Chapter 10 and 11 Econ

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What "backs" the US money supply?

The US Government's ability to keep the value of money relatively stable

The functions of money are to serve as a

Unit of account, store of value, and medium of exchange

A consumer demands money to hold as a store of value. This would be an example of the

Use of money as a measure of value

If the reserve requirement is 20%, how much in the new loans could The Embiggen Bank create? Reserves: $2,500 Loans:$3,500 Demand Deposits: $6,000

$1,300

Which of the following is not part of the M1 money supply?

Saving deposits

Under a fractional reserve banking system, banks are required to

keep part of their demand deposits as reserves

Banks create money when they

loan checkable deposits to businesses and individuals

The transaction demand for money is very closely associated with money's use as a

medium of exchange

If a commercial bank has no excess reserves and the reserve requirement is 10%, what is the maximum amount of money that the entire banking shyster can create from an initial deposit of $10,000 which came from a private citizen?

$10,000

Suppose that the federal reserve buys $400 billion worth of government bonds from the public. If the required reserve ration is 10%, the maximum increase in the money supply is

$4,000 billion

Assume Company X deposits $10,000 in cash in commercial bank A. If the reserve ration is 20%, Bank A can increase the money supply by a maximum of :

$8,000

A reserve requirement of 10% means a bank must have $1,000 of reserves if its checkable deposits are

10,000

If the reserve ration is 25% then the monetary multiplier for the banking system will be

4

What could be considered liquid money?

Currency, coins, checkable deposits

Which of the following is correct

Granting a bank loan creates money; repaying a bank loan destroys money

One major advantage of the medium of exchange function o money is that it allows society to:

Escape the complications of barter

Which of the following sequences of events would be expected to occur if there were a reduction in the supply of money?

Interest rates - increase Investment spending - increase Aggregate demand - increase

Banks can create money by

Lending excess reserves to customers

The money creating ability of the banking system will be less than the maximum amount indicated by the monetary multiplier when

People take their loans in form of cash instead of checkable deposits

What is the most liquid asset?

currency

Assume that the reserve requirement is 20%, but banks voluntarily keep some excess reserves. What would happen in fat Federal Reserve were to deposit $1 million into the banking system?

The money supply would increase by some amount less than $5 million

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of

The reserve ratio

Which of the following is true about the federal reserve system?

There are 12 regional federal reserve banks

A consumer demands money to meet spending needs. This would be an example of

Transaction demand for money

The amount of money that the public wants to hold in the form of cash will

decrease if interest rates increase

Assume that the public holds part of its money in cash and the rest in checking accounts. If the central bank lowers the reserve requirement from 16 to 8 percent the money supply will

increase by less than double

In the narrowest definition of money, M1, savings accounts are excluded because they are

not a medium of exchange

If the federal reserve wanted to reduce the monetary multiplier, they should

raise the reserve ratio

In the US economy the money supply is controlled by

the federal reserve system

To say that the federal reserve banks are quasi-public banks means that

they are privately owned, but managed in the public interest


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