Chapters 16,

Bank regulators impose capital requirements in order to

ensure banks can pay off depositors.

If the Federal Open Market Committee decides to decrease the money supply, it will

sell government bonds

To decrease the money supply, the Fed can

sell government bonds or increase the discount rate.

To decrease the money supply, the Fed could

sell government bonds, increase the discount rate, and increase the reserve requirement

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a

$510 increase in excess reserves and a $90 increase in required reserves.

Given the following information, what are the values of M1 and M2?Miscellaneous categories in M2

M1 = $680 billion, M2 = $2,800 billion.

If the reserve ratio is 5 percent, then $600 of additional reserves can create up to

$12,000 of new money

The manager of the bank where you work tells you that the bank has $300 million in deposits and $255 million dollars in loans. If the reserve requirement is 8.5 percent, how much is the bank holding in excess reserves?

$19.5 million

In the United States, currency holdings per person average about

$4,490; one explanation for this relatively large amount is that criminals probably prefer currency as a medium of exchange.

A bank's reserve ratio is 5 percent and the bank has $2,280 in reserve. Its deposits amount to

$45,600

Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. What is the reserve requirement?

10%

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

15/400

Bank runs

are a problem because banks only hold a fraction of deposits as reserves.

If the reserve ratio is 15 percent, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $25.5 million worth of bonds to the public, bank reserves

decrease by $25.5 million and the money supply eventually decreases by $170 million.

In a fractional-reserve banking system, an increase in reserve requirements

decreases both the money multiplier and the money supply.

If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would

fall from 10 to 5

If the public decides to hold less currency and more deposits in banks, bank reserves

increase and the money supply eventually increases.

When a bank loans out $1,000, the money supply

increases

When there is a reserve requirement, banks

may hold more than, but not less than, the required quantity of reserves.

The measure of the money stock called M1 includes

wealth held by people in their checking accounts.