Economics

A commercial bank has checkable-deposit liabilities of $50,000 and a reserve ratio of 20 percent. What is the amount of required reserves?

$10,000 (Required reserves = $50,000 * .20 = $10,000)

A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be an example of:

liability

A $70 price tag on a sweater in a department store window is an example of money functioning as a:

unit of account

In a fractional reserve banking system

banks can create money through the lending process

Assume the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the public, then the money supply will immediately:

increase by $80 million, and the maximum money-lending potential of the commercial banking system will increase by $400 million

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, while the required reserve ratio is 10 percent. The excess reserves of the bank are:

$100,000 Excess reserves = Actual reserves - Required reserves. Required reserves = Required reserve ratio * Bank's checkable-deposit liabilities: .10 * $9,000,000 = $900,000. $1,000,000 - $900,000 = $100,000.

A bank has excess reserves of $5000 and deposit liabilities of $50,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, this bank can lend a maximum of:

$2500

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of:

$75,000

Factors in the financial crisis of 2007-2008?

-Mortgage default crisis -Securitization -Subprime mortgage loans

Which of the following would be considered to be the most liquid?

Checkable deposits

Which is the most important function of the Federal Reserve System?

Controlling the money supply

Michelle transfers $4000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?

M1 increases and M2 stays the same

Which one of the following is a tool of monetary policy for altering the reserves of commercial banks?

Open-market operations

Members of the Federal Reserve Board of Governors are:

appointed by the president to staggered 14-year terms.

Which of the following statements is true?

The Federal Reserve does not set the Federal funds rate, but it influences it through the use of open-market operations

Which would provide the most accurate description of events when monetary authorities increase the size of commercial banks' excess reserves?

The money supply is increased, which decreases the interest rate and causes investment spending, output, and employment to increase

Assume the economy faces high unemployment but stable prices. Which combination of government policies is most likely to reduce unemployment?

The purchase of government securities in the open market and an increase in government spending

Checkable deposits are money because they are:

acceptable in exchange

Holding the money deposits of businesses and households and making loans to the public are the basic functions of:

commercial banks and thrift institutions

U.S. currency has value primarily because it

s relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services

The primary responsibility of the Federal Open Market Committee (FOMC) is:

setting the Fed's monetary policy and directing the buying and selling of government securities.