Macro-Econ Ch 16

a

A bank's assets equal its liabilities under a: both 100-percent-reserve banking and fractional-reserve banking. b: neither 100-percent-reserve banking nor fractional-reserve banking. c: 100-percent-reserve banking but not under fractional-reserve banking. d: fractional-reserve banking but not under 100-percent-reserve banking.

R= demand deposits - loans

How to calculate reserves?

d

If people decide to hold less currency relative to deposits, the money supply a: falls. The Fed could lessen the impact of this by buying Treasury bonds. b: falls. The Fed could lessen the impact of this by selling Treasury bonds. c: rises. The Fed could lessen the impact of this by buying Treasury bonds. d: rises. The Fed could lessen the impact of this by selling Treasury bonds.

a

If the public decides to hold more currency and fewer deposits in banks, bank reserves a. decrease and the money supply eventually decreases. b. decrease but the money supply does not change. c. increase and the money supply eventually increases. d. increase but the money supply does not change

c

If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by a: $64 of new reserves. b: $448 of new reserves. c: $700 of new reserves. d: $800 of new reserves

a

Imagine that the federal funds rate was above the level the Federal Reserve had targeted. To move the rate back towards it's target the Federal Reserve could a. buy bonds. This buying would increase the money supply. b. buy bonds. This buying would reduce the money supply. c. sell bonds. This selling would increase the money supply.. d. sell bonds. This selling would reduce the money supply..

a

In 1991, the Federal Reserve lowered the reserve requirement ratio from 12 percent to 10 percent. Other things the same this should have a: increased both the money multiplier and the money supply. b: decreased both the money multiplier and the money supply. c: increased the money multiplier and decreased the money supply. d: decreased the money multiplier and increased the money supply.

b

In Hugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is a: 14 percent b: 12.5 percent c: 8 percent d: none of the above is correct

a

In a fractional-reserve banking system, a decrease in reserve requirements a. increases both the money multiplier and the money supply. b. decreases both the money multiplier and the money supply. c. increases the money multiplier, but decreases the money supply. d. decreases the money multiplier, but increases the money supply

b

In the nation of Feutschland, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is a. 29 percent. b. 22.5 percent. c. 16 percent. d. None of the above is correct.

b

Suppose a bank's reserve ratio is 5 percent and the bank has $1,000 in deposits. Its reserves amount to a. $5. b. $50. c. $95. d. $950.

b

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same,action will cause the a: money supply to fall. To reduce the impact of this the Fed could sell Treasury bonds. b: money supply to fall. To reduce the impact of this the Fed could buy Treasury bonds. c: money supply to rise. To reduce the impact of this the Fed could sell Treasury bonds. d: money supply to rise. To reduce the impact of this the Fed could buy Treasury bonds.

d

The Fed can increase the money supply by conducting open-market a. sales or by raising the discount rate. b. sales or by lowering the discount rate. c. purchases or by raising the discount rate. d. purchases or by lowering the discount rate.

a

The Federal Reserve a: is a central bank; it is responsible for conducting the nation's monetary policy; and it plays a role in regulating banks. b: is a central bank; it is responsible for conducing the nation's monetary policy; but it plays no role in regulating banks. c: is not a central bank; it is responsible for conducing the nation's monetary policy; and it plays a role in regulating banks. d: is a central bank; it plays a role in regulating banks; but it is not responsible for conducting the nation's monetary policy.

c

The monetary policy of Salidiva is determined by the Salidivian Central Bank. The local currency is the salido. Salidivian banks collectively hold 100 million salidos of required reserves, 25 million salidos of excess reserves, 250 million salidos of Salidivian Treasury Bonds, and their customers hold 1,000 million salidos of deposits. Salidivians prefer to use only demand deposits and so the money supply consists of demand deposits. 15. Refer to Scenario 16-1. Suppose the Central Bank of Salidiva loaned the banks of Salidiva 5 million salidos. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply of Salidiva change? a: 60 million salidos b:50 million salidos c: 40 million salidos d: None of the above is correct.

raises reserve requirements

To decrease the money supply the Fed __________?

reduce reserve requirements

To increase the money supply the Fed ____________?

d

Which of the following is a store of value? a: currency b: U.S. government bonds c: fine art d: All of the above are correct

federal reserves monetary policy

________________________ can have a huge effect on variables like inflation, interest rates, unemployment, and even stock price indexes and exchange rates

capital requirement

a government regulation that specifies a minimum amount of capital, intended to ensure banks will be able to pay off depositors and debts

reserve requirements (RR)

affect how much money banks can create by making loans

medium of exchange

an item buyers give to sellers when they want to purchase goods and services

store of value

an item people can use to transfer purchasing power from the present to the future

demand deposits

balances in bank accounts that depositors can access on demand by writing a check

fractional reserve banking system

banks keep a fraction of deposits as reserves and use the rest to make loans

M1

currency, demand deposits, travelers checks, and other checkable deposits

bank liability

deposits are considered a ______________

reserve requirements

established by the Fed; regulations on the minimum amount of reserves that banks must hold against deposits *banks can hold more than the minimum amount*

M2

everyday in M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories

reserve ratio (R)

fraction of deposits the banks hold as reserves; total reserves as a percentage of total deposits

bank assets - bank liabilities

how to calculate bank capital?

money multiplier x bank reserves

how to calculate money supply?

Central Bank

institution that oversees the banking system and regulated the money supply

federal funds rate

interest rate on federal loans

assets / bank capital

leverage ratio

bank asset

loans and reserves are considered ___________

medium of exchange

money is a ____________?

1/R

money multiplier = _____?

fiat money

money without intrinsic value, used as money because of government decree ex: the U.S. dollar

currency

paper bills and coins in the hands of the (nonbank) public

money supply/ money stock

quantity of money available in the economy

commodity money

takes form of commodity with intrinsic value ex: gold coins, cigarettes in POW camps

money multiplier

the amount of money the banking system generates with each dollar of reserves

Federal Reserve (Fed)

the central bank of the U.S.

liquidity

the ease with which an asset can be converted into the economies medium of exchange

bank reserves; money multiplier

the fed can change the money supply by changing ____________ or changing _____________

discount rate

the interest rate on loans the Fed makes to banks

open market operations (OMOs)

the purchase and sell of U.S. government bonds by the Fed

bank capital

the resources a bank obtains by issuing equity to its owners

money

the set of assets in an economy that people use to buy goods/services from others

monetary policy

the setting of the money supply by policy makers in the central bank

double coincidence of wants

the unlikely occurrence that two people each have a good/ service that the other wants

leverage

the use of borrowed funds to supplement existing funds for investment purposes

unit of account

the yardstick people use to post prices and record debts

raise discount rates; borrow less

to decrease the money supply the Fed can ________________ encouraging banks to _____________

lower discounts rates; borrow more

to increase the money supply the Fed can ________________ encouraging banks to _______________