Econ 302 Chapter 4

If banks hold 100 percent of deposits in reserve, all of the following are true EXCEPT that:

it is impossible for a customer to deposit funds into a bank and have no effect on the money supply

Suppose that the monetary base is $50,000 and that the reserve-deposit ratio and the currency-deposit ratio are 0.2 and 0.2, respectively. In this scenario, the money supply will equal:

$150,000

Use this balance sheet to answer the question. The reserve-deposit rate is 20 percent, and a customer withdraws $200 from his account in American Bank. The value of the bank's loans, once the bank makes adjustment to maintain its reserve-deposit ratio, will be:

1440

According to the text, the gold standard was most commonly used throughout the world during the:

1800s

Suppose that a $100 purchase of government bonds by the U.S. Federal Reserve causes a $200 increase in the money supply of an economy in which the public holds 50 percent of deposits as currency. What percentage of bank deposits is held as reserves?

25 percent

_____ are included in the money supply.

Neither checks nor debit cards

Which are included in M2 but not included in M1?

Saving deposits are included in M2 but not in M1

Which is an example of fiat money?

U.S. dollar bills

_____ is a financial intermediary

a bank

Credit cards are:

a method of deferring payment

In a 100-percent-reserve banking system, a customer withdrawal will:

decrease deposits

Bill's Bank chooses to hold 100 percent of deposits as reserves. If a customer withdraws $5,000 from his checking account, the bank's deposit will _____ $5,000, while its reserves will _____.

decrease; decease $5,000

In this table, if the money supply is determined by the money multiplier mechanism, then it _____ between 2000 and 2005

decreased by 100

In general, the world economy today uses:

fiat money

When the economy faces bank failures on a scale such as that which occurred during the Great Depression of the 1930s, the magnitude of the money multiplier:

greatly decreases

Suppose that the Federal Reserve requires all lending to commercial banks go through the Term Auction Facility (TAF) only. This would _____ the Federal Reserve's ability to control the monetary supply.

improve

Deposit insurance promote a financial system's stability because it prevents large:

increases or decreases in the currency-deposit ratio.

Money is NOT a(n):

input of production.

In order to reduce the transaction cost associated with verifying the weight and purity of gold in a gold standard, the government can:

mint the gold coins.

Money is a perfect store of value when the economy is experiencing:

neither inflation nor deflation

In order to complete a transaction in an economy with money, a "double coincidence of wants" _____ exist.

never needs to

If the monetary base doubles, and the money multiplier doubles as well, the money supply will:

quadruple

The Thirty-third National Bank operates in a 100-percent-reserve banking system. If a customer withdraws $1,000 from his checking account, the money supply in the economy will:

remain the same.

In a fractional-reserve banking system, the proportion of deposits that a bank keeps as reserves is called the _____ ratio.

reserve-deposit

Which is an example of commodity money?

salt

When money serves as a _____, it allows an individual to transfer purchasing power from the present to the future.

store of value

When a person knows that three one-dollar bills can buy a gallon of gasoline when the price of a gallon of gasoline is $3.00, then that person understands that money can serve as a

unit of account.