Chapter 14 (1/2) ECO 202
The major assets on a bank's balance sheet are its
reserves, loans, and holdings of securities.
The more excess reserves banks choose to keep
the smaller the deposit multiplier.
A bank's liabilities are
things the bank owes to someone else.
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.
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
Currency $1,000 Checking Account Balances 2,000 Savings Account Balances 5,000 Small-Denomination Time Deposits 6,000 Noninstitutional Money Market Fund Shares 7,000 Consider the information above for a simple economy. Assume there are no traveler's checks. Refer to Scenario 25-1. M1 in this simple economy equals
3,000
Assets Liabilities Reserves +$4,000 Deposits +$4,000 Refer to Table 25-1. Suppose a transaction changes a bank's balance sheet as indicated in the T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank has excess reserves of
3600
If the required reserve ratio (RR) is 20 percent, the simple deposit multiplier is
5
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.
8,000
Commodity money
has value independent of its use as 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.
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
Most payments in the United States for goods and services are made using
checking account deposits.
A good can serve as money only if
citizens accept the good as a means of payment for transactions and debts.
Which is not one of the criteria necessary for a commodity to make a suitable medium of exchange?
It should have intrinsic value.
The most liquid measure of money supply is
M1
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.
A bank's largest liability is its
The portion of ________ that a bank does not loan out or spend on securities is known as ________.
Money is
an asset that people are willing to 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
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 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.
Which of the following is the most liquid asset?
money
