Econ review over money and banking Larson

The source of the supply of loanable funds is what?

saving, and the source of the demand for loanable funds is investment

If checking deposits were $1000 higher and saving deposits were $500 higher, M1 would be what?

$1,000 higher and M2 would be $1,500 higher.

Economists call an institution designed to oversee the banking system and regulate the quantity of money in the economy a_______________bank. IntheU.S., this is calledthe____________________.

Central, federal reserve

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

The supply of loanable funds shifted rightward.

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. She pays the full amount to a contractor, who deposits the money in the same bank. Assume the loan was made from original deposits of $400,000. Which is true?

Total deposits are $750,000. The money supply has increased.

T/F. Many people save for long periods of time for things like retirement, college, or a home. While this money is in the bank, it is not used in the economy.

True

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency?

U.S. paper money is fiat money.

Most financial assets other than money function as what?

a store of value, but not a unit of account nor a medium of exchange

Which of the following movements shows the effects of households' decision to save more?

an upwards shift of the supply axis

When prisoners use cigarettes or some other good as money, cigarettes become what?

commodity money and function as a unit of account.

Imagine an economy in which: (1) pieces of paper called angel bucks are the only thing that buyers give to sellers when they buy goods and services, so it would be common to use, say, 50 angel bucks to buy a pair of shoes; (2) prices are posted in terms of hot dogs, so you might walk into a grocery store and see that, today, an apple is worth 2 hot dogs; and (3) hot dogs disintegrate overnight, so no hot dog has any value for more than 24 hours. In this economy,

hot dogs are a unit of account but they cannot serve as a store of value

If a bank uses $500 of excess reserves to make a new loans, this action by itself initially makes the money supply do what?

increase by $500 while wealth does not change

Kathleen is considering expanding her dress shop. If interest rates rise she is what?

less likely to expand. This illustrates why the demand for loanable funds slopes downward

What does the vertical axis of a supply and demand graph labeled as?

real interest rate

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax- deferred retirement accounts?

the interest rate would increase and the quantity of loanable funds would decrease.