Macro Ch 14 Part 1

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If the bank of Waterloo receives a​ $10,000 deposit and the reserve requirement is 10​ percent, how much can the bank loan​ out? (Assume that before the deposit this bank is just meeting its legal reserve​ requirement.)

$9,000

f the required reserve ratio is RR​, the simple deposit multiplier is defined as..

1/RR

Most payments in the United States for goods and services are made using...

checking account deposits

Which of the following is counted as a liability for a​ bank?

customer deposits

If a person takes​ $100 from​ his/her piggy bank at home and puts it in​ his/her savings​ account, then M1 will​ ________ and M2 will​ ________.

decrease; not change

Money's most narrow definition is based on its function as a...

medium of exchange

If you transfer all of your currency to your checking​ account, then​ initially, M1 will​ ________ and M2 will​ ________.

not change; not change

Credit card balances are...

not part of the money supply

If banks do not loan out all their excess​ reserves, then the real world multiplier is

smaller than 1/RR

Liquidity is defined as...

the ease with which a given asset can be converted to a medium of exchange

Reserves of a bank equal its...

vault cash plus deposits with the federal reserve

Suppose the reserve ratio is RR. ​Then,...

required reserves= RR x Deposits

The major assets on a​ bank's balance sheet are its...

reserves, loans, and holdings of securities

When banks gain​ ________, they can​ ________ their​ loans; and the money supply​ ________.

reserves; increase expands

M2 includes M1 plus...

savings accounts balances, money market deposits accounts in banks, small-denomination time deposits, and non institutional money market fund shares

​If, during a deposit​ expansion, not all money gets redeposited into the banking system and some leaks out as​ currency, then the real world multiplier is...

smaller than 1/RR

A car dealer sells you a car today in exchange for money in the future. This illustrates which function of​ money?

standard of deferred payment

A farm worker gets paid today in​ money, but plans to spend the money next week. This illustrates which function of​ money?

store of value

If whole tomatoes were​ money, which of the following functions of money would be the hardest for tomatoes to​ satisfy?

store of value

Which of the following determines the amount of money the banking system as a whole can​ create?

the quantity of bank reserves

The major shortcoming of a barter economy is...

the requirement of a double coincidence of wants.

The more excess reserves banks choose to​ keep,...

the smaller the deposit multiplier

A​ bank's assets are...

things owned by or owed to the bank

A​ bank's liabilities are...

things the bank owes to someone else

A cash withdrawal reduces​ deposits, reserves and excess reserves in the banking system....

true

If banks receive a greater amount of reserves and do not hold all of these reserves as excess​ reserves, the money supply expands.

true

In an economy with​ money, as opposed to​ barter, people are more likely to specialize in the production of goods and services...

true

Money will fail to serve as a medium of exchange if it ceases to be a store of value...

true

Most U.S. currency held outside the U.S. banking system is held by foreigners...

true

The statement​ "This Dell laptop costs​ $1,200" illustrates which function of​ money?

unit of account

Which of the following is a function that money​ serves?

unit of account; medium of exchange; and store of value

Commodity money is a good...

used as money that also has value independent of its use as money

Soldiers in a World War II​ prisoner-of-war camp...

used cigarettes as money.

Bank reserves include...

vault cash and deposits with the Federal reserve

A bank holds its reserves as​ ________ and​ ________....

vault cash; despots at the federal reserveq

If households and firms decide to hold less of their money in checking account deposits and more in​ currency, then initially the money supply...

will not change

Assets Reserves ​ +$8,000 Liabilities Deposits ​ + $8,000 Refer to the table above. Suppose a transaction changes a​ bank's balance sheet as indicated in the following Tminus−​account, and the required reserve ratio is 10 percent. As a result of the​ transaction, the bank can make a maximum loan of...

$7,200

Imagine that Kristy deposits​ $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is​ 20%. Refer to the scenario above. As a result of​ Kristy's deposit, Bank A can make a maximum loan of

$8,000

Imagine that Kristy deposits​ $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is​ 20%. Refer to the scenario above. As a result of​ Kristy's deposit, Bank​ A's excess reserves increase by

$8,000

Suppose Warren Buffet withdraws​ $1 million from his checking account at Chase Bank. If the reserve requirement ratio is​ .2, what is the maximum change in deposits in the banking​ system?

-$5 mil

Assets Reserves​ + $1,000 Liabilities Deposits​ + $1,000 At this​ point, what percentage of the new deposits does Wells Fargo hold in​ reserves

100%

If the required reserve ratio is 5​ percent, then the simple deposit multiplier is..

20

If the reserve requirement ratio ​(RR​) is​ 0.20, the simple deposit multiplier is...

5

According to the U.S. Treasury,...

firms do not have to accept cash as payment for goods and services.

When you open a checking account at Bank of​ America, Bank of America...

has more reserves and more excess reserves

Among potential stores of​ value, money...

has the advantage of being the most liquid asset

Which of the following is one of the most important benefits of money in an​ economy?

money makes exchange easier, leading to more specialization and higher productivity.

You earn​ $500 a​ month, currently have​ $200 in​ currency, $100 in your checking​ account, $2,000 in your savings​ accounts, $3,000 worth of illiquid assets and​ $1,000 of debt. You have...

money=$300, annual income=$6000 and wealth=$4300

If a person withdraws​ $500 from​ his/her checking account and holds it as​ currency, then M1 will​ ________ and M2 will​ ________.

not change; not change

If credit card balances rise in the​ economy, then M1 will​ ________ and M2 will​ ________.

not change; not change

Economists estimate that​ ________ of U.S. currency is outside the United States and held primarily by​ ________....

over half; households and firms in countries where there is little confidence in the local currency.

In the United​ States, currency includes...

paper money and coins in circulation

Dollar bills in the modern economy serve as money because...

people have confidence that others will accept them as money.

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

A cash withdrawal from the banking system...

decreases excess reserves; decreases reserves; decreases deposits

The required reserves of a bank equal its​ ________ the required reserve ratio....

deposits multiplied by

A​ bank's largest liability is its...

deposits of its customers

A bank is legally required to hold a fraction of its​ ________ as​ ________.

deposits; required reserves

A​ person's wealth...

equals the value the person's assets minus his or her liabilities

Suppose you deposit​ $2,000 into Bank of America and that the required reserve ratio is 10 percent. How does this affect the​ bank's balance​ sheet?

excess reserves rise by $1,800

f bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against​ deposits, the money multiplier will increase.

false

Paper currency is a ...

fiat money

A barter economy is an economy where ...

goods and services are exchanged for other goods and services.

Commodity money...

has a value independent of its use as money.

Fiat money...

has no or very little value except as money

Which of the following about fiat money is​ false? Fiat money...

is backed by gold

If households choose to take some fraction of each check they deposit and hold it as​ currency, then the simple deposit multiplier​ ___________ the real world multiplier....

is greater than

People hold money as opposed to financial assets because money...

is perfectly liquid

Which of the following is false about gold as money?

it is of standardized quality

Which is not one of the criteria necessary for a commodity to make a suitable medium of​ exchange?

it should have intrinsic value

Which of the following criteria would make gold a poor medium of​ exchange?

its value depends on its purity, and its purity is not east to visibly identify

Suppose the reserve requirement ratio is .20. If banks are conservative and choose not to loan all of their excess​ reserves, the real world deposit multiplier is ...

less than 5

Banks can make additional loans when required reserves are...

less than total reserves

Which of the following is the most liquid​ asset?

money

The​ ________ the reserve​ ratio, the​ ________ the money multiplier.

smaller;larger

Which of the following functions of money would be violated if inflation were​ high?

store of value

A major source of inefficiency in barter economies is that they require...

a double coincidence of wants in exchange.

The most liquid measure of money supply is...

M1

By making exchange​ ________, money allows for​ ________ and higher​ ________.

easier; specialization; productivity

Suppose that you deposit​ $2,000 in your bank and the required reserve ratio is 10 percent. The maximum loan your bank can made as a direct result of your deposit is...

$1,800

Imagine that Kristy deposits​ $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is​ 20%. Refer to the scenario above. If the required reserve ratio is 10​ percent, an increase in bank reserves of​ $1,000 can support an increase in checking account deposits​ (including the original​ deposit) in the banking system as a whole of up to

$10,000

magine that Kristy deposits​ $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is​ 20%. Refer to the scenario above. As a result of​ Kristy's deposit, Bank​ A's reserves immediately increase by

$10,000

Suppose Bill Gates deposits​ $20 million into his checking account at Wells Fargo Bank. If the reserve requirement ratio is 0.1 what is the maximum change in money​ supply?

$180 mil

Assets Reserves ​ +$7,000 Loans ​ +$46,000 Liabilities Deposits ​ $50,000 Net Worth ​ $3,000 Refer to the table above. Consider the following simplified balance sheet for a bank. If the required reserve ratio is 10​ percent, the bank can make a maximum loan of...

$2,000

Imagine that Kristy deposits​ $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is​ 20%. Refer to the scenario above. As a result of​ Kristy's deposit, Bank​ A's required reserves increase by

$2,000

Currency- $1,000 Checking Account Balance-$2,000 Savings Account Balance-$5,000 Small-Denomination Time Deposits-$6,000 Non institutional Money Market Fund Shares- $7,000 Consider the information in the scenario above for a simple economy. Assume there are no​ traveler's checks. M2 in this simple economy equals...

$21,000

Assets Reserves ​ +$4,000 Liabilities Deposits ​ + $4,000 Refer to the table above. Suppose a transaction changes a​ bank's balance sheet as indicated in the Tminus−​account, and the required reserve ratio is 10 percent. As a result of the​ transaction, the bank has excess reserves of...

$3,600

Suppose you withdraw​ $500 from your checking account and bury it in a jar in your backyard. If the required reserve ratio is 10​ percent, checking account deposits in the banking system as a whole would drop up by a maximum of...

$5,000

Imagine that Kristy deposits​ $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is​ 20%. Refer to the scenario above. As a result of​ Kristy's deposit, checking account deposits in the banking system as a whole​ (including the original​ deposit) could eventually increase up to a maximum of

$50,000

With a required reserve ratio of 20​ percent, an increase in reserves of​ $10,000 could lead to a maximum increase in checking account deposits in the entire banking system of...

$50,000

The amount of national income in an economy equals the money supply in an economy...

False

The M2 measure of the money supply equals...

M1 plus savings accounts balances plus small-denomination time deposits plus non institutional money market fund shares

If the Federal Reserve decided to include virtual money like Bitcoins in its measure of the money​ supply, what would be the effect on M1 or​ M2?

M1 would rise

Because Federal Reserve Notes​ (paper currency) are legal​ tender, ...

U.S. creditors must accept them in payment of debts

Suppose you decide to borrow money from an online​ peer-to-peer lending site. On the​ T-account for the lending site for this​ transaction, the funds from the investor who chooses to fund the loan would be classified as​ ________, and the loan made to you would be classified as​ ________....

a liability; an asset

Following the 2007minus−2009 financial​ crisis, many people feared that Greece might leave the euro and resume using the drachma. If that​ happened, the drachma might be worth less than the euro. When using fiat money like the​ drachma, the key to acceptance is that households and firms have confidence that if they accept drachma in exchange for goods and​ services, the drachma will not lose much value during the time they hold them. If sellers were not willing to accept the drachma in exchange for goods and​ services, the drachma would not serve as

a medium of exchange

The​ statement, "My iPhone is worth​ $300" represents​ money's function as...

a unit of account

In an attempt to bring lenders and borrowers together following the financial crisis of​ 2008, the Federal Reserve made a large amount of new funds available to financial markets. The Fed expected this to increase the money supply and the total amount of lending because of the multiplier​ effect, in which a given amount of new reserves results in a multiple increase in...

bank deposits

Which of the following best describes how banks create​ money?

banks create checking account deposits when making loans from excess reserves.

Economies where goods and services are traded directly for other goods and services are called​ ________ economies.

barter

In an economy with​ ________, there are more prices than in an economy with​ ________.

barter; money

Fiat money is generally issued by...

central banks

Fiat money has...

little to no intrinsic value and is authorized by the central bank or governmental body.

Typically, a​ bank's largest asset is its...

loans

Which of the following is an asset for a​ bank?

loans

A commercial bank like Comerica creates money by...

making loans

Which of the following assets is most​ liquid?

money

If households in the economy decide to take money out of checking account deposits and hold it as​ currency, this will initially...

not change M1 and not change M2

Net worth is...

the difference between a firm's assets and liabilities

The largest proportion of M1 is made up of...

checking account deposits

The largest liability on the balance sheet of most banks is its...

checking accounts and savings accounts deposits of its customers

During World War​ II, prisoners of war used​ ________ as money....

cigarettes

A good can serve as money only if...

citizens accept the good as a means of payment for transactions and debts

Silver is an example of a...

commodity money

gold is an example of

commodity money

Which of the following is not counted in​ M1?

credit cards balances

M1 includes...

currency in circulation, checking account deposits in banks, and holdings of traveler's checks

The M1 measure of the money supply equals..

currency plus checking account balances plus traveler's checks

The simple deposit multiplier is the ratio of the amount of...

deposits created by the banks to the amount of new reserves

The portion of​ ________ that a bank does not loan out or spend on securities is known as​ ________.

deposits; reserves

In an attempt to bring lenders and borrowers together following the financial crisis of​ 2008, the Federal Reserve made a large amount of new funds available to financial markets. Any of these new funds that are loaned out by banks would be classified as​ ________ of the banks....

excess reserves

Which of the following is a true​ statement?

excess reserves=actual reserves-required reserves

An economy without money would have no exchanges of goods and services...

false

A​ person's wealth is the same as his income...

false

Economies cannot function without money...

false

If gold is used as money in an​ economy, the money supply is easy to control...

false

Innovations, including new products and​ services, in financial markets and institutions have made the job of defining the money supply easier....

false

Liquidity increases as we move from the M1 to the M2 definition of the money supply...

false

The supply of money is easier to control with commodity money than it is with fiat money...

false

The​ real-world money multiplier is greater than the simple money multiplier left parenthesis StartFraction 1 Over RR EndFraction right parenthesis 1 RR.

false

Your checking account balance is included in your​ bank's assets.

false

The Federal​ Reserve's narrowest definition of the money supply is...

M1

The narrowest official definition of the money supply is...

M1

Your roommate argues that he can think of no better situation than living in a deflationary​ economy, as prices of goods and services would continuously fall. You disagree and argue that during a deflation people can be made worse off because...

borrowed will have to pay increasing amounts in real terms over time.

Banks can continue to make loans until their...

actual reserves equal their required reserves...

Money is ...

an asset that people are willing to accept in exchange for goods and services.

A bank will consider a car loan to a customer​ __________ and a​ customer's checking account to be​ ____________....

an asset; a liability

In​ economics, money is defined as...

any asset people generally accept in exchange for goods and services.

If you liquidate​ $3,000 of your mutual fund and transfer the funds to your checking​ account, then​ initially, M1 will​ ________ and M2 will​ ________.

increase; not change

f a person withdraws​ $500 from​ his/her savings account and puts it in​ his/her checking​ account, then M1 will​ ________ and M2 will​ ________.

increase; not change

When a grocery store accepts your​ $5 bill in exchange for bread and​ milk, the​ $5 bill serves as a...

medium of exchange


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