Chapter 4 The Monetary System: What it Is and How it Works

decrease deposits

In a 100-percent-reserve banking system, a customer withdrawal will:

low leverage ratio

Bank regulators prefer banks to have a:

a method of deferring payment.

Credit cards are:

currency-deposit; decrease

A decrease in the confidence of consumers in the banking system caused by bank failures would cause the _____ ratio to increase and the money multiplier to _____:

dollars of assets

A leverage ratio of 15 means that for every dollar of capital that bank owners have contributed, the bank has 15:

People believed the government's promise that it would redeem government issued paper bills for gold.

According to the text, which is the MOST likely reason that individuals began to hold paper money instead of gold?

increase; decrease

An increase in the interest rate on reserves will MOST likely cause the reserves to _____ and the money supply to _____.

increase

An increase in the number of bank failures will MOST likely cause the currency-deposit ratio to:

200

Assuming no excess reserves are held by banks, suppose that banks hold a reserve-deposit ratio of 25 percent. If people deposit all their currency in the banks and they hold zero currency, then $50 million of deposits would generate a total money supply of _____ million dollars.

increases or decreases in the currency-deposit ratio.

Deposit insurance promote a financial system's stability because it prevents large:

decreased

From 2007 to 2014 the U.S. monetary base increased about 400 percent but M1 increased by only about 100 percent. This means that the money multiplier _____ during this period.

hold more reserves during the financial crisis and economic downturn of this period.

From 2007 to 2014, the U.S. monetary base increased about 400 percent but M1 increased by only about 100 percent. This occurred because banks wanted to:

banks wanted to hold more reserves during the financial crisis and economic downturn of this period.

From 2007 to 2014, the U.S. monetary base increased about 400 percent but M1 increased by only about 100 percent. This occurred because:

400; 100

From 2007 to 2014, the U.S. monetary base increased about _____ percent, while M1 increased about _____ percent.

reserve-deposit; decrease

If bankers become more cautious because of bank failures, they would increase the _____ ratio and the money multiplier would _____.

it is impossible for a customer to deposit funds into a bank and have no effect on the money supply.

If banks hold 100 percent of deposits in reserve, all of the following are true EXCEPT that:

increase; discourage

If the economy improves following the economic downturn of 2007-2008, the U.S. Federal Reserve will MOST likely _____ the interest paid on reserves in order to _____ bank lending.

cannot create money.

In a 100-percent-reserve banking system, banks:

deposits in the banks' vaults or at the Federal Reserve.

In a fractional-reserve banking system, banks keep as reserves a fraction of customer:

Federal Reserve

In the United States, monetary policy is the primary responsibility of the:

neither inflation nor deflation

Money is a perfect store of value when the economy is experiencing:

25 percent

Suppose that a $100 purchase of government bonds by the U.S. Federal Reserve causes a $200 increase in the money supply an economy in which the public holds 50 percent of deposits as currency. Which percentage of bank deposits is held as reserves?

50 percent

Suppose that a $100 purchase of government bonds by the U.S. Federal Reserve causes a $200 increase in the money supply in an economy in which banks hold 25 percent of deposits as reserves. Which percentage of bank deposits is held as currency?

improve

Suppose that the Federal Reserve requires all lending to commercial banks go through the Term Auction Facility (TAF) only. This would _____ the Federal Reserve's ability to control the monetary supply.

$250,000

Suppose that the monetary base is $50,000 and that the reserve-deposit ratio and the currency-deposit ratio are 0 and 0.2, respectively. In this scenario, the money supply will equal:

remain the same.

The Thirty-third National Bank operates in a 100-percent-reserve banking system. If a customer withdraws $1,000 from his checking account, the money supply in the economy will:

the money supply

The quantity of money available in the economy is called:

$1680

Use the balance sheet to answer the question. The reserve-deposit ratio is 20 percent and a customer deposits $100 into American Bank. The value of the bank's loans, once the bank makes the adjustment required to maintain its reserve deposit ratio, will be: (Reserves = $400, Loans = $1600, Deposits = $2000)

All items in M1 are also included in M2.

Which are included in M1, but not included in M2?

U.S. dollar bills

Which is an example of a fiat money?