Econ exam chapter 21

Store of value example

Keeping 6 ounces of gold in your safety deposit box at the bank for emergencies

in 100-percent-reserve

M1 would not change

A decrease in reserve requirements will increase the money supply?

True

Purchasing books with cash is using money as a medium of exchange?

True

An increase in reserve requirements causes

an increase in reserve ratio, lowers the money multiplier, and decreases the money supply

Store of value

any item that people can use to transfer purchasing power from present to future (ex: money in piggy bank)

Leverage ratio

assets(everything on left)/bank capital(owners equity)

To increase the money supply, the feds could

auction more loans to the bank

M1

currency+demand deposits+travelers checks+checkable deposits (wealth held by the people in their checking accounts) a measure of money stock

an Open market sale..

decrease the number of dollars in the hands of the public but increases the number of bonds in the hands of the public

Set of items that serve as media of exchange clearly includes

demand deposits

Depositing $100 into a demand deposit at a bank..

does not change the money supply

Central bank

economist call this an institution designed to oversee the banking system and regulate the quantity of money in the economy

M2

everything in M1 plus savings deposits, small time deposits, money market mutual finds, and a few minor categories

If the people decide to hole more currency relative to deposits, the money supply..

falls. The Fed could lesson the impact of this by buying Treasury bonds

Lowering the discount rate will..

increase money supply, which will be larger the smaller the reserve ratio

Increase in the interest rates on reserves will..

increase the money supply

If reserve requirements are increased, then reserve ratio..

increases, the money multiplier decreases, and the money supply decreases

The feds can reduce the federal funds rate by..

increasing the money supply. To increase the money supply it could buy bonds

The Feds selling bonds..

may increase the federal funds, decrease money supply, and decrease banks reserves

Lending out deposits..

money supply increases

If banks hold more excess reserves then..

money supply will fall

Commodity money

money with intrinsic value, gold coins

Fiat money

money without intrinsic value, paper dollars

When the feds purchase $1000 worth of gov bonds from the public, the money supply eventually increases by

more than $1000

If banks decide to hold a smaller part of their deposits as excess reserves their money supply will..

not change

Monetary policy affects employment

only in the short run

Currency includes

paper bills and coins

The Fed increases reserves if it conducts open market..

purchases or auctions term credit

In a fractional-reserve banking system, with no excess reserves, if the central bank buys $100 million worth of bonds

reserves increase by $100 and the money supply increase by more than $100

If federal funds are low the Feds could increase the rate by..

selling bonds. This selling would reduce reserves

The federal reserve

serves as a lender of last resort

Reserve requirements

the amount of reserves banks much hold against deposits

Liquidity

the ease with which an asset can be converted into the economy's medium of exchange

When the Feds sells assets from its portfolio to the public with the intent of changing the money supply..

those assets are gov bonds and the feds are selling them to decrease money supply