macro economics

M2 is both larger and less liquid than M1.

True

If the reserve ratio is 5 percent, then $500 of additional reserves would ultimately generate

$10,000 of money.

Which of the following will help to prevent bank runs?

100% reserve banking

If the reserve ratio is 4 percent, then the money multiplier is

25

Currently, bank runs are a major problem for the U.S. banking system and the Fed.

False

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can, given the reserve requirement.

It has $40,000 in deposits.

If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

It increases by $150,000.

Bank runs are only a concern under a fractional-reserve banking system.

True

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

True

If the Fed decreases reserve requirements, the money supply will increase.

True

In a system of 100-percent-reserve banking, changes in the money supply depend on the decisions of the Fed as well as the behavior of depositors and bankers.

True

Sandra routinely uses currency to purchase her groceries. She is using money as a medium of exchange.

True

A bank loans Danuta's Ice Cream $190,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

an asset for the bank and a liability for Danuta's Ice Cream. The loan increases the money supply.

Hassan and Kevin buy the same pair of sneakers, but each in the wrong size. Hassan proposes a size swap with Kevin. This is an example of

barter, since the sneakers in the correct size represent a medium of exchange.

The set of items that serve as media of exchange includes

demand deposits

Other things the same, if reserve requirements are decreased, the reserve ratio

increases, the money multiplier decreases, and the money supply decreases.

The money supply decreases when the Fed

sells Treasury bonds. The smaller the reserve requirement, the larger the decrease will be.