MACRO CH 14

The table below shows the components of M1 and M2 in the U.S. Use the table to calculate Total M2. Round to the third decimal place.

$14.916 Trillion In order to calculate M2, first calculate M1. M1 money supply is composed of coins and currency in circulation, checkable deposits, and traveler's checks. To calculate M1, add currency, traveler's checks, and demand deposits together. which is equal to $3,408 trillion. M2 money supply is composed of M1, savings deposits, money market funds, certificates of deposit, and other time deposits. To calculate M2, add M1, savings accounts, time deposits, and mutual market fund balances, which is equal to $14.916 trillion.

Suppose that the reserve requirement in an economy is 0.35 and the Federal Reserve deposits $550 into commercial banks. What is the maximum possible change in the money supply? (Treat the entire amount of the deposit as the initial excess reserves.) Round your answer to two decimal places.

$1571.43

If you deposit a tax rebate into your bank account which results in an increase in excess reserves of $700 and if the reserve requirement is 0.40, then what is the maximum possible change in the money supply? Yes that's right. Keep it up!

$1750

Your bank has a reserve requirement of 0.2. If you deposit $675 into your bank account and that results in an increase in excess reserves of $540, then what is the maximum possible change in the money supply from your initial deposit? Answer 1:

$2700

Smith Bank has $15 million in deposits, $2 million in loans, $8 million in bonds and $4 million in reserves. What is the bank's net worth?

$−1 million

The T-account below represents assets and liabilities for a bank. Use the T-account to calculate the bank's net worth.

(10+7+5)-27= X X = -5

The T-account below represents assets and liabilities for a bank. Use the T-account to calculate the bank's bonds. Loans- 9 mil Bonds- ? Reserves- 5 mil Deposit- 18 mil Networth= -1 mil

(9 + X + 5) - (18) = -1 X = 3 million

Bob Bank has $5 million in reserves, $16 million in deposits, $6 million in bonds and $4 million in loans. What is the bank's net worth?

- 1 million Assets= Reserves+Bonds+loans 5+6+4= 15 million Liability= Deposits 16 million 15-16= - 1 million

Double coincidence of wants occurs in an economy _______.

-without money -that operates only on trade

The T-account below represents assets and liabilities for a bank. Use the T-account to calculate the bank's deposits.

12 million

The T-account below represents assets and liabilities for a bank. Use the T-account to calculate the bank's reserves.

3 milion

Demand Deposit

A demand deposit is a checkable deposit in a bank that is available by making a cash withdrawal or writing a check.

Which is the best definition of liability?

A liability is an amount of debt owed by a firm or an individual.

Which of the following is the best definition of the term standard of deferred payment?

A standard of deferred payment is the requirement that money must be acceptable to make purchases today that will be paid for in the future.

Which of the following explains why deposits are a liability for banks?

Banks must be able to give the money back to customers in the form of withdraw. When bank customers deposit money into a checking account, savings account, or a certificate of deposit, the bank views these deposits as liabilities. After all, the bank owes these deposits to its customers, when the customers wish to withdraw their money.

What is the definition of barter?

Barter is trading one good or service for another.

Excess money holding will __________ the money multiplier.

DECREASE The money multiplier depends on people re-depositing the money that they receive in the banking system. If people instead store their cash in safe-deposit boxes or in shoeboxes hidden in their closets, then banks cannot recirculate the money in the form of loans. Central banks have an incentive to assure that bank deposits are safe because if people worry that they may lose their bank deposits, they may start holding more money in cash, instead of depositing it in banks, and the quantity of loans in an economy will decline.

What term is best defined as a checkable deposit in a bank that is available by making a cash withdrawal or writing a check?

Demand deposit A demand deposit is a checkable deposit in a bank that is available by making a cash withdrawal or writing a check.

True or false? Loans are considered a liability to banks because they are not guaranteed to get the money back.

False Loans are considered assets to banks. Say that a family takes out a 30-year mortgage loan to purchase a house, which means that the borrower will repay the loan over the next 30 years. This loan is clearly an asset from the bank's perspective, because the borrower has a legal obligation to make payments to the bank over time.

True or false?An increase in excess reserves will result in an increase in the money multiplier.

False The money multiplier will depend on the proportion of reserves that the Federal Reserve Band requires banks to hold. Additionally, a bank can also choose to hold extra reserves. Remember, the formula for money multiplier is change in money supply divided by excess reserves. As excess reserves grow, the money multiplier will shrink. The more money the bank chooses to hold, the less money they are earning.

True or false? Banks increase transaction costs when they act as financial intermediaries.

False Transaction costsare costs associated with finding a lender or borrower, and banks lower transaction costs when they act as financial intermediaries.

True or false?Deposits are assets to banks because the money is given to them and added to the bank's overall net worth.

False When bank customers deposit money into a checking account, savings account, or a certificate of deposit, the bank views these deposits as liabilities. After all, the bank owes these deposits to its customers, when the customers wish to withdraw their money.

What term is best defined as the government-declared legal tender of a country?

Fiat money Fiat money is the government-declared legal tender of a country.

The table below shows the components of M1 and M2 in the U.S. Use the table to calculate Total M2. Round to the third decimal place.

In order to calculate M2, first calculate M1. M1 money supply is composed of coins and currency in circulation, checkable deposits, and traveler's checks. To calculate M1, add currency, traveler's checks, and demand deposits together.

M1 is calculated by adding together currency in circulation, checkable deposits, and traveler's checks.

M1 = coins and currency in circulation + checkable (demand) deposit + traveler's checks. M2 = M1 + savings deposits + money market funds + certificates of deposit + other time deposits.

Which of the following components are used to calculate M2? Select the best answer.

M2 money supply includes those monies that are very liquid such as cash, checkable (demand) deposits, and traveler's checks, otherwise known as M1, and less liquid monies including time deposits, certificates of deposits, and money market funds.

Which description best fits the definition of M2 money supply?

M2 money supply is the money supply that includes currency, checking accounts in banks, traveler's checks, savings deposits, money market funds, and certificates of deposit.

Given that the reserve requirement is 0.2, what is the money multiplier if banks hold no excess reserves and consumers hold no cash. Round your answer to two decimal places

MM=5

If the reserve requirement in Canada is 0.20 and banks hold no excess reserves and consumers hold no cash. What is the money multiplier in Canada? Round your answer to two decimal places.

MM=5 The money multiplier (MM) determines the maximum increase in loans that can be made assuming banks hold no excess reserves and there are no cash holdings in the economy. If these assumptions are true, then the money multiplier formula is MM=1/RR

Which of the following is something that serves as a way of preserving economic value that can be spent or consumed in the future?

Store of value Astore of valueis something that serves as a way of preserving economic value that can be spent or consumed in the future.

A store of value is something that serves as a way of preserving economic value that can be spent or consumed in the future.

TRUE

If your initial deposit at Westerville Bank causes excess reserves to rise by $15 and the money supply to increase by $60, then what must the reserve requirement be? Assume that there are no cash holdings in this economy and banks loan out all excess reserves.

The change in money supply (M1) is found by dividing the amount of excess reserves by the reserve requirement (RR). Applying the money multiplier formula, we see that the total change in the money supply will be: 0.25

M&V Bank has a reserve requirement of 10%. The Federal Reserve decides that inflation is too low and decides to engage in expansionary monetary policy. As a result, it purchases $20 worth of financial assets from M&V Bank. What is the maximum possible change in the money supply associated with the actions of the Federal Reserve?

The change in money supply (M1) is found by dividing the amount of excess reserves by the reserve requirement. Applying the money multiplier formula, we see that the total change in the money supply will be: Change in m1= $200

First United Bank has a reserve requirement of 0.18. If you deposit money into your bank account at First United Bank, which results in $700 increase in excess reserves, then what is the maximum possible increase in money supply? Round your answer to two decimal places.

The change in money supply (M1) is found by dividing the amount of excess reserves by the reserve requirement. Applying the money multiplier formula, we see that the total change in the money supply will be: $3888.89

What term is best defined as a cost associated with finding a lender or a borrower for money?

Transaction cost A transaction cost is a cost associated with finding a lender or a borrower for money.

True or false? A balance sheet is an accounting tool that lists assets and liabilities.

True A balance sheet is an accounting tool that lists assets and liabilities. An asset is something of value that you own and you can use to produce something. For example, you can use the cash you own to pay your tuition. If you own a home, this is also an asset. A liability is a debt or something you owe.

True or false?A debit card is the electronic equivalent of a check.

True Both a debit card and a check tell a bank to transfer a checkable deposit from one account to another.

True or false?A certificate of deposit is a type of time deposit.

True Time deposits and certificate of deposit accounts are both accounts that the depositor has committed to leaving in the bank for a certain period of time in exchange for a higher rate of interest.

Which of the following issues can occur as a result of asset-liability time mismatch?

`Banks can lose customers because they do not pay the equal interest rates to other banks over time. `Banks can pay interest rates higher than those of past loans.

Which of the following require the depositor to commit to leaving their investment in the bank for a certain period of time in exchange for higher interest rates?

certificate of deposit Time deposits and certificate of deposit accounts are both accounts that the depositor has committed to leaving in the bank for a certain period of time in exchange for a higher rate of interest.

A ______ is a bill or other currency whose value is backed up by gold or some other commodity held at a bank.

commodity-backed currency Acommodity-backed currencyis a bill or other currency whose value is backed up by gold or some other commodity held at a bank.

A purchase using a _______ is considered a short term loan from the lender to you.

credit card Although you can make a purchase with a credit card, the financial institution does not consider it money but rather a short term loan from the credit card company to you. When you make a credit card purchase, the credit card company immediately transfers money from its checking account to the seller, and at the end of the month, the credit card company sends you a bill for what you have charged that month. Until you pay the credit card bill, you have effectively borrowed money from the credit card company.

A bank could have a negative net worth if __________.

it has an unexpected increase in the amount of loans that are not repaid A well-run bank will assume that a small percentage of borrowers will not repay their loans on time, or at all, and factor these missing payments into its planning. Remember, the calculations of the banks' expenses every year include a factor for loans that borrowers do not repay, and the value of a bank's loans on its balance sheet assumes a certain level of riskiness because some customers will not repay loans. Even if a bank expects a certain number of loan defaults, it will suffer if the number of loan defaults is much greater than expected, as can happen during a recession.

Which of the following is an investment option in which the deposits of many investors are pooled together and invested in a safe way?

money market fund A money market fund is an investment option in which the deposits of many investors are pooled together and invested in a safe way.

Money kept on hand at a bank is called _______.

reserves The final entry under assets is reserves, which is money that the bank keeps on hand, and that it does not lend or invest in bonds—and thus does not lead to interest payments. The Federal Reserve requires that banks keep a certain percentage of depositors' money on "reserve," which means either in their vaults or at the Federal Reserve Bank. We call this a reserve requirement.