Ch 14

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What are the three basic functions of money?

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

The chairperson of the Federal Reserve Board is selected by the

US president and confirmed by the senate

Excess reserves are equal to

actual reserves minus required reserves

Subprime mortgage loans were one of the facts that exacerbabted the financial crisis of 2007-2008 because they resulted in

an increase in demand for housing and a rapid increase in home prices that was unsustainable

Excess reserves

can be lent out, increasing the money supply

The major claims on a commercial bank's balance sheet are

checkable deposits

The major categories of firms that make up the US financial services industry include

commercial banks, thrifts, insurance companies, and securities related firms

The Federal Reserve Board of Governors

coordinates policies for the 12 Federal Reserve Banks

Between 1980 and 2007, the bank and thrift share of the financial services market

declined substantially

A single commercial bank can safely lend only an amount equal to its excess reserves, but the commercial banking system can lend by a multiple of its excess reserves because

one bank loses reserves to other banks, but the system does not

The face value of a coin is greater than its intrinsic value because

otherwise people would sell it for its intrinsic value

An asset on a bank's balance sheet is something

owned by the bank, whereas a liability is something owed by the bank

In runaway inflation

people revert to barter because money fails as a medium of exchange

Mortgage backed securities were one of the factors that exacerbated the financial crisis of 07-08 becuase they

reduced the risk exposure, or cost, that banks faced after issuing these subprime loans, and encouraged thi type of lending

The Federal Reserve requires that commercial banks have reserves because

reserves provide the Fed a means of controlling the money supply

The major assets on a commercial bank's balance sheet include

reserves, securities, loans, and vault cash

The categories of financial firms have become more blurred as these firms are trying to

retain their market share

The Federal Open Market Committee (FOMC) includes

the Board of Governors members and 5 of the 12 presidents of the Federal Reserve banks, of which he president of the NY fed has a permanent voting seat

When economists say that the Federal Reserve Banks are central banks, this means that

the policies are coordinated by the Federal Reserve Board of the Governors

When economists say that the Federal Reserve Banks are quasi-public banks, this means that

they are a blend of private ownership and public control

When economists say that the Federal Reserve Banks are banker's banks, this means that

they perform the same functions for banks as banks perform for the public

Suppose that Serendipity Bank has excess reserves of $10,000 and checkable deposits of $150,000. If the reserve ratio is 1%, what is the size of the bank's actual reserves?

$25,000

What is the monetary multiplier?

1/ reserve ratio

Which two of the following financial institutions offer checkable deposits included within the M1 money supply

Commercial banks, thrift institutions

What is the largest componenet of M1?

Currency

Which of the componenets of M1 is legal tender

Currency

Which of the following items is not included in either M1 or M2

Currency held by banks

What are the components of the M1 money supply?

Currency in circulation and checkable deposits

Which of the following are included in the functions of the Federal Reserve System?

Issuing Federal Reserve Notes, providing for check collection, and supervising the operation of banks

What near-moneys are included in M2 money supply?

Noncheckable savings deposits, money market deposit accouonts, smll time depositis, and money market mutual fund balances

TARP is the

Troubled Asset Relief Program funded with general tax revenue and the issuance of government debt

A balance sheet must always balance because the sum of

assets must equal the sum of liabilities plus net worth

Compared to a decade ago, there are

fewer bank fims

Government loans create moral hazard because there is a tendency

for financial services firms to take on greater risks because they assume they are at leas partially insured against losses

The purchasing power of the dollar is

inversely related to the price level

The monetary multiplier is

inversely related to the reserve ratio

American International Group (AIG) exacerbated the financial crisis of 07-08 by

issuing billions of dollars of collateralized default swaps that had embedded mortgage-loan risk

The Federal Open Market Committee (FOMC)

votes on the Fed's monetary policy and directs the purchase or sale of government securities

The financial crisis of 2007-2008 was excacerbated by subprime mortgage loans. These loans were made to borrowers

who were more likely to default on their loans


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