BNAD301 - Ch. 14
The effects of large increases in monetary base during the Great Recession were nullified by...
rise in excess reserves ratio
As financial intermediaries, banks:
accept deposits and make loans
When the Federal Reserve sells a government security on the open market, it is called...
an open market sale
Two primary assets of the Federal Reserve System are:
government securities and loans to commercial banks.
The monetary base is known as...
high-powered money
When the Fed wants to raise reserves in the banking system, it will...
purchase government bonds
Which of the following players can affect the money supply by issuing loans to financial institutions?
the central bank
The Fed buys $100 million of bonds from the public and also lowers the reserve requirement r. What will happen to the money supply?
the money supply will increase
The currency that is physically held by banks is known as...
vault cash
The First National Bank receives an extra $100 of reserves but decides not to lend any of these reserves. How much deposit creation takes place for the entire banking system?
$0
If the required reserve ratio on checkable deposits increases to 20%, how much multiple deposit creation will take place when reserves are increased by $100? Assume that banks do not hold any excess reserves and the public's holdings of currency do not change.
$500
Reserves are:
-assets for banks. -deposits at the Fed plus vault cash. -liabilities for the Fed.
The monetary base is affected by:
-the Federal Reserve through open market operations.th -the Federal Reserve through its extension of discount loans. -float and Treasury deposits at the Federal Reserve.
The balance sheet of a hypothetical bank, ABC Bank, is shown below. The reserve requirement is 10%. ABC Bank Assets Vault Cash $90 Deposits at the Fed 10 Loans 800 Liabilities Deposits 900 In the balance sheet above, the excess reserve ratio of ABC bank is _________ and its excess reserves are _________.
0.011; $10
The ___ lists the changes that occur in balance sheet items, starting from the initial balance sheet position.
T account
The money multiplier declined significantly during the period 1930-1933 and also during the recent financial crisis of 2008-2010. Yet the M1 money supply decreased by 25% in the Depression period but increased by more than 20% during the recent financial crisis. What explains the difference in outcomes?
There was a significant increase in the monetary base during the recent financial crisis.
When the nonbank public decides to hold more currency, then we expect...
a fall in the money supply
Which of the following players can affect the money supply by its holdings of excess reserves?
banks
By definition, when the Fed conducts an open market purchase, it is:
buying & selling bonds
The Federal Reserve System is the ___________ for the United States, which is defined as the government agency responsible for __________.
central bank; the conduct of monetary policy
The monetary base is comprised of:
currency in circulation & reserves
The interest rate charged to banks that borrow funds from the Fed is known as the:
discount rate
the interest rate charged for borrowed reserves is known as...
discount rate
The money supply is expected to rise when a decrease in ___ is observed
excess reserves
reserves that the banks choose to hold in addition to the amount required is known as...
excess reserves
A purchase of government bonds from the public by the Federal Reserve Bank:
increases the monetary base directly and may increase reserves.
____ is comprised of currency in circulation plus total reserves.
monetary base
The ratio of the money supply to the monetary base is called...
money multiplier
Predict what will happen to the money supply if there is a sharp rise in the currency ratio
money supply falls
An open market purchase has ____ when the proceeds from the sale are kept in currency.
no effect
The Federal Reserve's act of controlling the monetary base through its purchases or sales of securities is known as...
open market operation
When the Fed wants to reduce reserves in the banking system, it will...
sell government bonds
The M2 money multiplier is ___________ the M1 multiplier.
substantially larger
The players in the money supply process include all of the following except:
the Treasury
A bank has a required reserve ratio of 10%. If the bank has deposits of $100,000 and is holding $12,000 in reserves:
the bank is holding $2,000 in excess reserves.