Econ exam chapter 21
Store of value example
Keeping 6 ounces of gold in your safety deposit box at the bank for emergencies
in 100-percent-reserve
M1 would not change
A decrease in reserve requirements will increase the money supply?
True
Purchasing books with cash is using money as a medium of exchange?
True
An increase in reserve requirements causes
an increase in reserve ratio, lowers the money multiplier, and decreases the money supply
Store of value
any item that people can use to transfer purchasing power from present to future (ex: money in piggy bank)
Leverage ratio
assets(everything on left)/bank capital(owners equity)
To increase the money supply, the feds could
auction more loans to the bank
M1
currency+demand deposits+travelers checks+checkable deposits (wealth held by the people in their checking accounts) a measure of money stock
an Open market sale..
decrease the number of dollars in the hands of the public but increases the number of bonds in the hands of the public
Set of items that serve as media of exchange clearly includes
demand deposits
Depositing $100 into a demand deposit at a bank..
does not change the money supply
Central bank
economist call this an institution designed to oversee the banking system and regulate the quantity of money in the economy
M2
everything in M1 plus savings deposits, small time deposits, money market mutual finds, and a few minor categories
If the people decide to hole more currency relative to deposits, the money supply..
falls. The Fed could lesson the impact of this by buying Treasury bonds
Lowering the discount rate will..
increase money supply, which will be larger the smaller the reserve ratio
Increase in the interest rates on reserves will..
increase the money supply
If reserve requirements are increased, then reserve ratio..
increases, the money multiplier decreases, and the money supply decreases
The feds can reduce the federal funds rate by..
increasing the money supply. To increase the money supply it could buy bonds
The Feds selling bonds..
may increase the federal funds, decrease money supply, and decrease banks reserves
Lending out deposits..
money supply increases
If banks hold more excess reserves then..
money supply will fall
Commodity money
money with intrinsic value, gold coins
Fiat money
money without intrinsic value, paper dollars
When the feds purchase $1000 worth of gov bonds from the public, the money supply eventually increases by
more than $1000
If banks decide to hold a smaller part of their deposits as excess reserves their money supply will..
not change
Monetary policy affects employment
only in the short run
Currency includes
paper bills and coins
The Fed increases reserves if it conducts open market..
purchases or auctions term credit
In a fractional-reserve banking system, with no excess reserves, if the central bank buys $100 million worth of bonds
reserves increase by $100 and the money supply increase by more than $100
If federal funds are low the Feds could increase the rate by..
selling bonds. This selling would reduce reserves
The federal reserve
serves as a lender of last resort
Reserve requirements
the amount of reserves banks much hold against deposits
Liquidity
the ease with which an asset can be converted into the economy's medium of exchange
When the Feds sells assets from its portfolio to the public with the intent of changing the money supply..
those assets are gov bonds and the feds are selling them to decrease money supply