Econ 103 Midterm Study Chapter 4

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

$800 billion

The interest rate charged on loans by the Federal Reserve to banks is called the:

discount rate

In a fractional-reserve banking system, banks create money because:

each dollar of reserve generates many dollars of demand deposits

If many banks fail, this is likely to:

increase the ratio of currency to deposits

Assets of banks include:

loans to customers

In the United States, monetary policy is controlled by:

the Federal Reserve

Two ways for banks to borrow reserves from the Federal Reserve are through:

the discount window and the Term Auction Facility

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant the monetary base (B) is constant, then:

the money supply decreases

If the ratio of reserves to deposits (rr) increases, while the ratio of currency to deposits (cr) is constant and the monetary base (B) is constant, the:

the money supply decreases

(Table: Bank Balance Sheet) Based on the table, what is the reserve ratio at the bank?

10 percent

If the currency-deposit ratios equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

2.5

(Table: Bank Balance Sheet) Based on the table, owner's equity will fall to zero if loan defaults reduce the value of total assets by ____ percent

20

The central bank in the United States is the:

Federal Reserve

The use of borrowed funds to supplement existing funds for purposes of investment is called:

Leverage

Money market mutual fund shares are included in:

M2 only

To make a trade in a barter economy requires:

a double coincidence of wants

(Table: Bank Balance Sheets) Based on the table, what is the leverage ratio at the bank?

5

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals:

$150 billion

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals:

$600 billion

If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money supply is equal to ______ divided by ______ multiplied by B.

(cr + 1); (cr + rr)

In a country on a gold standard, the quantity of money is determined by the:

amount of gold

To increase the money supply, the Federal Reserve

buys government bonds

The value of banks' owners' equity is called bank:

capital

If many banks fail, this is likely to:

cause surviving banks to raise their ratios of reserves to deposits

Demand deposits are funds held in:

checking accounts

In prisoner of war camps during World War II, the "currency" used was:

cigarettes

A country that is on a gold standard primarily uses:

commodity money

To increase the monetary base, the Fed can:

conduct open-market purchases

Payment is deferred by using _____, but immediate access to funds occurs when using _____

credit cards; debit cards

The preferences of households determine the:

currency-deposit ratio

High-powered money is another name for:

the monetary base

The ratio of money supply to the monetary base is called:

the money multiplier

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect _____ to increase.

the money supply

When the fed makes an open-market sale, it:

decrease the monetary base (B)

When the Fed decrease the interest rate paid on reserves, it:

decrease the reserve-deposit ratio (rr)

Liabilities of banks include:

demand deposits

Bank reserves equal:

deposits that banks have received but have not lent out

If the reserve-deposit ratio is less than one, and the monetary base increases by $1 million, then the money supply will:

increase by more than $1 million

In a system of 100-percent-reserve banking:

no banks can make loans

The currency-deposit ratio is determined by:

preferences of households about the form of money they wish to hold

For borrowing from the discount window, the Fed sets the ____ of borrowing, compared to borrowing using the Term Auction Facility, where the Fed sets the ____ of borrowing.

price; quantity

When the Federal Reserve conducts an open-market purchase, it buys bonds from the:

public

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

remains the same

A bank balance sheets consists of the following items: Deposits $1000 Reserves $100 Securities $400 Debt $500 Loans $2,000 What is the value of bank capital?

+$1,000

The difference between banks and other financial intermediaries is that only banks have the legal authority to:

create assets that are part of the money supply

in 1932, the U.S. government impose a two-cent tax on checks written on deposits in bank accounts. This cation would be expected to ___ the currency-deposit ratio and ___ the money supply

increase; decrease

When the Fed increase the interest rate paid on reserves, it:

increases the reserve-deposit ratio (rr)

If there is no currency an the proceeds of all loans are deposited somewhere in the banking system and if rr denotes the reserve-deposit ratio, then the total money supply is:

reserves divided by rr

When the Fed decreases the interest rate paid on reserves, if the ratio of currency to deposits decreases also while the monetary base in constant, then:

the money supply increases

If monetary base fell and the currency-deposit ratio rose bu the reserve-deposit ratio remained the same, then:

the money supply would fall, but not by as much as it would have fallen if the reserve-deposit ratio had risen

The size of monetary base is determined by:

The Federal Reserve

Excess reserves are reserves that banks keep:

above the legally required amount

Checking account balances that are linked to debit cards are included in:

both M1 and M2

Money that has no value other than as money is called ____ money

fiat

The more funds that the Federal Reserve makes available for banks to borrow through the Term Auction Facility, the _____ the monetary base and the _____ the money supply

greater; greater

People use money as a store of value when they:

hole money to transfer purchasing power into the future

When the Fed increases the discount rate, it:

is likely to decrease the monetary base (B)

In the United States, the money supply is determined:

jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held

The quantitative easing policy conducted by the Federal Reserve between 2007 and 2011 resulted in a large increase in the monetary base that was partially offset by:

large; smaller

The use of fei as money on the island of Yap illustrates the idea of money as a social convention because:

legal claim to a fei never seen by current generations was accepted in transactions

The banking system creates:

liquidity

To increase the money multiplier, the Fed can:

lower the interest rate paid on reserves

Ina fractional-reserve banking system, banks create money when they:

make loans

Credit cards:

may affect the demand for money

The money supply will increase if the:

monetary base increases

Open-market operations change the _____; changes in interest rate paid on reserves change the ____; and changes in the discount rate change the_____

monetary base; money multiplier; monetary base

Compared to typical open-market operations, when pursuing quantitative easing, Federal Reserve purchases tended to be ____ securities

riskier and longer-term

The amount of capital that banks are required to hold depends on the:

riskiness of the bank's assets

Between August 1929 and March 1933, the money supply fell 28 percent. At that time the monetary base ___ and the currency-deposit and reserve-deposit ratios both ___

rose; rose

To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve cold conduct open-market ___ and ___ the interest rate paid on bank reserves

sales; raise

To reduce the money supply, the Federal Reserve:

sells government bonds

The quantity of money in the United States is essentially controlled by the:

Federal Reserve

When banks borrow through the Term Auction Facility, the price of borrowing is determined by:

a competitive bidding process

An important factor in the evolution of commodity money to fiat money is:

a desire to reduce transaction cost

In a system with fraction reserve banking:

all banks must hold reserves equal to a fraction of their deposits

Economists use the term money to refer to:

assets used for transactions

The reserve-deposit ratio is determined by:

business policies of banks and the laws regulating banks

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

cannot affect the money supply

The minimum amount of owner's equity in a bank mandated by regulators is called a _____ requirement

capital

The monetary base consists of:

currency held by the public, plus reserves held by the banks

The money supply consists of:

currency plus demand deposits

The money supply will decrease if the:

currency-deposit ratio increases

If the Federal Reserve wishes to increase the money supply, it should:

decrease the discount rate

Macroeconomists call assets used to make transactions:

money

Money's liquidity refers to the ease with which:

money can be converted into goods and services

All of the following assets are included in the M1 except:

money market deposit accounts

If the Federal Reserve increase the interest rate paid on reserves, banks will tend to hold ___ excess reserves, which will ____ the money multiplier

more; decrease

Credit card balances are included in:

neither M1 no M2

Banks create money in:

a fractional-reserve banking system but not in a 100-percent-reserve banking system

Currency equals:

the sum of coins and paper money

Open-market operations are:

Federal Reserve purchases and sales of government bonds

The quantitative easing policy conducted by the Federal Reserve between 2007 and 2011 resulted in a large increase in the monetary base that was partially offset by:

a significant increase in the reserve-deposit ratio

Quantitative easing is most closely akin to:

open-market operations

The most frequently used tool of monetary policy is:

open-market operations

Financial intermediation is the process of:

transferring funds from savers to borrowers

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a:

unit of account

People use money as a unit of account when they:

use money as a measure of economic transactions

People use money as a medium of exchange when they:

use money to buy goods and services

In the United States, bank reserves consist of:

vault cash and deposits at the Federal Reserve

All of the following are considered major functions of money except as a:

way to display wealth