Macro Ch 14 Part 1
If the bank of Waterloo receives a $10,000 deposit and the reserve requirement is 10 percent, how much can the bank loan out? (Assume that before the deposit this bank is just meeting its legal reserve requirement.)
$9,000
f the required reserve ratio is RR, the simple deposit multiplier is defined as..
1/RR
Most payments in the United States for goods and services are made using...
checking account deposits
Which of the following is counted as a liability for a bank?
customer deposits
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
Money's most narrow definition is based on its function as a...
medium of exchange
If you transfer all of your currency to your checking account, then initially, M1 will ________ and M2 will ________.
not change; not change
Credit card balances are...
not part of the money supply
If banks do not loan out all their excess reserves, then the real world multiplier is
smaller than 1/RR
Liquidity is defined as...
the ease with which a given asset can be converted to a medium of exchange
Reserves of a bank equal its...
vault cash plus deposits with the federal reserve
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
When banks gain ________, they can ________ their loans; and the money supply ________.
reserves; increase expands
M2 includes M1 plus...
savings accounts balances, money market deposits accounts in banks, small-denomination time deposits, and non institutional money market fund shares
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
A car dealer sells you a car today in exchange for money in the future. This illustrates which function of money?
standard of deferred payment
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
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
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
A cash withdrawal reduces deposits, reserves and excess reserves in the banking system....
true
If banks receive a greater amount of reserves and do not hold all of these reserves as excess reserves, the money supply expands.
true
In an economy with money, as opposed to barter, people are more likely to specialize in the production of goods and services...
true
Money will fail to serve as a medium of exchange if it ceases to be a store of value...
true
Most U.S. currency held outside the U.S. banking system is held by foreigners...
true
The statement "This Dell laptop costs $1,200" illustrates which function of money?
unit of account
Which of the following is a function that money serves?
unit of account; medium of exchange; and store of value
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
A bank holds its reserves as ________ and ________....
vault cash; despots at the federal reserveq
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
Assets Reserves +$8,000 Liabilities Deposits + $8,000 Refer to the table above. Suppose a transaction changes a bank's balance sheet as indicated in the following Tminus−account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank can make a maximum loan of...
$7,200
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to the scenario above. As a result of Kristy's deposit, Bank A can make a maximum loan of
$8,000
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to the scenario above. As a result of Kristy's deposit, Bank A's excess reserves increase by
$8,000
Suppose Warren Buffet withdraws $1 million from his checking account at Chase Bank. If the reserve requirement ratio is .2, what is the maximum change in deposits in the banking system?
-$5 mil
Assets Reserves + $1,000 Liabilities Deposits + $1,000 At this point, what percentage of the new deposits does Wells Fargo hold in reserves
100%
If the required reserve ratio is 5 percent, then the simple deposit multiplier is..
20
If the reserve requirement ratio (RR) is 0.20, the simple deposit multiplier is...
5
According to the U.S. Treasury,...
firms do not have to accept cash as payment for goods and services.
When you open a checking account at Bank of America, Bank of America...
has more reserves and more excess reserves
Among potential stores of value, money...
has the advantage of being the most liquid asset
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.
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=$6000 and wealth=$4300
If a person withdraws $500 from his/her checking 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
Economists estimate that ________ of U.S. currency is outside the United States and held primarily by ________....
over half; households and firms in countries where there is little confidence in the local currency.
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.
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
A cash withdrawal from the banking system...
decreases excess reserves; decreases reserves; decreases deposits
The required reserves of a bank equal its ________ the required reserve ratio....
deposits multiplied by
A bank's largest liability is its...
deposits of its customers
A bank is legally required to hold a fraction of its ________ as ________.
deposits; required reserves
A person's wealth...
equals the value the person's assets minus his or her liabilities
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
f bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits, the money multiplier will increase.
false
Paper currency is a ...
fiat money
A barter economy is an economy where ...
goods and services are exchanged for other goods and services.
Commodity money...
has a value independent of its use as money.
Fiat money...
has no or very little value except as money
Which of the following about fiat money is false? Fiat money...
is backed by gold
If households choose to take some fraction of each check they deposit and hold it as currency, then the simple deposit multiplier ___________ the real world multiplier....
is greater than
People hold money as opposed to financial assets because money...
is perfectly liquid
Which of the following is false about gold as money?
it is of standardized quality
Which is not one of the criteria necessary for a commodity to make a suitable medium of exchange?
it should have intrinsic value
Which of the following criteria would make gold a poor medium of exchange?
its value depends on its purity, and its purity is not east to visibly identify
Suppose the reserve requirement ratio is .20. 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
Which of the following is the most liquid asset?
money
The ________ the reserve ratio, the ________ the money multiplier.
smaller;larger
Which of the following functions of money would be violated if inflation were high?
store of value
A major source of inefficiency in barter economies is that they require...
a double coincidence of wants in exchange.
The most liquid measure of money supply is...
M1
By making exchange ________, money allows for ________ and higher ________.
easier; specialization; productivity
Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent. The maximum loan your bank can made as a direct result of your deposit is...
$1,800
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to the scenario above. 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
magine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to the scenario above. As a result of Kristy's deposit, Bank A's reserves immediately increase by
$10,000
Suppose Bill Gates deposits $20 million into his checking account at Wells Fargo Bank. If the reserve requirement ratio is 0.1 what is the maximum change in money supply?
$180 mil
Assets Reserves +$7,000 Loans +$46,000 Liabilities Deposits $50,000 Net Worth $3,000 Refer to the table above. Consider the following simplified balance sheet for a bank. If the required reserve ratio is 10 percent, the bank can make a maximum loan of...
$2,000
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to the scenario above. As a result of Kristy's deposit, Bank A's required reserves increase by
$2,000
Currency- $1,000 Checking Account Balance-$2,000 Savings Account Balance-$5,000 Small-Denomination Time Deposits-$6,000 Non institutional Money Market Fund Shares- $7,000 Consider the information in the scenario above for a simple economy. Assume there are no traveler's checks. M2 in this simple economy equals...
$21,000
Assets Reserves +$4,000 Liabilities Deposits + $4,000 Refer to the table above. Suppose a transaction changes a bank's balance sheet as indicated in the Tminus−account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank has excess reserves of...
$3,600
Suppose you withdraw $500 from your checking account and bury it in a jar in your backyard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole would drop up by a maximum of...
$5,000
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to the scenario above. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of
$50,000
With a required reserve ratio of 20 percent, an increase in reserves of $10,000 could lead to a maximum increase in checking account deposits in the entire banking system of...
$50,000
The amount of national income in an economy equals the money supply in an economy...
False
The M2 measure of the money supply equals...
M1 plus savings accounts balances plus small-denomination time deposits plus non institutional 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
Because Federal Reserve Notes (paper currency) are legal tender, ...
U.S. creditors must accept them in payment of debts
Suppose you decide to borrow money from an online peer-to-peer lending site. On the T-account for the lending site for this transaction, the funds from the investor who chooses to fund the loan would be classified as ________, and the loan made to you would be classified as ________....
a liability; an asset
Following the 2007minus−2009 financial crisis, many people feared that Greece might leave the euro and resume using the drachma. If that happened, the drachma might be worth less than the euro. When using fiat money like the drachma, the key to acceptance is that households and firms have confidence that if they accept drachma in exchange for goods and services, the drachma will not lose much value during the time they hold them. If sellers were not willing to accept the drachma in exchange for goods and services, the drachma would not serve as
a medium of exchange
The statement, "My iPhone is worth $300" represents money's function as...
a unit of account
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 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
Fiat money has...
little to no intrinsic value and is authorized by the central bank or governmental body.
Typically, a bank's largest asset is its...
loans
Which of the following is an asset for a bank?
loans
A commercial bank like Comerica creates money by...
making loans
Which of the following assets is most liquid?
money
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
Net worth is...
the difference between a firm's assets and liabilities
The largest proportion of M1 is made up of...
checking account deposits
The largest liability on the balance sheet of most banks is its...
checking accounts and savings accounts deposits of its customers
During World War II, prisoners of war used ________ as money....
cigarettes
A good can serve as money only if...
citizens accept the good as a means of payment for transactions and debts
Silver is an example of a...
commodity money
gold is an example of
commodity money
Which of the following is not counted in M1?
credit cards 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
The simple deposit multiplier is the ratio of the amount of...
deposits created by the banks to the amount of new reserves
The portion of ________ that a bank does not loan out or spend on securities is known as ________.
deposits; reserves
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. Any of these new funds that are loaned out by banks would be classified as ________ of the banks....
excess reserves
Which of the following is a true statement?
excess reserves=actual reserves-required reserves
An economy without money would have no exchanges of goods and services...
false
A person's wealth is the same as his income...
false
Economies cannot function without money...
false
If gold is used as money in an economy, the money supply is easy to control...
false
Innovations, including new products and services, in financial markets and institutions have made the job of defining the money supply easier....
false
Liquidity increases as we move from the M1 to the M2 definition of the money supply...
false
The supply of money is easier to control with commodity money than it is with fiat money...
false
The real-world money multiplier is greater than the simple money multiplier left parenthesis StartFraction 1 Over RR EndFraction right parenthesis 1 RR.
false
Your checking account balance is included in your bank's assets.
false
The Federal Reserve's narrowest definition of the money supply is...
M1
The narrowest official definition of the money supply is...
M1
Your roommate argues that he can think of no better situation than living in a deflationary economy, as prices of goods and services would continuously fall. You disagree and argue that during a deflation people can be made worse off because...
borrowed will have to pay increasing amounts in real terms over time.
Banks can continue to make loans until their...
actual reserves equal their required reserves...
Money is ...
an asset that people are willing to accept in exchange for goods and services.
A bank will consider a car loan to a customer __________ and a customer's checking account to be ____________....
an asset; a liability
In economics, money is defined as...
any asset people generally accept in exchange for goods and services.
If you liquidate $3,000 of your mutual fund and transfer the funds to your checking account, then initially, M1 will ________ and M2 will ________.
increase; not change
f 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
When a grocery store accepts your $5 bill in exchange for bread and milk, the $5 bill serves as a...
medium of exchange
