chapter 29
A bank's reserve ratio is 10 percent and the bank has $5,000 in deposits. Its reserves amount to
$500
If the reserve ratio is 20 percent, then $100 of new reserves can generate
$500 of new money in the economy.
If the reserve ratio is 15 percent, the money multiplier is
6.7
During a bank run, depositors decide to hold more currency relative to deposits and banks decide to hold more excess reserves relative to deposits
Both the decision to hold relatively more currency and the decision to hold relatively more excess reserves would make the money supply decrease.
A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.
It has $800 in reserves and $9,200 in loans.
Any item that people can use to transfer purchasing power from the present to the future is called
a store of value
When in France you notice that prices are posted in euros, this best illustrates money's function as
a unit of account
money
a. is more efficient than barter. b. makes trades easier. c. allows greater specialization. d. All of the above are correct.
A double coincidence of wants
a. is required when there is no item in an economy that is widely accepted in exchange for goods and services. b. is required in an economy that relies on barter. c. is a hindrance to the allocation of resources when it is required for trade. d. All of the above are correct.
In a system of 100-percent-reserve banking,
banks do not make loans.
The money supply increases when the Fed
buys bonds. The increase will be larger, the smaller is the reserve ratio
Demand deposits are a type of
checking account.
If an economy used gold as money, its money would be
commodity money, but not fiat money.
Reserves are
deposits that banks have received but have not yet loaned out
Fiat money
has no intrinsic value.
An open-market purchase
increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.
The federal funds rate is the
interest rate at which banks lend reserves to each other overnight.
A central bank's setting (or altering) of the money supply is known as
monetary policy.
Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the
money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds.
Commodity money is
money with intrinsic value.
If the discount rate is lowered, banks borrow
more from the Fed so reserves increase.
Credit card limits are included in
neither M1 nor M2.
Currency includes
paper bills and coins.
The Federal Deposit Insurance Corporation
protects depositors in the event of bank failures.
The Fed can decrease the money supply by conducting open-market
sales or by raising the discount rate.
The Fed's control of the money supply is not precise because
the amount of money in the economy depends in part on the behavior of depositors and bankers.
The president of each regional Federal Reserve Bank is appointed by
the board of directors of that regional Federal Reserve Bank
The discount rate is
the interest rate the Fed charges banks.
Bank capital is
the resources that owners have put into the bank.
Economists use the term "money" to refer to
those types of wealth that are regularly accepted by sellers in exchange for goods and services
