Chapter 25 MACRO

The required reserves of a bank equal its ____ by the required reserve ratio

deposit multiplied by

A fractional reserve banking system is one in which banks hold less than 100 percent of ___ as reserves.

deposits

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit, Bank A's reserves immediately increase by

$10,000

Which of the following best describes how banks create money?

Banks create checking account deposits when making loans from excess reserves

The M1 measures of the money supply equals

Currency plus checking account balances plus traveler's checks

The M2 measure of the money supply equals

M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares.

Which of the following is one of the most important benefits of money in an economy?

Money makes exchange easier, leading to more specialization and higher productivity

The largest liability on the balance sheet of most banks is its

checking account and savings account deposits of its customers

To decrease the money supply, the Federal Reserve could

conduct an open market sale of Treasury securities

Which of the following is not counted in M1

credit card balances

A person's wealth

equals the value the person's assets minus his or her liabilities.

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 of their savings account and puts it in their checking account, the M1 will ___ and M2 will ____.

increase, not change

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

increases, increases

A decrease in the reserve requirement ___ bank reserves and ___ the money supply

increases, increases

Banks can make additional loans when required reserves are

less than total reserves

Fiat money has

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

A balance sheet

measures assets, liabilities, and net worth at a given instance in time

Of the 3 primary tools the Federal Reserve uses to conduct monetary policy, the tool used most often is

open market operations

The three main monetary policy tools used by the Federal Reserve to manage the money supply are

open market operations, discount policy, and reserve requirements

The major assets on a bank's balance sheet are its

reserves, loans, and holdings of securities

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

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

Which of the following is not a major function of the Federal Reserves System?

setting income tax rates

The 7 members of the Board of Governors of the Federal Reserve System are appointed by

the President

A bank holds its reserves as ___ and ______________

vault cash, deposits at the federal reserve

Imagine Kristy deposits $10,000 of currently into her checking deposit at bank A and the reserve ratio is 20%. As a result of Kristy's deposit, Bank A's required reserves increase by

$2,000

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of

$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%. 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 loan 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%. 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%. As a result of Kristy's deposit, Bank A's excess reserves increases by

$8,000

If the required reserve ration is 5 percent, then the simple deposit multiplier is

20

The Federal Open Market Committee consists of the seven members of the _______________, the president of the Federal Reserves Bank of New York, and the ___________________.

Federal Reserve's Board of Governors four presidents from the other eleven Federal Reserve Banks

The most liquid measure of money supply is

M1

The discount rate is

The interest rate the Fed charges to banks for loans from the Fed

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

U.S Treasury securities by the Federal Reserves

The statement "My iPhone is worth $700" represent money's function as

a unit of account

Banks can continue to make loans until their

actual reserves equal their required reserves