ch 14

the required reserves of a bank equal its ______the required reserve ratio

deposits multiplied by

Banks can make additional loans when required reserves are

less than total reserves

the quantity theory of money seeks to explain the connection between money and

prices

which of the following is not one of the ways that the German government ended the hyperinflation of the 1920s

raising the required reserve ratio to reduce bank loans

During the German hyperinflation of the​ 1920s, the large increases in the money supply were generated by the German government

selling large quantities of government bonds to the central bank, the Reichsbank

the German Hyperinflation of the early 1920s was caused by

the German government raising funds for expenditures by selling bonds to the central bank

the velocity of money is defined as

the average number of times each dollar is used to purchase goods and services.

hyperinflation can be caused by

the government selling bonds to the central bank

the quantity theory of money implies that the price level will be stable (no inflation or deflation) when the growth rate of the money supply equals

the growth rate of real GPD

According to the quantity theory of money, inflation is caused by

the money supply growing faster than real GDP

the quantity theory of money assumes that

the velocity of money is constant

If banks receive a greater amount of reserves and do not hold all of these reserves as excess reserves, the money supply expands.

true

If the rate of growth in real GDP exceeds the rate of growth in the money supply, the quantity theory of money predicts a price deflation.

true

In the US, businesses are not required to accept cash as payment for goods or services

true

Money will fail to serve as a medium of exchange if it ceases to be a store of value.

true

Most US currency held outside the US banking system is held by foreigners

true

a cash withdrawal reduces deposits, reserves, and excess reserves in the banking system

true

an open market purchase of treasury securities by the federal reserve causes the reserves of banks to rise

true

hyperinflation occurs because governments want to spend more than they raise in taxes, and they pay for the extra purchases by printing money or selling large quantities of government bonds to the central bank

true

in 2008, Zimbabwe ran out of locally produced Coca Cola and local coke bottlers were not able to import the concentrated syrup needed to make coke from the United States because they could not obtain US dollars. A small amount of coke was imported from South Africa, but a single bottle sold for around 15 billion Zimbabwean dollars. Zimbabwe was experiencing rapid increases in the price level, which is known as hyperinflation.

true

in an economy with money, as opposed to barter, people are more likely to specialize in the production of goods and services

true

the Fed can change the money supply more quickly by using open market operations as compared to discount policy

true

the Fed was founded in 1913 to serve as lender of last resort to bankers during bank runs and panics

true

the quantity equation becomes the basis for a theory when we assume that velocity of money is constant

true

Bank reserves include A) deposits at the Fed and short-term treasury securities. B) vault cash and short-term Treasury securities. C) vault cash and deposits at the Fed. D) deposits at other banks and deposits at the Fed.

C) vault cash and deposits with the federal reserve

the quantity equation states that

M x V = P x Y

Hyperinflation is caused by

a high rate of growth in the money supply

A series of bank runs in a country should have no effect on M1 as money simply moves from checking deposits to currency.

false

Economies cannot function without money.

false

If gold is used as money in an economy, the money supply is easy to control.

false

a persons wealth is the same as his income

false

an economy without money would have no exchanges of goods and services

false

banks hold 100% of their checking deposits as vault cash to ensure that bank runs do not occur

false

if bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits, the money multiplier will increase

false

if the fed wishes to decrease the supply of money and credit, it may sell government securities, raise the discount rate, or lower required reserve ratios

false

innovations, including new products and services, in financial markets and institutions have made the job of defining the money supply easier

false

the Fed has complete control over the money supply

false

the amount of national income in an economy equals the money supply in an economy

false

the money of supply is easier to control with commodity money than it is with fiat money

false

the real world money multiplier is greater than the simple money multiplier

false

your checking account balance is included in your banks assets

false

Liquidity increases as we move from the M1 to the M2 definition of the money supply.

falsefalse

billion Zimbabwean dollars. Zimbabwe was experiencing rapid increases in the price level, which is

hyperinflation

in 1980, one Zimbabwean dollar was worth 1.47 US dollars. By the end of 2008, the exchange rate was one to 2 billion Zimbabwean dollars. When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe, the economy is said to experience

hyperinflation

There is a strong link between changes in the money supply and inflation

in the long run, but not in the short run

according to the quantity theory of money, deflation will occur if the

money supply grows at a slower rate than real GDP

the quantity equation states that the

money supply times the velocity of money equals the price level times real output.