ECON FINAL PART 1 chp 14

Refer to Scenario 14-1. M2 in this simple economy equals

$21,000.

Refer to Scenario 14-1. M1 in this simple economy equals

$3,000.

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of

$50,000.

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A can make a maximum loan of

$8,000.

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's excess reserves increase by

$8,000.

The most liquid measure of money supply is

M1

The M2 measure of the money supply equals

M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares.

Which of the following is one of the most important benefits of money in an economy?

Money makes exchange easier, leading to more specialization and higher productivity.

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

U.S. Treasury securities by the Federal Reserve

A bank will consider a car loan to a customer ________ and a customer's checking account to be ________.

an asset; a liability

In economics, money is defined as

any asset people generally accept in exchange for goods and services.

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

barter

The largest liability on the balance sheet of most banks is its

checking account and savings account deposits of its customers.

The largest proportion of M1 is made up of

checking account deposits.

To increase the money supply, the Federal Reserve could

conduct an open market purchase of Treasury securities.

Which of the following is not counted in M1?

credit card balances

The M1 measure of the money supply equals

currency plus checking account balances plus traveler's checks.

The required reserves of a bank equal its ________ the required reserve ratio.

deposits multiplied by

According to the U.S. Treasury,

firms do not have to accept cash as payment for goods and services.

Commodity money

has value independent of its use as money.

The purchase of Treasury securities by the Federal Reserve will, in general,

increase the quantity of reserves held by banks.

If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will ________ and M2 will ________.

increase; not change

Banks keep ________ of checking deposits as reserves because on a typical day withdrawals ________ deposits.

less than 100%; are about the same as

Banks can make additional loans when required reserves are

less than total reserves.

Fiat money has

little to no intrinsic value and is authorized by the central bank or governmental body.

Which of the following assets is most liquid?

money

If a person withdraws $500 from his/her checking account and holds it as currency, then M1 will ________ and M2 will ________.

not change; not change

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.

The main tool that the Federal Reserve uses to conduct monetary policy is

open market operations.

The major assets on a bank's balance sheet are its

reserves, loans, and holdings of securities.

The Federal Reserve was established in 1913 to

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

If whole tomatoes were money, which of the following functions of money would be the hardest for tomatoes to satisfy?

store of value

Which of the following functions of money would be violated if inflation were high?

store of value

In response to the destructive bank panics of the Great Depression, future bank panics are designed to be prevented by

the establishment of the Federal Deposit Insurance Corporation.

The major shortcoming of a barter economy is

the requirement of a double coincidence of wants.

Bank reserves include

vault cash and deposits with the Federal Reserve.

Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent. The maximum loan your bank can made as a direct result of your deposit is

$1,800.

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's reserves immediately increase by

$10,000.

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's required reserves increase by

$2,000.