Chapter 25 Quiz

As a result of Kristy's deposit, Bank A's required reserves increase by

$2,000

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of

$5 million.

As a result of Kristy's deposit, Bank A's excess reserves increase by

$8,000

As a result of Kristy's deposit. Bank A can make a maximum loan of

$8,000

The M2 measure of the money supply equals

M1 plus savings account balances plus small minus−denomination time deposits plus non institutional money market fund shares.

Commodity money

has value independent of its use as money

In 1980, one Zimbabwean dollar was worth 1.47 U.S. dollars. By the end of 2008, the exchange rate was one U.S. dollar to 2 billion Zimbabwean dollars. When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe, the economy is said to experience

hyperinflation.

Which of the following is not a function of the Federal Reserve System, or the "Fed"?

insuring deposits in the banking system.

The CBR's announcement in August 2017 of its intention to bail out Otkritie Bank raised fears of a nationwide banking crisis in Russia. Fears of a banking crisis have been known to lead to a bank run, a situation in which

many depositors simultaneously decide to withdraw money from a bank.

Purchasing groceries using a debit card best exemplifies money serving as a

medium of exchange

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= $6,000, and wealth= $4,300.

Credit card balances are

not part of the money supply.

The three main monetary policy tools used by the Federal Reserve to manage the money supply are

open market operations, discount policy, and reserve requirements.

In 2008, the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP) by

providing funds to banks in exchange for stock.

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

reserves; increase; expands.

The process of bundling loans together and buying and selling these bundles in a secondary financial market is called

securitization

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

smaller than 1/RR.

The Federal Reserve was established in 1913 to

stop bank panics by acting as a lender of last resort.

The discount rate is

the interest rate the Fed charges to banks for loans from the Fed.

Bank reserves include

vault cash and deposits with the Federal Reserve.

If the required reserve ratio is RR, the simple deposit multiplier is defined as

1/(RR)

In the United States, the money supploy (M1) includes

coins, paper currency, and checkable deposits

The M1 measure of the money supply equals

currency plus checking account balances plus traveler's checks.

One way investment banks differ from commercial banks is that investment banks

do not take in deposits.

Which of the following is not a tool the Fed uses to manage the money supply?

expanding and contracting deposit insurance.

Most modern banking systems are based on:

fractional reserves

Open market operations refer to the purchase or sale of______________ to control the money supply.

U.S. Treasury securities by the Federal Reserve.

The statement, "My is worth $700" represents money function as

a unit of account.

In economics, money is defined as

any asset people generally accept in exchange for goods and services

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

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

barter