Macroeconomics Chapter 25
Reserve requirements
Which of the following policy tools is the Federal Reserve least likely to use in order to actively change the money supply?
Fractional reserve banking system
A banking system in which banks keep less than 100 percent of deposits as reserves.
M2 money supply
A broader definition of the money supply that includes M1 plus savings account deposits, small-denomination time deposits, balances in money market deposit accounts in banks, and non-institutional money market fund shares.
Security
A financial asset—such as a stock or a bond—that can be bought and sold in a financial market.
Commodity money
A good used as money that also has value independent of its use as money
Bank panic
A situation in which many banks experience runs at the same time.
Bank run
A situation in which many depositors simultaneously decide to withdraw money from a bank.
Quantity theory of money
A theory about the connection between money and prices that assumes that the velocity of money is constant.
Money
Assets that people are generally willing to accept in exchange for goods and services or for payment of debts.
included in neither the M1 definition of the money supply nor in the M2 definition.
Credit cards are:
12
How many federal reserve districts are there?
7
How many governors are on the federal reserve bank's board of governors?
M1
If you move $100 from your savings account to your checking account, then ___________ will increase by $100 and M2 will remain the same
Discount loans
Loans the Federal Reserve makes to banks.
The Quantity Equation
M x V = P x Y
M2 is the best definition of money as a medium of exchange.
Which of the following is not a correct statement about M2?
4
Out of the 7 members on the Federal Reserve Bank's Board of Governor's six of the members serve 14 year non-renewable terms, while the chairman serves renewable terms of ___________ years
banks set long-term policy decisions, loan decisions, and deposit decisions based on the reserve requirement.
Reserve requirements are changed infrequently because:
Required reserves
Reserves that a bank is legally required to hold, based on its checking account deposits.
Excess reserves
Reserves that banks hold over the legal requirement.
Federal Open Market Committee
The Federal Reserve committee responsible for open market operations and managing the money supply in the United States
M1, savings accounts, small time deposits, and money markets.
The M2 definition of the money supply includes:
Monetary policy
The actions the Federal Reserve takes to manage the money supply and interest rates to achieve macroeconomic policy objectives.
Velocity of money
The average number of times each dollar in the money supply is used to purchase goods and services included in GDP.
Open market operations
The buying and selling of Treasury securities by the Federal Reserve in order to control the money supply.
Commodity
Which of the following is not a function of money?
Any asset that people are generally willing to accept in exchange for goods and services.
The economic definition of money is:
Discount rate
The interest rate the Federal Reserve charges on discount loans.
M1 money supply
The narrow definition of the money supply: the sum of currency in circulation, checking account deposits in banks, and holdings of traveler's checks.
Securitization
The process of transforming loans or other financial assets into securities.
Simple deposit multiplier
The ratio of the amount of deposits created by banks to the amount of new reserves.
reduces the transaction costs of exchange, eliminates the double coincidence of wants, and allows for greater specialization.
The use of money:
Changing income tax rates
Which of the following is not a policy tool the Federal Reserve uses to manage the money supply?
False. Banks must hold a fraction of their deposits as vault cash or with the Federal Reserve.
True or False: Banks use deposits to make consumer loans to households and commercial loans to businesses. Banks will loan out every penny of their deposits in order to make a profit.
It must act as a medium of exchange. It must serve as a unit of account. It must serve as a store of value. It must provide a standard of deferred payment.
What are the four key functions of money:
The Federal Reserve
What is the central bank of the US?
The money supply will increase
When the Federal Reserve buys bonds through open market operations:
-Increasing the reserve requirement from 10 percent to 12.5 percent. -Decreasing the rate at which banks can borrow money from the Federal Reserve. -Buying $500 million worth of government securities, such as Treasury bills.
Which of the following is a monetary policy tool used by the Federal Reserve Bank?
Standard of deferred payment
a property of an item that makes it desirable for use as a means of settling debts maturing in the future; an essential property of money
Reserves
deposits that a bank has retained rather than loaned out or invested
Fiat money
money that has value because the government has ordered that it is an acceptable means to pay debts
