Chapter 14
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 the scenario above. As a result of Kristy's deposit, Bank A can make a maximum loan of
$8,000.
The sale of Treasury securities by the Federal Reserve will, in general,
decrease the quantity of reserves held by banks
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
The required reserves of a bank equal its ________ the required reserve ratio.
deposits multiplied by
Which of the following about fiat money is false? Fiat money
is backed by gold.
Banks can make additional loans when required reserves are
less than total reserves.
The seven members of the Board of Governors of the Federal Reserve are appointed by
the President.
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.
The major shortcoming of a barter economy is
the requirement of a double coincidence of wants.
Bank reserves include
vault cash and deposits with the Federal Reserve.
Suppose that you deposit $2,000 in your bank and the required reserve ratio is 10 percent. The maximum loan your bank can made as a direct result of your deposit is
$1,800.
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 the scenario above. As a result of Kristy's deposit, Bank A's required reserves increase by
$2,000
Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of
$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 the scenario above. 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 the scenario above. As a result of Kristy's deposit, Bank A's excess reserves increase by
$8,000.
A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate.
increases; increases
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 the scenario above. As a result of Kristy's deposit, Bank A's reserves immediately increase by
10,000.
If the reserve requirement ratio (RR) is 0.20, the simple deposit multiplier is
5.
Which of the following best describes how banks create money?
Banks create checking account deposits when making loans from excess reserves.
The Federal Reserve's narrowest definition of the money supply is
M1.
Open market operations refer to the purchase or sale of ________ to control the money supply.
U.S. Treasury securities by the Federal Reserve
Banks can continue to make loans until their
actual reserves equal their required reserves
In economics, money is defined as
any asset people generally accept in exchange for goods and services.
Economies where goods and services are traded directly for other goods and services are called ________ economies.
barter
To decrease the money supply, the Fed Reserve could conduct an open market sale of Treasury securites
conduct an open market sale of Treasury securities.
Silver is an example of a
commodity money.
To increase the money supply, the Federal Reserve could
conduct an open market purchase of Treasury securities.
The M1 measure of the money supply equals
currency plus checking account balances plus traveler's checks.
The purchase of Treasury securities by the Federal Reserve will, in general,
increase the quantity of reserves held by banks.
A decrease in the reserve requirement ________ bank reserves and ________ the money supply.
increases; increases
Which of the following is not a function of the Federal Reserve System or the "Fed"?
insuring deposits in the banking system
Fiat money has
little to no intrinsic value and is authorized by the central bank or governmental body.
Which of the following assets is most liquid?
money
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.
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
Of the three primary tools the Federal Reserve uses to conduct monetary policy, the tool used most often is
open market operations.
The three main monetary policy tools used by the Federal Reserve to manage the money supply are
open market operations, discount policy, and reserve requirements.
If whole tomatoes were money, which of the following functions of money would be the hardest for tomatoes to satisfy?
store of value
Which of the following functions of money would be violated if inflation were high?
store of value
