease with which a given asset can be converted to a medium of exchange

The statement "this dell laptop costs 1,200" illustrates which function of money?

Unit of account

In economics, money is defined as

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

To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency, the Federal Reserve could

buy Treasury securities.

To increase the money supply, the Federal Reserve could

conduct an open market purchase of Treasury securities.

Which of the following is not counted in M1?

credit card balances

If a person takes $100 from his/her piggy bank at home and puts it in his/her savings account, then M1 will ________ and M2 will ________.

decrease; not change

A bank's largest liability is its

deposits of its customers.

By making exchange ________, money allows for ________ and higher ________.

easier; specialization; productivity

In an attempt to bring lenders and borrowers together following the financial crisis of 2008, the Federal Reserve made a large amount of new funds available to financial markets. Any of these new funds that were obtained by banks but were not loaned out would be classified as ________ of the banks.

excess reserves

Commodity money

has value independent of its use as money.

There is a strong link between changes in the money supply and inflation

in the long run, but not in the short run.

Lowering the discount rate will

increase reserves, encourage banks to make more loans, and increase the money supply.

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

increase the quantity of reserves held by banks.

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

If the Fed lowers the reserve requirement, then this

increases excess reserves, encourages banks to make more loans, and increases the money supply.

Which of the following is not a function of the Federal Reserve System, or the "Fed"?

insuring deposits in the banking system

If households choose to take some fraction of each check they deposit and hold it as currency, then the simple deposit multiplier ________ the real-world multiplier.

is greater than

Fiat money has

little to no intrinsic value and is authorized by the central bank or governmental body.

You earn $500 a month, currently have $200 in currency, $100 in your checking account, $2,000 in your savings accounts, $3,000 worth of illiquid assets and $1,000 of debt. Using the M1 measure of money, you have

money = $300, annual income = $6,000, and wealth = $4,300

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.

If a person withdraws $500 from his/her checking account and holds it as currency, then M1 will ________ and M2 will ________.

not change; not change

In 2008, the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP) by

providing funds to banks in exchange for stock.

If the central bank can act as a lender of last resort during a banking panic, banks can

satisfy customer withdrawal needs and eventually restore the public's faith in the banking system.

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

securitization

A farm worker gets paid today in money,but plans to spend the money next week. This illustrates which function of money?

store of value

If whole tomatoes were money, which of the following functions of money would be the hardest for tomatoes to satisfy?

store of value

Hyperinflation can be caused by

the government selling bonds to the central bank.

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

the velocity of money was fixed.

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