ECO 155 Chapter 16 (Final Review)

A bank's reserve ration is 10% and the bank has $5,000 in deposits. Its reserves amount to

$500

If a bank that desires to hold no excess resereves and has just enough reserves to meet the required reserve ration of 15% recieves a deposit of $600, it has a

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

The money multiplier equals

1/R Where R represents the quantity of reserves in the economy

What is an example of barter

A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet

The existence of money leads to

A greater specialization and to a higher standard of living

Which of the following is a function of money?

A unit of account A store of value A medium of exchange

The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money

Being a medium of exchange

On a bank's T-account, what is part of the banks liabilities

Both deposits made by its customers but not reserves

If the money multiplier is 3 and the FED wants to increase the money supply by $900,000 it could

Buy $300,000 worth of bonds

What is included in what economists call "Money"?

Cash, Stocks and bonds, Real Estate, and all other assets

When prisoners use cigarettes or some other good as money, cigarettes become

Commodity money and function as a unit of account

The primary difference between commodity money and fiat money is that

Commodity money has intrinsic value but fiat money does not

What is a store of value

Currency U.S. Government Bonds Fine art

What increases when the FED makes open market purchases

Currency but not reserves

What is included in both M1 and M2

Demand Deposits Currency Traveler's checks Other checkable deposits

You use U.S. Currency to pay the owner of a restaurant for a delicious meal. The currency

Has no intrinsic value. The exchange is not an example of barter

As the reserve ration decreases, the money multiplier

Increases

When the FED conducts open-market purchases,

It buys treasury securities, which increases the money supply

A bank has a 5% reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement

It has $250 in reserves and $4,750 in loans

When the FED conducts open-market sales,

It sells treasury securities, which decreases the money supply

Demand deposits are included in

M1 and M2

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer,

M1 decreases by $2,100 and M2 stays the same

John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase

M1 increases by $2,500 and M2 stays the same

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Medium of exchange

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

More reserves, so the reserve ratio will rise

Which tool of monetary policy does the Federal Reserve use most often?

Open-market operations

Currency includes

Paper bills and coins, and demand deposits

Ron has a cooking pot - wants a machete Alice has a machete- wants a fishing spear Raymond has a machete- wants a cooking pot Lee has a fishing spear- wants a coconut Which of the following pairs of survivors has a double-coincidence of wants?

Ron with Raymond

What is not included in M1

Savings deposits Small time deposits Money market mutual funds A few minor categories

Any item that people can use to transfer purchasing power from the present to the future is called

Store of value

You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a __________. The laptop's price is posted as $500. The $500 price illustrates money's function as a ______. You use the $500 to purchase the laptop. This transaction illustrates money's function as a __________.

Store of value, unit of account, medium of exchange

Diana tutors Tiago for two hours before his economics final exam. Tiago pays Diana through a direct transfer from his bank on a payment app. Diana then uses her debit card to buy pizza for dinner from the local pizza parlor. This is an example of

The exchange of money facilitating production and trade.

The discount rate is the interest rate that

The interest rate the FED charges banks

In an economy that relies upon barter,

There is no item in the economy that is widely accepted in exchange for goods and services

Economists use the word "money" to refer to

Those assets regularly used to buy goods and services

The measure of the money stock called M1 includes

Wealth held by people in their checking accounts

Banks are able to create money only when

a fraction of deposits are held in reserve

Economists equate money with

assets people use regularly to buy goods and services

Fiat money

has no intrinsic value

Double coincidence of wants

is a hindrance to the allocation of resources when it is required for trade

If an economy uses silver as money, then that economy's money

is commodity money

What is a liability of a bank and an asset of its customers

loans of its customers but not the deposit of its customers

Liquidity refers to

the ease with which an asset is converted to the medium of exchange