ch. 14 econ

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

reserves, loans, and holdings of securities.

Which of the following is not a major function of the Federal Reserve System?

setting income tax rates

If banks do not loan out all their excess reserves, then the real world multiplier is

smaller than 1/RR

The velocity of money is defined as

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

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.

According to the quantity theory of money, the inflation rate equals

the growth rate of the money supply minus the growth rate of real output.

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

the money supply growing faster than real GDP.

The seven members of the Board of Governors of the Federal Reserve are appointed by

the president

The more excess reserves banks choose to keep

the smaller the deposit multiplier.

A bank's liabilities are

things the bank owes to someone else.

If households and firms decide to hold less of their money in checking account deposits and more in currency, then initially, the money supply

will not change

Suppose Warren Buffet withdraws $1 million from his checking account at Chase Bank. If the required reserve ratio is 20 percent, what is the maximum change in deposits in the banking system?

-5 million

If the required reserve ratio is RR, the simple deposit multiplier is defined as

1/(RR)

If the required reserve ratio is 5 percent, then the simple deposit multiplier is

20

Currency $1,000 Checking Account Balances 2,000 Savings Account Balances 5,000 Small-Denomination Time Deposits 6,000 Noninstitutional Money Market Fund Shares 7,000 Consider the information above for a simple economy. Assume there are no traveler's checks. Refer to Scenario 25-1. M1 in this simple economy equals

3,000

Assets Liabilities Reserves +$4,000 Deposits +$4,000 Refer to Table 25-1. Suppose a transaction changes a bank's balance sheet as indicated in the T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank has excess reserves of

3,600

If the required reserve ratio (RR) is 20 percent, the simple deposit multiplier is

5

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of

5 million

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 25-2. As a result of Kristy's deposit, Bank A can make a maximum loan of

8,000

Commodity money

has value independent of its use as money.

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

money supply grows at a slower rate than real GDP

the establishment of the Federal Deposit Insurance Corporation.

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

If households in the economy decide to take money out of checking account deposits and hold it as currency, this will initially

not change M1 and not change M2.

Economists estimate that ________ of U.S. currency is outside the United States and held primarily by ________.

over half; households and firms in countries where there is little confidence in the local currency

To decrease the money supply, the Federal Reserve could

raise the required reserve ratio.

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

Most payments in the United States for goods and services are made using

checking account deposit

A good can serve as money only if

citizens accept the good as a means of payment for transactions and debts.

To increase the money supply, the Federal Reserve could

conduct an open market purchase of Treasury securities

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

decrease the quantity of reserves held by banks.

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

deposits multiplied by

A bank's largest liability is its

deposits of its customers.

The portion of ________ that a bank does not loan out or spend on securities is known as ________.

deposits; reserves

Which of the following is not a consequence of the Fed changing the reserve requirement?

Changes in the ratio are easily incorporated into banks' routine management.

The Federal Open Market Committee consists of the seven members of the ________, the president of the Federal Reserve Bank of New York, and ________.

Federal Reserve's Board of Governors; four presidents from the other 11 Federal Reserve banks

Which is not one of the criteria necessary for a commodity to make a suitable medium of exchange?

It should have intrinsic value.

The most liquid measure of money supply is

M1

If the Federal Reserve decided to include virtual money like Bitcoins in its measure of the money supply, what would be the effect on M1 or M2?

M1 would rise

Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic?

Required reserves would increase

Which of the following describes the degree of control that the Fed has over the money supply?

The Fed has substantial control over the money supply

Suppose you decide to borrow money from an online peer-to-peer lending site. On the T-account for the lending site for this transaction, the funds from the investor who chooses to fund the loan would be classified as ________, and the loan made to you would be classified as ________.

a liability; an asset

excess reserves =

actual reserves - required reserve

Money is

an asset that people are willing to accept in exchange for goods and services.

measures assets, liabilities, and net worth at a giving instance in time.

balance sheet

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

If you liquidate $3,000 of your mutual fund and transfer the funds to your checking account, then initially, M1 will ________ and M2 will ________.

increase; not change

If households choose to take some fraction of each check they deposit and hold it as currency, then the simple deposit multiplier ________ the real-world multiplier.

is greater than

Fiat money has

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

A commercial bank like Comerica creates money by

making loans

Which of the following is the most liquid asset?

money