Chapter 15 Questions

When money is set aside to be used for future​ purchases, it is serving as a A. standard of deferred payment. B. store of value. C. medium of exchange. D. unit of accounting.

B. store of value.

Legal reserves are defined as A. the difference between excess reserves and required reserves B. deposits held at Federal Reserve district banks plus vault cash.. C. the value of reserves that a depository institution must hold in the form of vault cash or deposits at the Fed. D. currency plus travelers checks plus demand deposits.

B. deposits held at Federal Reserve district banks plus vault cash.

Which of the following actions would cause an increase in the level of reserves in the banking​ system? A. A customer withdraws funds from Reliable Bank and deposits them in National Bank. B. The federal government pays off bonds that were originally issued to finance the budget deficit. C. The FOMC instructs the NY trading desk to purchase government bonds on the open market. D. The federal government issues new bonds to finance the budget deficit. E. The FOMC instructs the NY trading desk to sell government bonds on the open market.

C. The FOMC instructs the NY trading desk to purchase government bonds on the open market.

Which of the following events caused Congress to begin seriously looking at setting up the Federal Reserve​ system? A. World War I. B. The need to control inflation. C. The American​ people's loss of confidence in the​ nation's currency. D. Some severe banking crises at the end of the 19th century and early 20th century.

D. Some severe banking crises at the end of the 19th century and early 20th century.

What is the basic structure of the Federal Reserve​ Bank? A. There is one major bank located in Washington D.C. with branch banks located in every major city. B. It is the combination of all private banks in the U.S. excluding Savings and Loans banks. C. There is one major bank with 25 branches. D. There are 12 district​ banks, a Board of Governors and a Federal Open Market Committee.

D. There are 12 district​ banks, a Board of Governors and a Federal Open Market Committee.

Which of the following statements is true when considering national banking structures around the​ world? A. Most countries have only a few large banks. B. It is the case that in nearly all industrialized countries the largest 5 banks in a country generally hold over​ 75% of a​ country's assets. C. Due to free markets in the banking​ industry, banking fees vary marginally around the world. D. U.S. businesses only obtain approximately​ 30% of their funds from bank loans compared to​ 65% for European firms.

D. U.S. businesses only obtain approximately​ 30% of their funds from bank loans compared to​ 65% for European firms.

Assume a 5 percent required reserve ratio LOADING...​, zero excess​ reserves, and no currency leakages. Calculate the potential money multiplier. 20 20 ​(Enter your response as an integer value​). If the Federal Reserve purchases ​$3 million in U.S. government​ securities, calculate the change in total deposits in the banking system as a whole. ​$ 60 million.

The Federal Reserve System buys ​$3 million in U.S. government​ securities, then, the actual change in total deposits equals actual money multiplier times change in total reseves. In​ general, the Potential Money Multiplier equals StartFraction 1 Over Required Reserve Ratio EndFraction is not equal to the actual money multiplier. Actual money multiplier is different from potential money multiplier because there are leakages such as currency​ drains, which happens when people hold excess cash in their​ wallets, and banks hold excess reserves. Both of these leakages make the actual multiplier smaller than the potential multiplier. But in this​ case, the potential and actual multipliers have the same​ value, since banks hold no excess reserves and there are no currency drains. (20*3)

Suppose that the total liabilities of a depository institution are transactions deposits equal to ​$3 billion. It has ​$2.25 billion in loans and​ securities, and the required reserve ratio LOADING... is 10 percent. Calculate this​ institution's excess reserves. ​$ 450.00 millions.

Total Assets equals Transaction Deposits equals $ 3billions. Out of which the bank has loans and securities.​ Thus, the total reserves that the bank is holding is equal to Total Assets minus Loans & Securities. The required reserveequals required reserve ratio times transaction deposits. Excess reserve equals Total reserve minus Required reserve.

A​ bank's only liabilities are ​$14 million in transactions deposits. The bank currently meets its reserve​ requirement, and it holds no excess reserves LOADING.... The required reserve ratio is 0.09. Assuming that its only assets are legal​ reserves, loans, and​ securities, calculate the value of loans and securities held by the bank. The value of loans and securities held by the bank is ​$ 12.74 million. ​(Enter your response rounded to two decimal​ places.)

Total assets -Required Reserves = Loans + Securities

True or False: All deposits in U.S. banks are insured by the Federal Deposit Insurance Corporation.

True

True or False: Federal deposit insurance currently covers up to​ $250,000 per depositor per institution.

True

True or False: Since​ 2010, the FDIC has been able to assess premium rates on​ banks' total liabilities.

True

True or False: The FDIC possesses regulatory powers to offset​ risk-taking temptations to depository institution managers.

True

1. The Fed acts like a private banking institution when it A. acts as the​ "lender of last​ resort." B. provides payment-clearing services to depository institutions. Your answer is correct.C. regulates the money supply. D. supplies the economy with fiduciary currency. 2. The Fed acts like a government agency when it A. supervises depository institutions. This is the correct answer.B. acts as the​ government's fiscal agent. C. holds a depository​ institution's reserves. D. provides​ payment-clearing services.

1. B 2. A

1. Obviously financial intermediaries need to collect money from a variety of sources so they can redirect it where it can be used efficiently. The primary source of funds for a financial intermediary are known as its A. assets. B. income. C. capital controls. D. liabilities. Your answer is correct. 2. The financial intermediary with liabilities of shares and checkable deposits and assets that include consumer debt and long term mortgage loans is a A. commercial bank. B. insurance company. C. money market mutual fund. D. credit union.

1. D. liabilities 2. D. credit union

Ancient goldsmiths are credited with A. developing deposit slips for gold and silver. B. the creation of the fraction reserve banking system. C. creating paper notes that could purchase goods and services. D. All of the above.

D. All of the above.

The Federal Deposit Insurance Corporation​ (FDIC) A. creates moral hazard problems in that big banks take on more risk knowing the FDIC will consider them​ "too big to​ fail." B. was created in 1933 to prevent bank runs that had been plaguing the economy during the Great Depression. C. assures depositors that their deposits will be fully recoverable​ (up to a maximum of​ $250,000 per depositor per​ institution) regardless of how serious a​ bank's financial situation may be. D. All of the above.

D. All of the above.

A credit card is not considered money because A. it simply defers rather than completes transactions that ultimately involve the use of money. B. it is not a store of value. C. it is not a unit of accounting. D. All of the above.

D. All of the above. The use of a credit card initiates a new loan and creates a new debt. It does not decrease​ one's debt. The card itself is not​ exchanged, therefore credit cards are not a medium of exchange.​ Finally, a credit card is a piece of plastic that facilitates the loan​ process, it is not an asset. It has no possibility of increasing in value.

What are the features of federal deposit​ insurance? A. Required reserves are collected based on the reserve ratio and placed in a special fund. B. One bank experiences a reduction in funds that is matched by the increase in funds by another bank. C. The required amount deposited is determined by the multiplier. D. Depository​ institutions' premiums are based on the value of their deposits with the funds being held for use in the case of a failed bank so that depositors can be reimbursed.

D. Depository​ institutions' premiums are based on the value of their deposits with the funds being held for use in the case of a failed bank so that depositors can be reimbursed.

Which of the following is a situation of moral hazard created by the existence of the​ FDIC? A. Financial institutions seeking the protection of the FDIC are able to​ "hide" their poor practices. B. The FDIC seeks to include those financial institutions that practice low risk loans. C. The FDIC regulates banks that do not promote the morals of​ today's society. D. Financial​ institutions, with FDIC​ protection, use​ depositors' funds in riskier investment projects.

D. Financial​ institutions, with FDIC​ protection, use​ depositors' funds in riskier investment projects.

Paul needs to decide between buying a new home gym for​ $1,800 or being able to go on a New York vacation for​ $1,000 and still having enough left over to buy a new set of free weights for​ $800. Paul opts for the new set of free weights and the New York vacation. Paul has used money in what ways in making his​ decision? A. Medium of exchange and a store of value. B. Medium of exchange and a standard unit of account. Your answer is correct.C. Medium of exchange and a method to decrease deferred payments. D. Store of value and a standard unit of account.

Since Paul buys the new set of free weights and takes the New York vacation he has used money as a medium of exchange. He exchanged​ $1,800 for these items. He also used money to compare the new home gym set versus the vacation and the new set of free weights.

Small-denomination time deposits are counted in M2. But to​ qualify, the time deposits have to be less than​ $100,000. So in this​ case, the certificate of deposit is not included in either M1 or M2.

Small-denomination time deposits are counted in M2. But to​ qualify, the time deposits have to be less than​ $100,000. So in this​ case, the certificate of deposit is not included in either M1 or M2.