MacroEconomics- 27

Which of the following is the best definition of the term standard of deferred payment?

A standard of deferred payment is the requirement that money must be acceptable to make purchases today that will be paid for in the future.

True or false? A certificate of deposit is a type of time deposit.

True Time deposits and certificate of deposit accounts are both accounts that the depositor has committed to leaving in the bank for a certain period of time in exchange for a higher rate of interest.

Suppose the economy was in a recessionary and the Federal Government decided to give banks $700 in excess reserves through expansionary monetary policy. If the reserve requirement is 0.2, then what is the maximum possible change in the money supply associated with this monetary policy?

Applying the money multiplier formula, we see that the total change in the money supply will be: 1/reserve requirement × excess reserves = 1/0.2 ×$700= 5× $700 =$3,500

Which of the following is a drawback of using barter compared to paying with money?

Barter is more difficult than money to use as a store of value. Both barter and money work as a means of exchange, but money works better as a store of value, unit of account, and standard of deferred payment.

Which of the following is the best definition of commodity money?

Commodity money is an item used as money, but which also has value from its use as something other than money.

What term is best defined as the government-declared legal tender of a country?

Fiat money is the government-declared legal tender of a country.

Which of the following is part of M1? I. currency in a bank's vault II. cash in your wallet III. checkable deposits IV. traveler's checks

II, III, and IV M1 includes currency in circulation, checkable deposits, and traveler's checks. M2 is a broader measure of the money supply than M1. Currency in a bank's vault would not count as M1.

Which description best fits the definition of M2 money supply?

M2 money supply is the money supply that includes currency, checking accounts in banks, traveler's checks, savings deposits, money market funds, and certificates of deposit.

Which of the following is an example of barter?

Marlene fixes Jack's bicycle and in exchange he gives her a cheesecake he's made.

Which of the functions of money allow individuals to buy goods today and pay for them at a future date?

Standard of deferred payment. The function of money that allows individuals to buy goods now and pay for them in the future is called the standard of deferred payment.

Suppose the money multiplier in the U.S. is equal to 4.7 and banks hold no excess reserves and there are no cash holdings within the U.S. economy. Calculate the reserve requirement. Round your answer to the nearest thousandth. RR=0.213

The money multiplier (MM) determines the maximum increase in loans that can be made assuming banks hold no excess reserves and there are no cash holdings in the economy. If these assumptions are true, then the money multiplier formula is MM=1RR, where RR is the required reserve ratio. To find the reserve requirement, manipulate the money multiplier formula to RR=1/MM. In this case, the reserve requirement is equal to 1/14.7 or 0.213.

Which of the following explains how credit unions transfer money?

They accept deposits from members and make loans to members. A credit union is a non profit financial institution that its members own and run. Members of each credit union decide who is eligible to be a member. The credit union accepts deposits from members and focuses on making loans back to its members. While there are more credit unions than banks and more banks than savings and loans, the total assets of credit unions are growing.

True or false? A pension fund is an example of a financial intermediary.

True Pension funds make retirement savings from workers and firms available for other spending and thus qualify as financial intermediaries.

True or false? A debit card is the electronic equivalent of a check.

True; Both a debit card and a check tell a bank to transfer a checkable deposit from one account to another.

Using the Money Multiplier Formula

Using the money multiplier for the example in this text: Step 1. In the case of Singleton Bank, for whom the reserve requirement is 10% (or 0.10), the money multiplier is 1 divided by .10, which is equal to 10. Step 2. We have identified that the excess reserves are $9 million, so, using the formula we can determine the total change in the M1 money supply: Total Change in the M1 Money Supply=1Reserve Requirement × Excess Requirement= 1/0.10 ×$9 million =10×$9 million=$90 million Step 3. Thus, we can say that, in this example, the total quantity of money generated in this economy after all rounds of lending are completed will be $90 million.

Which of the following require the depositor to commit to leaving their investment in the bank for a certain period of time in exchange for higher interest rates?

certificate of deposit Time deposits and certificate of deposit accounts are both accounts that the depositor has committed to leaving in the bank for a certain period of time in exchange for a higher rate of interest.

The _________ of an investment is determined by how easy it is to sell an asset at any given time.

liquidity- refers to how quickly you can use a financial asset to buy a good or service.

You can store a certain amount of money on a _______ which can be used to make specific purchases at specific places.

smart card- you can store a certain value of money on the card and then use the card to make purchases. Some "smart cards" used for specific purposes, like long-distance phone calls or making purchases at a campus bookstore and cafeteria, are not really all that smart, because you can only use them for certain purchases or in certain places.