Macro Policy Practice

In defining money as M1, economists exclude time deposits because

they are not directly or immediately a medium of exchange

The functions of money are to serve as a

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

What are "mortgage-backed securities"?

bonds backed by mortgage payments

Banks create money when they

buy government bonds from households

Checkable deposits are

included in M1

A fractional reserve banking system

is susceptible to bank "panics" or "runs."

Suppose the reserve requirement is 20 percent. If a bank has checkable deposits of $4 million andactual reserves of $1 million, it can safely lend out

$200,000

In the U.S. economy, the money supply is controlled by the

Federal Reserve System

The paper money used in the United States is

Federal Reserve notes

"Near monies" are included in

M2 only

The Financial Crisis of 2007-2008 started in which sector of the economy?

real estate and housing sector

Lowering the reserve ratio

reduces the amount of excess reserves the banks keep.

What "backs" the money supply of the United States?

the U.S. government's ability to keep the value of money relatively stable

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

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