ECO 155 Chapter 16 (Final Review)
A bank's reserve ration is 10% and the bank has $5,000 in deposits. Its reserves amount to
$500
If a bank that desires to hold no excess resereves and has just enough reserves to meet the required reserve ration of 15% recieves a deposit of $600, it has a
$90 increase in excess reserves and a $510 increase in required reserves.
The money multiplier equals
1/R Where R represents the quantity of reserves in the economy
What is an example of barter
A barber gives a plumber a haircut in exchange for the plumber fixing the barber's leaky faucet
The existence of money leads to
A greater specialization and to a higher standard of living
Which of the following is a function of money?
A unit of account A store of value A medium of exchange
The confidence you have that a retailer will accept dollars in exchange for goods is based primarily on money
Being a medium of exchange
On a bank's T-account, what is part of the banks liabilities
Both deposits made by its customers but not reserves
If the money multiplier is 3 and the FED wants to increase the money supply by $900,000 it could
Buy $300,000 worth of bonds
What is included in what economists call "Money"?
Cash, Stocks and bonds, Real Estate, and all other assets
When prisoners use cigarettes or some other good as money, cigarettes become
Commodity money and function as a unit of account
The primary difference between commodity money and fiat money is that
Commodity money has intrinsic value but fiat money does not
What is a store of value
Currency U.S. Government Bonds Fine art
What increases when the FED makes open market purchases
Currency but not reserves
What is included in both M1 and M2
Demand Deposits Currency Traveler's checks Other checkable deposits
You use U.S. Currency to pay the owner of a restaurant for a delicious meal. The currency
Has no intrinsic value. The exchange is not an example of barter
As the reserve ration decreases, the money multiplier
Increases
When the FED conducts open-market purchases,
It buys treasury securities, which increases the money supply
A bank has a 5% reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement
It has $250 in reserves and $4,750 in loans
When the FED conducts open-market sales,
It sells treasury securities, which decreases the money supply
Demand deposits are included in
M1 and M2
Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer,
M1 decreases by $2,100 and M2 stays the same
John and Jane decide to go on a vacation. As a result, they withdraw $2,500 from their savings account to purchase
M1 increases by $2,500 and M2 stays the same
You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?
Medium of exchange
If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold
More reserves, so the reserve ratio will rise
Which tool of monetary policy does the Federal Reserve use most often?
Open-market operations
Currency includes
Paper bills and coins, and demand deposits
Ron has a cooking pot - wants a machete Alice has a machete- wants a fishing spear Raymond has a machete- wants a cooking pot Lee has a fishing spear- wants a coconut Which of the following pairs of survivors has a double-coincidence of wants?
Ron with Raymond
What is not included in M1
Savings deposits Small time deposits Money market mutual funds A few minor categories
Any item that people can use to transfer purchasing power from the present to the future is called
Store of value
You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a __________. The laptop's price is posted as $500. The $500 price illustrates money's function as a ______. You use the $500 to purchase the laptop. This transaction illustrates money's function as a __________.
Store of value, unit of account, medium of exchange
Diana tutors Tiago for two hours before his economics final exam. Tiago pays Diana through a direct transfer from his bank on a payment app. Diana then uses her debit card to buy pizza for dinner from the local pizza parlor. This is an example of
The exchange of money facilitating production and trade.
The discount rate is the interest rate that
The interest rate the FED charges banks
In an economy that relies upon barter,
There is no item in the economy that is widely accepted in exchange for goods and services
Economists use the word "money" to refer to
Those assets regularly used to buy goods and services
The measure of the money stock called M1 includes
Wealth held by people in their checking accounts
Banks are able to create money only when
a fraction of deposits are held in reserve
Economists equate money with
assets people use regularly to buy goods and services
Fiat money
has no intrinsic value
Double coincidence of wants
is a hindrance to the allocation of resources when it is required for trade
If an economy uses silver as money, then that economy's money
is commodity money
What is a liability of a bank and an asset of its customers
loans of its customers but not the deposit of its customers
Liquidity refers to
the ease with which an asset is converted to the medium of exchange