Ch. 14.4 & 14.5 HW
Banks hold 100% of their checking deposits as vault cash to ensure that bank runs do not occur.
False, banks don't hold 100% of checking deposits
Hyperinflations occur because governments want to spend more than they raise in taxes, and they pay for the extra purchases by printing money.
TRUE, about hyperinflation
If the rate of growth in real GDP exceeds the rate of growth in the money supply, the quantity theory of money predicts a price deflation.
TRUE, about the rate of growth in real GDP
One way investment banks differ from commercial banks is that investment banks
do not take in deposits.
There is a strong link between changes in the money supply and inflation
in the long run, but not in the short run.
If a bank receives a $1 million discount loan from the Federal Reserve, then the bank's reserves will
increase by $1 million
The purchase of Treasury securities by the Federal Reserve will, in general
increase the quantity of reserves held by banks
A decrease in the discount rate----bank reserves and----the money supply if banks respond appropriately to the change in the rate.
increases; increases
Which of the following is not a function of the Federal Reserve System, of the "Fed"?
insuring deposits in the banking system
Bank keep-----of checking deposits as reserves because on a typical day withdrawals-----deposits.
less than 100% are about the same as
The quantity theory of money predicts that, in te long run, inflation results from the
money supply growing at a faster rate than real GDP.
According to the quantity theory of money, deflation will occur if the
money supply grows at a slower rate than real GDP.
The quantity equation states that the
money supply times the velocity of money equals the price level times real output.
The main tool that the Federal Reserve uses to conduct monetary poly is
open market operations
The 3 main monetary policy tools used by the Federal Reserve to manage the money supply are
open market operations, discount policy, and reserve requirements.
The quantity theory of money was derived from the quantity equation by asserting that
the velocity of money was fixed.
As was demonstrated in 2007, firms in the shadow banking system
were very vulnerable to bank runs
Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10%. If the Federal Reserve reduces the required reserve ratio to 8%, then the bank can make a maximum loan of
$2 million
Suppose a bank has $100 million in checking account deposits with no excess reserves and th required reserve ration is 20%. If the Federal Reserve reduces the required reserve ratio to 15%, then the bank will now have excess reserves of
$5 million
Suppose a bank has $100,000 in checking account deposits with no excess reserves and the required reserve ratio is 10%. If the Federal Reserve raises the required reserve ratio to 12%, then the bank will now have excess reserves of
-$2,000
According to the quantity theory of money, if the money supply grows at 20% and real GDP grows at 5%, then the inflation rate will be
15%
Using the quantity equation, if the velocity of money grows at 5%, the money supply grows at 10%, and real GDP grows at 4%, then the inflation rate will be
11%
A series of bank runs in a country should have no effect on M1 as money simply moves from checking deposits to currency.
False, bank runs do effect M1
In 1980, one Zimbabwean dollar was worth 1.47 US dollars. By the end of 2008, the exchange rate was one US dollar to 2 billion Zimbabwean dollars. When an economy experiences rapid increases in the price level such as what occurred in Zimbabwe, the economy is said to experience
Hyperinflation
Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic?
Required reserves would increase.
Open market operations refer to the purchase or sale of-----to control the money supply.
US Treasury securities by the Federal Reserve.
A central bank like the Federal Reserve in the US can help banks survive a bank run by
acting as a lender of last resort.
The sale of Treasury securities by the Federal Reserve will, in general,
decrease the quantity of reserves held by banks.
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.
The process of bundling loans together & buying and selling these bundles in a secondary financial market is called
securitization
Money market mutual funds sell shares to investors and use the money to buy
short-term securities.
The Federal Reserve was established in 1913 to
stop bank panics by acting as a lender of last resort.
The German Hyperinflation of the early 1920s was caused by
the German government raising funds for expenditures by selling bonds to the central bank
In response to the destructive bank panics of the Great Depression, future bank panics are designed to be prevented by
the establishment of the Federal Deposit Insurance Corporation.
Hyperinflation can be caused by
the government selling bonds to the central bank
According to the quantity theory of money, the inflation rate equals
the growth rate of the money supply minus the growth rate of real output.