MacroEconomics Midterm 2 Ch 16

If the federal reserve increases the interest rate on bank deposits at the FED banks will want to hold

more reserves so the money multiplier will fall

if the reserve ratio is 5 percent then$1000 of additional reserves can create up to

$20000 of new money

Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new loans that it makes will be

$400

in the special case of the 100 percent reserve baking the money multiplier is

1 and banks do not create money

if the reserve ratio is 8 percent then an additional $1000 of reserves can increase the money supply by as much as

12500

if the reserve ratio is 4% then the money multiplier is

25

if the reserve ratio is 2.5 percent, then the money multiplier is

40

the banks reserve ratio is

7.5%

which of the following functions of money is also a common function of most other financial assets

a store of value

Which of the following is a function of money?

all of the above

suppose banks decide to hold more currency and fewer deposits. Other thinks the same, this action will cause the

money supply to fall. to reduce the impact of this the fed could by treasury bonds

if the federal funds rate were above the level of the Federal Reserves had targeted, the Fed could move the rate towards its target by

buying bonds. This buying would increase reserves

if the public decides to hold more currency and fewer deposits in banks, bank reserves

decreases and the money supply eventually decreases

if the reserve ratio increased from 10 to 20 percent the money multiplier would

fall from 10 to 5

Which of the following will not help prevent bank runs

fractional reserve banking

the money supply decreases if

households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.

commodity money is

money with intrinsic value

credit cards are

important for analyzing the monetary system

The reserve requirement is 4%, banks hold no excess reserves and people hold no currency. If the Fed sells $10,000 of bonds what happens to the money supply?

it decreases by 250,000

The banking system currently has $50 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed raises the reserve requirement to 12.5 percent and at the same time sells $10 billion worth of bonds, then by how much does the money supply change?

it falls by 180 billion

The money supply increases when the Fed

lowers the discount rate. The increase will be larger the smaller the reserve ratio is

given the following information what are the values of m1 and m2

m1 = 850 billion and m2 = 4900 billion

travelers checks are included in

m1 and m2

an increase in the money supply might indicate that the FEd had

purchase bonds in attempt to reduce the federal fund rate

if the federal funds rate were below the level of the Federal Reserves had targeted, the Fed could move the rate towards its target by

selling bonds. This selling would reduce reserves

The fed has the power to increase or decrease the number of dollars in the economy through the decisions of

the FOMC

M1 equals currency plus demand deposits plus

travelers checks plus other checkable deposits

when we measure and record economic value, we use money as the

unit of account