Econ 2035 Chp. 14
float, decrease
A decrease in __________ leads to an equal __________ in the monetary base in the short run
does not change
If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply
depositors
Individuals that lend funds to a bank by opening a checking account are called...
currency in circulation
The monetary base minus reserves equals
decreases; decrease
When the Federal Reserve calls in a discount loan from a bank, the monetary base ____________ and reserves ______________
money multiplier
a ratio that relates the change in the money supply to a given change in the monetary base
bank reserves fall, but the monetary base remains unchanged
when a member of the nonbank public withdraws currency from her bank account,
rise; increase
A .......... in the market interest rates relative to the discount rate will cause discount borrowing to ............
decrease by $100
All else the same, when the Fed calls in a $100 discount loan previously extended to the First National Bank, reserves in the banking system,...
grow proportionally with checkable deposits
An assumption in the model of the money supply process is that the desired levels of currency and excess reserves
float; decrease
An increase in _________ leads to an equal ________ in the monetary base in the short run
currency; deposits
An increase in the monetary base that goes into ____ is not multiplied, while an increase that goes into _____ is multiplied.
not multiplied; multiplied
An increase in the monetary base that goes into currency is ________, while an increase that goes into deposits is ________.
the money supply to rise
An increase in the nonborrowed monetary base, everything else held constant, will cause
securities; loans to financial institutions
Both ________ and ________ are Federal Reserve assets.
currency in circulation; reserves
Both ________ and ________ are monetary liabilities of the Fed.
depositors; banks
Decisions by ...... about their holdings of currency and by ...... about their holdings of excess reserves affect the money supply
currency; smaller
Decisions by depositors to increase their holdings of ____, or of banks to hold excess reserves will result in a _____ expansion of deposits than the simple model predicts.
currency; excess reserves
Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts.
An increase in the money supply
Everything else held constant, a decrease in holdings of excess reservers will mean
an increase in the money supply
Everything else held constant, a decrease in the currency-checkable deposit ratio will mean
increase; increase
Everything else held constant, a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.
an increase in money supply
Everything else held constant, a decrease in the required reserve ratio on checkable deposits will mean
the money supply to fall
Everything else held constant, an increase in currency holdings will cause
decrease; decrease
Everything else held constant, an increase in the currency ratio causes the M1 money multiplier to ________ and the money supply to ________.
decrease; decrease
Everything else held constant, an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.
the money supply to fall
Everything else held constant, an increase in the required reserve ratio on checkable deposits will cause
open market purchases from an individual who cashes the check
For which of the following is the change in reserves necessarily different from the change in the monetary base
currency in circulation
High-powered money minus reserves equals
fall; remained unchanged
If a member of the nonbank public purchases a government bond from the Federal Reserve in exchange for currency, the monetary base will ....... but reserve will ........
Rise; Reserves will remain unchanged
If a member of the nonbank public sells a government bond to the Federal Reserve in exchange for currency, the monetary base will ------- but ---------
remain unchanged; increases
If a person selling bonds to the Fed cashes the Fed's check, the reserves ..... and currency in circulation ...... everything else held constant
sell government bonds
If the Fed decides to reduce bank reserves, it can
increases; remains unchanged
If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base ________ and the money supply ________.
its excess reserves
If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to
$100
If the required reserves ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to
the excess reserve
In the model of the money supply process, the bank's role in influencing the money supply process is represented by
the currency holdings
In the model of the money supply process, the depositor's role in influencing the money supply is represented by
the required reserve ratio, non borrowed reserves, and borrowed reserves
In the model of the money supply process, the depositor's role in influencing the money supply is represented by
$100 times the reciprocal of the required reserve ratio
In the simple deposit expansion model; if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by
simple deposit expansion multipuler
In the simple model of multiple deposit creation in which banks do not hold excess reserves, the increase in checkable deposits equals the product of the change inn reserves and the
the monetary base; reserves
Models describing the determination of the money market supply and the Fed's role in the process normally focus on ....... rather than ...... , since Fed actions have a more predictable effect on the former
the Federal Reserve System
Of the 3 players in the money supply process, most observers agree that the most important player is
the non borrowed monetary base
Subtracting borrowed reserves from the monetary base obtains
decrease; remains unchanged
Suppose a person cashes his payroll check and holds all the funds in the form of currency. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.
remain unchanged; remains unchanged
Suppose your payroll check is directly deposited to your checking account. Everything else held constant, total reserves in the banking system ............. and the monetary base ...........
high-powered money; reserves
The Fed can exert more precise control over ________ than it can over ________.
borrowed reserves
The Fed does not tightly control the monetary base because it does not completely control
negatively, negatively
The amount of borrowed reserves is ........... related to the discount rate, and is ............. related to the market interest rate
currency; deposits
The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in ________, the open market purchase has no effect on reserves; if the proceeds are kept as ________, reserves increase by the amount of the open market purchase.
has no effect on; increases
The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in currency, the open market purchase __________ reserves; if the proceeds are kept as deposits, the open market purchase __________ reserves
MB = (rr x D) + ER + C
The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits, excess reserves, and currency is
m = (1+c) / (r + e + c)
The formula for the M1 money multiplier is
M = m x MB
The formula linking the money supply to the monetary base
D = 1/ rr + e + c x MB
The formula that links checkable deposits to the monetary base is
D = 1 / (1+c) x M
The formula that links checkable deposits to the money supply is
currency in circulation and reserves
The monetary base consists of
the Fed sells securities
The monetary base declines when...
currency in circulation and reserves
The monetary liabilities of the Federal Reserve include
positively; positively
The money supply is ________ related to the nonborrowed monetary base, and ________ related to the level of borrowed reserves.
BR = MB - MBn
The relationship between borrowed reserves, the nonborrowed monetary base, and the monetary base is...
the monetary base
The sum of the Fed's monetary liabilities (currency in circulation and reserves) and the U.S. Treasury's monetary liabilities (Treasury currency in circulation, primarily coins).
banks, depositors, and the central banks
The three players in the money supply process include
product of
The total amount of RR in the banking system is equal to the ............ the required ratio and checkable deposits
sum of
The total amount of reserves in the banking system is equal to the ............ required reserves and excess reserves
purchase; extend
There are two ways in which the Fed can provide additional reserves to the banking system: it can _______ government bonds or it can _______ discount loans to commercial banks.
bank deposits with the Fed
Total Reserves minus vault cash equals...
vault cash
Total reserves minus bank deposits with the Fed equals
decrease; decreases
When a bank buys a government bond from the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant.
increase; increases
When a bank sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant.
Bank reserves rise, but the monetary base remains unchanged
When a member of the nonbank public deposits currency into her bank account,
high-powered money increases
When an individual sells a $100 bond to the Fed, she may either deposit the check she receives or cash it for currency. In both cases
increase by $100
When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system...
decrease by default $100
When the Fed sells $100 worth of bonds to First National Bank, reserves in the banking system
multiple deposit creation
When the Fed supplies the banking system with $1 of additional reserves, deposits increase by a multiple of this amount
increase, more
When the Fed supplies the banking system with an extra dollar of reserves, deposits __________ by __________ than one dollar - a process called multiple deposit creation
increases; increase
When the Federal Reserve extends a discount loan to a bank, the monetary base __________ and reserves __________
100 percent
a simple deposit multipiler equal to one implies a required reserve ratio equal to
25 percent
a simple deposit multiplier equal to four implies a required reserve ratio equal to
50 percent
a simple deposit multiplier equal to two implies a required reserve ratio equal to
a decrease in the money supply
everything else held constant, an increase in the currency-checkable deposit ratio will mean
Vault cash plus deposits with Federal Reserve banks minus required reserves
excess reserves are equal to
reserves
high-powered money minus currency in circulation equals
$600
if the required reserve ratio is one-third, currency in circulation is $300 billion, checkable deposits are $900 billion, and there are no excess reserve, then the monetary base is
open market operations
purchases and sales of government securities by the Federal Reserve are called
required reserves and excess reserves
reserves are equal to the sum of
more than one dollar
since the Federal Reserve sets the required reserve ratio to less than one, one dollar of reserves can support ...... of checkable deposits
nine
suppose that from a new checkable deposit, First National Bank holds 2 million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank has ..... million dollars in excess reserves
required reserves
the amount of deposits that banks must hold in reserve is the
(delta)D = 1/rr x (delta)R
the formula for the simple deposit multiplier can be expressed as
the Federal Reserve System
the government agency that oversees the banking system and is responsible for the conduct of monetary policy in the United States is
discount rate
the interest rate the Fed charges banks borrowing from the Fed is the
reserves
the monetary base minus currency in circulation equals
required reserve ratio
the percentage of deposits that banks must hold on reserve, either as vault cash or reserves at the Fed
change in deposits divided by the change in reserves in the banking system
the simple deposit multiplier can be expressed as the ratio of the
excess reserves; requires reserves
total reserves are the sum of ...... and ........
discount loans
when banks borrow money from the Federal Reserve, these funds are called
increase by $100
when the fed buys $100 worth of bonds from First National Bank, reserves in the banking system
increase; increase
when the federal reserve purchases a government bond from a bank, reserves in the banking system ..... and the monetary base ..... everything else held constant
decrease; decreases
when the federal reserve sells a government bond to a bank, reserves in the banking system ..... and the monetary base ....... everything else held constant