chap 8
Suppose Warren Buffet withdraws $1 million from his checking account at Chase Bank. If the required reserve ratio is 20 percent, what is the maximum change in deposits in the banking system?
-$5 million
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 Scenario 14-2. As a result of Kristy's deposit, Bank A's reserves immediately increase by
10,000
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 Scenario 14-2. As a result of Kristy's deposit, Bank A's required reserves increase by
2,000
According to the quantity theory of money, if the money supply grows at 6%, real GDP grows at 2%, and the velocity of money is constant, then the inflation rate will be
4%.
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 Scenario 14-2. 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
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 Scenario 14-2. 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 Scenario 14-2. As a result of Kristy's deposit, Bank A's excess reserves increase by
8,000
The most liquid measure of money supply is
M1
Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic?
Required reserves would increase.
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
Liquidity is defined as
The ease with which a given asset can be converted to a medium of exchange
The statement "this dell laptop costs 1,200" illustrates which function of money?
Unit of account
In economics, money is defined as
any asset people generally accept in exchange for goods and services.
To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency, the Federal Reserve could
buy Treasury securities.
To increase the money supply, the Federal Reserve could
conduct an open market purchase of Treasury securities.
Which of the following is not counted in M1?
credit card balances
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
A bank's largest liability is its
deposits of its customers.
By making exchange ________, money allows for ________ and higher ________.
easier; specialization; productivity
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 were obtained by banks but were not loaned out would be classified as ________ of the banks.
excess reserves
Commodity money
has value independent of its use as money.
There is a strong link between changes in the money supply and inflation
in the long run, but not in the short run.
Lowering the discount rate will
increase reserves, encourage banks to make more loans, and increase the money supply.
The purchase of Treasury securities by the Federal Reserve will, in general
increase the quantity of reserves held by banks.
If 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
If the Fed lowers the reserve requirement, then this
increases excess reserves, encourages banks to make more loans, and increases the money supply.
Which of the following is not a function of the Federal Reserve System, or the "Fed"?
insuring deposits in the banking system
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
Fiat money has
little to no intrinsic value and is authorized by the central bank or governmental body.
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. Using the M1 measure of money, you have
money = $300, annual income = $6,000, and wealth = $4,300
The quantity theory of money predicts that, in the long run, inflation results from the
money supply growing at a faster rate than real GDP.
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
In 2008, the Fed and the Treasury began attempting to stabilize the commercial banking system through the Troubled Asset Relief Program (TARP) by
providing funds to banks in exchange for stock.
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 and buying and selling these bundles in a secondary financial market is called
securitization
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
Hyperinflation can be caused by
the government selling bonds to the central bank.
The quantity theory of money was derived from the quantity equation by asserting that
the velocity of money was fixed.
Suppose Bill Gates deposits $20 million into his checking account at Wells Fargo Bank. If the required reserve ratio is 10 percent, what is the maximum change in money supply?
$180 million
