Macro Economics CH 35
assets-liabilities
= net worth
higher
A ________ required reserve ratio means a lower money multiplier and therefore less creation of new checkable-deposit money through loans
fractional reserve .
A banking system in which only a portion of checkable deposits are backed up by cash in bank vaults or deposits in the central bank is called a(n) _____________ ____________ banking system
lower, less
A higher reserve ratio means __________ monetary multiplier and _____________ creation of checkable deposit money through loans
excess
A single commercial bank can lend only an amount equal to it __________ reserves
higher, greater
A smaller reserve ratio means a _________ monetary multiplier and _________ creation of checkable deposit money through loans
decrease
A withdrawal of cash will _________ the bank's checkable deposit liabilities but not change the supply of money
by a multiple of its collective excess reserves
An individual bank can safely lend only an amount equal to its excess reserves, but a commercial banking system can lend ___________
False
Banks create money solely by selling US government bonds to the public
True
Banks keep a portion of their reserves in their own vaults
fractional reserves
Banks operating on the basis of __________ are vulnerable to panics or bank runs
TRue
Checkable deposits are bank debts
assets, liability
Checkable deposits made into a commercial bank are _________ to the depositor and a(n) ____________ to the bank
banks
Commercial ____________ can create money through lending
true
Commercial banks can create money by a multiple of its excess reserves
insurance
Deposit __________ stops bank runs by guaranteeing depositors that they will always get their money
citizens sell equity shares of stock,citizens secure a state or national charter, citizens decide their communities need a bank
How communities decide they need a bank
$90,000
If a bank has actual reserves of $110,000, checkable deposits of $100,000, and a reserve ratio of 20%, its excess reserves are
the Federal Deposit Insurance Corporation guarantees bank accounts
In the United States, runs on banks are prevented because
be equal to
On a balance sheet, the value of assets must ___________ the amount of claims on those assets
bank
Securing a state or national charter is one step in the process of creating a(n) _________
It will send an extra amount of required reserves to the Federal Reserve Bank to enable future lending.
Summarizes the actions of a bank that anticipates that its holding of checkable deposits will grow in the future.
money multiplier
The ___________ magnifies excess reserves into the large creation of checkable deposit money
excess reserves
The formula for maximum checkable deposit creation is ____________ multiplied by the monetary muliplied
Spending- income
The monetary multiplier is similar to the ____________-___________ multiplier available to the government
expenditures
The spending-income multiplier exists because the _____________ of one household become the income of another household
asset
When a bank buys government securities, it will appear on its balance as a(n) __________ called "Securities"
asset,liability
When a bank deposits its reserves with the Federal Reserve Bank the reserves are a(n) __________to the bank and a(n) ____________ to the Federal Reserve Bank
increase
When a bank grants a loan, the assets on its balance sheet will _________ by the amount of the bank
reduces the supply of money
When a bank sells government to the public, the process
decrease
When a deposited check is drawn against another bank, the collection of the check will _______________ the reserve and the checkable deposits of the bank from which it was drawn
bank run
a ________ _______ would occur when depositors rush on the banks, trying to be one of the lucky few to withdraw their monies while the banks still have any reserves left
no change
a single transaction that deposits money into a bank will increase checkable deposits for the bank, which will result in an increase in the bank's liabilities and assuming no loans dispersed, ___________ in the nation's total supply of money
time deposits, non personal savings
are ignored when determining required reserves
purchasing government bonds from the public, Making loans to the public
are methods by which commercial banks create money in an economy
accepting deposits and making loans
are the two basic functions of commercial banks
Assets=Liabilities+Net Worth
balance sheet formula
reserve ratio
commercial bank's required reserves --------------------------------- its checkable deposit liabilities
Checkable
deposit money is destroyed when loans are paid off
Depositors would "run" on their banks to withdraw funds, rumors about banks to go bankrupt would circulate, rumors were usually unfounded
explains the situation that existed prior to the implementation of deposit insuance
Excess reserves=actual reserves-required reserves
formula for excess reserves
the Federal Reserve
has the authority to establish and vary the reserve ratio
liabilities
non-owner claims against the assets of a bank are called
fractional
reserve requirements are less than 100%
To prevent the banks from over-extending or under-extending bank credit, To help the economy avoid business fluctuations, To facilitate the collection or "clearing" of checks, To help the Fed control the lending ability of commercial banks
summarize the main purposes of required reserves
control the lending of commercial banks
the basic purpose of required reserves is for the Federal Reserve to
net worth
the claims of the owner of a firm against the firm's assets
banks charge each other to borrow money overnight
the federal funds is the interest rate that
required reserve ratio
the formula for the money multiplier is m=1/___________
Banks can create money through lending and banks operating on the basis of fractional reserves are vulnerable to "panics" or "runs"
two significant characteristics of fractional reserve banking
