ECON 10
A bank's largest liability is its
deposits of its customers.
By making exchange ________, money allows for ________ and higher _______
easier; specialization; productivity
A person's wealth
equals the value the person's assets minus his or her liabilities.
A barter economy is an economy where
goods and services are exchanged for other goods and services.
Lowering the discount rate will
increase reserves, encourage banks to make more loans, and increase the money supply.
If the Fed lowers the reserve requirement, then this
increases excess reserves, encourages banks to make more loans, and increases the money supply.
If the Fed buys U.S. Treasury securities, then this
increases reserves, encourages banks to make more loans, and increases the money supply
A commercial bank like Wachovia creates money by
making loans
When a grocery store accepts your $5 bill in exchange for bread and milk, the $5 bill serves as a
medium of exchange.
Which of the following is the most liquid asset?
money
In the United States, currency includes
paper money and coins in circulation.
The quantity theory of money assumes that
the velocity of money is constant.
A bank holds its reserves as ________ and ________.
vault cash; deposits at the Federal Reserve
________ is the profit made by the government from issuing fiat money.
Seigniorage
If the required reserve ratio is RR, the simple deposit multiplier is defined as
1/RR
The quantity equation states that
M × V = P × Y.
Which policy tool allows the Federal Reserve the greatest control over monetary policy?
Open market operations
A major source of inefficiency in barter economies is that they require
a double coincidence of wants in exchange.
A central bank can help stop a bank panic by
acting as a lender of last resort.
Money is
an asset that people are willing to accept in exchange for goods and services.
The primary tool the Federal Reserve uses to increase the money supply is
buying Treasury securities.
M1 includes
currency in circulation, checking account deposits in banks, and holdings of traveler's checks.
If households in the economy decide to take money out of checking account deposits and put this money into savings accounts, this will initially
decrease M1 and not change M2.
Suppose the reserve ratio is RR. Then,
required reserves = RR × deposits.
Which of the following is NOT a major function of the Federal Reserve System?
setting income tax rates
Liabilities are
something a firm owes to someone else.
Assets are
something owned by or owed to a firm.
Net worth is
the difference between a firm's assets and liabilities.
Liquidity is defined as
the ease with which a given asset can be converted to a medium of exchange.
The quantity theory of money implies that the price level will be stable (no inflation or deflation) when the growth rate of the money supply equals
the growth rate of real GDP.