Chapter 29 Problems Econ 2200

C

An economy starts with $10,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $9,250. The T-account of the bank is shown below. Assets (Reserves $750 Deposits $10,000) Liabilities (Loans 9,250) If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves of $150 for this bank has the potential to increase deposits for all banks by a. $866.67. b. $1,666.67. c. $2,000.00. d. an infinite amount.

C

Bank of Springfield Assets: (Reserves: $19,200, Loans: $220,800) Liabilities: (Deposits: $240,000) Assume the Fed's reserve requirement is 6 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 6 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase? a. $50,200 b. $72,000 c. $80,000 d. $106,000

A

If people decide to hold more 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 the by selling Treasury bonds.

B

Monetary policy affects employment a. only in the long run. b. only in the short run. c. in both the long run and the short run. d. in neither the long run nor the short run.

B

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this 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.

False

T or F; A fractional reserve banking system which creates an increase in money supply also creates wealth.

True

T or F; In a 100% reserve banking system banks do not affect size of money supply.

D

The double coincidence of wants a. is required when there is no item in an economy that is widely accepted in exchange for goods and services. b. is required in an economy that relies on barter. c. is a hindrance to the allocation of resources when it is required for trade. d. All of the above are correct.

C

Type of Money Amount Large time deposits $80 billion Small time deposits $75 billion Demand deposits $75 billion Other checkable deposits $40 billion Savings deposits $10 billion Travelers' checks $1 billion Money market mutual funds $15 billion Currency $110 billion Credit card balances $10 billion Miscellaneous categories of M2 $25 billion What is the M2 money supply? a. $125 billion b. $296 billion c. $351 billion

C

Which of the following does the Federal Reserve not do? a. conduct monetary policy b. act as a lender of last resort c. convert Federal Reserve Notes into gold d. serve as a bank regulatorC

D

Which of the following is included in M2 but not in M1? a. demand deposits b. corporate bonds c. large time deposits d. money market mutual funds

A

Which of the following lists ranks types of assets from most liquid to least liquid? a. currency, demand deposits, money market mutual funds b. currency, money market mutual funds, demand deposits c. money market mutual funds, demand deposits, currency d. demand deposits, money market mutual funds, currency

$900

You deposit $100 in your checking account and the Reserve Ratio is 10% what is the maximum amount that money supply could increase.

$200

You deposit $50 in your checking account and the Reserve Ratio is 20% what is the maximum amount that money supply could increase.