ECON CHAPTER 14 REVIEW
Suppose the required reserve ratio is 20 percent. If banks are conservative and choose not to loan all of their excess reserves, the real-world deposit multiplier is...
less than 5
Banks can make additional loans when required reserves are...
less than total reserves
Suppose there us a bank panic. Which of the following would not be a consequence of this bank panic?
required reserves would increase
Suppose the reserve ratio is RR. Then...
required reserves= RR x deposits
The major assets on a bank's balance sheet are its...
reserves, loans, and holdings of securities
Fiat money has...
little to no intrinsic value and is authorized by the central bank or governmental body
Which of the following is an asset for a bank?
loans
A commercial bank like Comerica creates money by...
making loans
A balance sheet...
measures assets, liabilities, and net worth at a giving instance in time
When a grocery store accepts your $5 bill in exchange for bread and milk, the $5 bill serves as a...
medium of echange
Money's most narrow definition is based on its function as a...
medium of exchange
Which of the following assets is most liquid?
money
Which of the following is the most liquid asset?
money
Which of the following is one of the most important benefits of money in an economy?
money makes exchange easier, leading to more specialization and higher productivity
If the central bank can act as a lender of last resort during a banking panic, banks can...
satisfy customer withdrawal needs and eventually restore the public's faith in the banking system
M2 includes M1 plus...
savings account balances, money market deposit accounts in banks, small-denomination time deposits, and non-institutional money market fund shares
If banks do not loan out all their excess reserves, then the real world multiplier is...
smaller than 1/RR
If, during a deposit expansion, not all money gets redeposited into the banking system and some leaks out as currency, then the real world multiplier is...
smaller than 1/RR
The Federal Reserve was established in 1913 to...
stop bank panics by acting as a lender of last resort
A farm worker gets paid today in money, but plans to spend the money next week. This illustrates which function of money?
store of value
If whole tomatoes were money, which of the following functions of money would be the hardest for tomatoes to satisfy?
store of value
Paper currency is a...
fiat money
A bank's assets are...
things owned by or owed to the bank
A bank's liabilities are...
things the bank owes to someone else
Suppose a transaction changes a bank's balance sheet as indicated in the following T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank can make a maximum loan of...
$1, 800
Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent. The maximum loan your bank can make as a direct result of your deposit is...
$1,800
As a result of Kristy's deposit, Bank A's reserves immediately increase by...
$10,000
If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to...
$10,000
As a result of Kristy's deposit, Bank A's required reserves increase by...
$2,000
Consider the following T-account for National City Bank. If the required reserve ratio is lowered to 8 percent, how much can National City loan out?
$2,000
M2 in this simple economy equals...
$21,000
M1 in this simple economy equals...
$3,000
Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your back yard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of...
$5,000
As a result of Kristy's deposit, checking account deposits in the baking system as a whole (including the original deposit) could eventually increase up to a maximum of...
$50,000
As a result of Kristy's deposit, Bank A can make a maximum loan of...
$8,000
As a result of Kristy's deposit, Bank A's excess reserves increase by...
$8,000
Suppose a transaction changes the balance sheet of Wells Fargo bank as indicated in the following T-account. At this point, what percentage of the new deposits does Wells Fargo hold in reserves?
100 percent
If the required reserve ratio is 5 percent, then the simple deposit multiplier is...
20
If the required reserve ratio (RR) is 20 percent, the simple deposit multiplier is...
5
Economies cannot function without money.
False
The most liquid measure of money supply is...
M1
The narrowest official definition of the money supply is...
M1
The M2 measure of the money supply equals...
M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares
If the Federal Reserve decided to include virtual money like Bitcoins in its measure of the money supply, what would be the effect on M1 or M2?
M1 would rise
A major source of inefficiency in barter economies is that they require...
a double coincidence of wants in exchange
The statement, "My iPhone is worth $700" represents money's function as...
a unit of account
Banks can continue to make loans until their...
actual reserves equal their required reserves
A cash withdrawal from the banking system...
all of the above are correct
Which of the following is a function that money serves?
all of the above are correct
Money is...
an asset that people are willing to accept in exchange for goods and services
In economics, money is defined as...
any asset people generally accept in exchange for goods and services
In an attempt to bring lenders and borrowers together following the financial crisis of 2008, the Federal Reserve made a large amount of new funds available to financial markets. The Fed expected this to increase in the money supply and the total amount of lending because of the multiplier effect, in which a given amount of new reserves results in a multiple increase in...
bank deposits
Which of the following best describes how banks create money?
banks create checking account deposits when making loans from excess reserves
Economies where goods and services are traded directly for other goods and services are called ________ economies.
barter
In an economy with_____, there are more prices than in an economy with_____.
barter; money
Fiat money is generally issued by...
central banks
The largest liability on the balance sheet of most banks is its...
checking account and savings account deposits of its customers
The largest proportion of M1 is made up of...
checking account deposits
A good can serve as money only if...
citizens accept the good as a means of payment for transactions and debts
Gold is an example of...
commodity money
Silver is an example of a...
commodity money
Which of the following is not counted in M1?
credit card balances
M1 includes...
currency in circulation, checking account deposits in banks, and holdings of traveler's checks
The M1 measure of the money supply equals...
currency plus checking account balances plus traveler's checks
Which of the following is counted as a liability for a bank?
customer deposits
If households in the economy decide to take money out of checking account deposits and put this money into savings accounts, this will initially...
decrease M1 and not change M2
If a person takes $100 from his/her piggy bank at home and puts it in his/her savings account, then M1 will ________ and M2 will ________.
decrease; not change
The simple deposit multiplier is the ratio of the amount of...
deposits created by the banks to the amount of new reserves
A bank's largest liability is its...
deposits of its customers
A person's wealth...
equals the value the person's assets minus his or her liabilities
Which of the following is a true statement?
excess reserves = actual reserves - required reserves
Suppose you deposit $2,000 into Bank of America and that the required reserve ratio is 10 percent. How does this affect the bank's balance sheet?
excess reserves rise by $1,800
A barter economy is an economy where...
goods and services are exchanged for other goods and services
When you open a checking account at Bank of America, Bank of America...
has more reserves and more excess reserves
Fiat money...
has no or very little value except as money
Commodity money...
has value independent of its use as money
If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will ________ and M2 will ________.
increase; not change
Which of the following is not a function of the Federal Reserve System, or the "Fed"?
insuring deposits in the banking system
People hold money as opposed to financial assets because money...
is perfectly liquid
Which is not one of the criteria necessary for a commodity to make a suitable medium of exchange?
it should have intrinsic value
You earn $500 a month, currently have $200 in currency, $100 in your checking account, $2,000 in your savings accounts, $3,000 worth of illiquid assets and $1,000 of debt. You have...
money=$300, annual income=$6,000, and wealth=$4,300
If households in the economy decide to take money out of checking account deposits and hold it as currency, this will initially...
not change M1 and not change M2
If a person withdraws $500 from his/her savings account and holds it as currency, then M1 will ________ and M2 will ________.
not change; not change
If credit card balances rise in the economy, then M1 will ________ and M2 will ________.
not change; not change
Credit card balances are...
not part of the money supply
In the United States, currency includes...
paper money and coins in circulation
Dollar bills in the modern economy serve as money because...
people have confidence that others will accept them as money
The seven members of the Board of Governors of the Federal Reserve are appointed by...
the President
Net worth is...
the difference between assets and liabilities
Liquidity is defined as...
the ease with which a given asset can be converted to a medium of exchange
All of the following could be considered benefits for a business not accepting cash except...
the fees paid for the use of credit cards
Which of the following determines the amount of money the banking system as a whole can create?
the quantity of bank reserves
The major shortcoming of a barter economy is...
the requirement of a double coincidence of wants
The more excess reserves banks choose to keep...
the smaller the deposit multiplier
The statement "This Dell laptop costs $1,200" illustrates which function of money?
unit of account
Commodity money is a good..
used as money that also has value independent of its use as money
Soldiers in a World War II prisoner-of-war camp...
used cigarettes as money
Bank reserves include....
vault cash and deposits with the Federal Reserve
Reserves of a bank equal its...
vault cash plus deposits with the Federal Reserve
If households and firms decide to hold less of their money in checking account deposits and more in currency, then initially, the money supply...
will not change