Macro Exam 3 (ch. 14)

To expand the money supply, the Fed will sell government securities to the public.

False

What of the following statements is true about money?

Money can be narrowly or broadly defined, depending on the types of assets included.

Which of the following statements is correct about currency in the United States?

More than 80 percent of all goods and services are purchased with checking account balances rather than with currency.

A banking system in which banks keep less than 100 percent of deposits as reserves is called

a fractional reserve banking system.

Money serves as a standard of deferred payment when

repayment of debts is made using money units.

Which of the following is an asset to a bank?

reserves

There are ________ members of the Board of Governors, who are appointed by the president of the United States to ________, nonrenewable terms. One of the Board members is appointed Chairman for a(n) _________, renewable term.

seven; fourteen-year; four-year

By making exchange easier, money allows for

specialization and higher productivity.

The Fed uses three monetary policy tools. Which of the following is not one of those tools?

federal funds rate setting

By raising the discount rate, the Fed encourages banks to make _________ loans to households and firms, which will _________ checking account deposits and the money supply.

fewer; decrease

Warren Buffett holds money and wealth. He also earns an annual income. Which of the following is largest?

his wealth

Savings account balances, small-denomination time deposits, and noninstitutional money market fund shares are

included only in M2.

The actions the Federal Reserve takes to manage the money supply and interest rates to pursue economic objectives is called

monetary policy.

Assets that are generally accepted in exchange for goods and services or for payment of debts are specifically called

money

What is fiat money?

money that is authorized by a central bank and that does not have to be exchanged for gold or some other commodity money

The Fed conducts monetary policy primarily through

open market operations.

Money serves as a unit of account when

prices of goods and services are stated in the monetary unit.

The M1 measure of money includes the currency in banks, called vault cash.

False

The U.S. government backs Federal Reserve Notes with an equal amount of gold.

False

The simple deposit multiplier is 1/(1 - RR).

False

A bank panic occurs when

many banks experience runs at the same time.

M2 includes savings accounts but not checking accounts.

False

If the required reserve ratio is 10 percent, then using the simple deposit multiplier, what is the total increase in checking account deposits caused by an initial deposit of $1,000?

$10,000

If American Bank has $500 in deposits and $200 in reserves and the required reserve ratio is 10 percent, then American Bank has

$50 in required reserves.

Which of the following are included in M2?

All of the above are included in M2.

Which of the following conditions make a good suitable for use as a medium of exchange?

All of the above conditions must be met.

Money that has value different from its use as money is called fiat money.

False

In the definition of the money supply, where do credit cards belong?

Credit cards are not included in the definition of the money supply.

According to the quantity theory of money, an economy will experience inflation if the money supply grows more than 5 percent per year.

False

As households deposit paychecks in their banks, M1 will immediately increase.

False

Congress makes decisions on open market operations.

False

Excess reserves are actual reserves plus required reserves.

False

Goods and services in the United States are priced in dollars. This is an example of the store of value function of money.

False

Jamie makes a deposit into her savings account at the local bank with $500 in cash. As a result of this transaction,

M1 will decrease by $500.

The sum of currency in circulation, checking account balances in banks, and holdings of traveler's checks equals

M1.

Which of the following statements is correct?

Paper currency has no value unless it is used as money.

Which of the following statements is true?

Today, people are not allowed to write checks against their savings account balances.

A bank with $1,000 of excess reserves cannot safely lend more than $1,000.

True

A household checking account is an asset to the household and a liability to its bank.

True

Economies that trade goods and services for other goods and services are barter economies.

True

If a bank has no excess reserves, the required reserve ratio is 20 percent, then that bank can lend $4,000 when a household deposits $5,000 in currency.

True

When many depositors decide simultaneously to withdraw their money from a bank, there is

a bank run.

The key role that banks play in the economy is to

accept deposits and make loans.

The simple deposit multiplier equals

all of the above.

To increase the money supply, the FOMC directs the trading desk, located at the Federal Reserve Bank of New York, to

buy U.S. Treasury securities from the public.

If prisoners of war use cigarettes as money, then cigarettes are

commodity money.

A higher required reserve ratio _________ the value of the simple deposit multiplier.

decreases

An increase in the amount of excess reserves that banks keep _________ the value of the real-world deposit multiplier.

decreases

Which of the following is not a factor that helped lead to the financial panic of 2008?

deposit insurance for all commercial banks

Which of the following is the largest liability of a typical bank?

deposits

Fill in the blanks. Whenever banks gain reserves and make new loans, the money supply ___________; and whenever banks lose reserves, they reduce their loans and the money supply __________.

expands; contracts

Which of the following is the largest asset of a typical bank?

loans

The Federal Reserve System is

the central bank of the United States. b. the institution that regulates all state banks.

A double coincidence of wants refers to

the fact that for a barter trade to take place between two people, each person must want what the other one has.

Which of the following refers to the minimum fraction of deposits banks are required by law to keep as reserves?

the required reserve ratio