Chapter 14 Macroeconomics

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(all of the above) checking account deposits, holding of travlers check, currency in circulation

The M1 measure of the money supply includes which of the following components?

in the long run

There is a string link between changes in the money supply and inflation

banks grant loans to households and bundle the loans into securities that are then sold to investors

In the securitization process,

included only in M2

Savings account balances, small denomination time deposits, and non institutional money market fund shares are

1/RR

Simple Deposit Multiplier=

$50 in required reserves

Suppose American Bank has $500 in deposits and $200 in reserves and that the required reserve ratio is 10 percent. In this situation American Bank has

firms lose since they don't have the convenience of credit cards

Suppose congress changes the law to require all firms to accept paper currency in exchange for whatever they are selling all are correct except

You would have to reduce loans to make up for the necessary increase in reserves

Suppose that you are a bank manager, and the federal reserve raises the required reserve ratio from 10 percent to 12 percent. What actions would you need to take?

M1 remains unchanged

Suppose you decide to withdraw $100 from your checking account. What is the effect on M1?

Both M1 and M2 will remain unchanged

Suppose you have $2000 in a shoebox. One day you decide to deposit the money in a checking account. How will this action affect the M1 and M2 definitions of money supply?

the public plus their checking account balance

The central bank of a country controls the money supply, which equals the currency held by

controlling the money supply to pursue economic objectives

The most important role of the federal reserve in todays US economy is

Zimbabwean currency was worthless

The people buying medical services at this hospital could not use money to pay for the medical services they were buying because the

the sellers of such securities deposit the funds in their banks and bank reserves increase

When the federal reserve purchases treasury securities in the open market

the buyers of these securities pay for them with checks and bank reserves fall

When the federal reserve sells treasury securities in the open market

required reserve ratio

When the peoples bank of china cut the amount of cash that banks must set aside as reserves, the monetary policy tool they used was a change in the

expands/contracts

Whenever banks gain reserves and make new loans, the money supply ____; and whenever banks lose reserves, and reduce their loans, the money supply ____

savings account and master card

Which are not included in the M1 definition of the money supply?

fiat money has no value except as money, whereas commodity money has value independent of its use as money

Which of the following best explains the difference between commodity money and fiat money?

(all of the above)

Which of the following conditions make a good suitable for use as a medium of exchange?

money market deposit accounts in bank

Which of the following is included in M2 but not M1?

open market operation

Which of the following is not a function of money?

M*Y=P*V

Which of the following is not the formula for the quantity theory of money?

deposits

Which of the following is the largest liability of a typical bank?

the required reserve ration

Which of the following refers to the minimum fraction of deposits banks that are required by law to keep as reserves?

moral suasion

Which one of the following is not one of the policy tools the fed uses to control the money supply?

The fed conducts monetary policy principally through open market operations

Which tool is the most important

the FDIC insures deposits up to $250,000

Why do most depositors seem to be unworried that banks loan out most of the deposits they receive?

banks can make more loans

How would this action pump money into the financial system to support lending?

Disagree. Money is currency plus checking deposits. Wealth is the value of assets minus debts.

"I recently read that more than half of the money issued by the government is actually held by people in foreign countries. If that is true, then the US is less than half as wealthy as the government statistics indicate."

Income is yearly earnings and it doesn't measure wealth which is the value of personal assets less all debts

"Income is only one way of measuring wealth" Do you agree?

Disagree. Checking accounts represent something that the bank owes to the owner of the account. It is a bank liability

"assets are things of value that people own. Liabilities are debts. Therefore, a bank will always consider a cracking account deposit to bean asset and a car loan to be a liability." agree or disagree?

nominal GDP will increase

According to the quantity theory of money, if velocity does not change, when the money supply of a country increases, what will occur?

reserve ratio

RR is

all of the above

The simple deposit multiplier equals

principle of a double coincidence of wants

A baseball fan with a MT baseball acrd wants to trade it for a MC baseball card, but everyone the fan knows who has a MC card doesn't want a MT card. Economists characterize this problem as a failure of the

the fact that for a barter trade to take place between two people, each person must want what the other one has

A double coincidence of wants refers to

decreases

A higher required reserve ratio ____ the value of the simple deposit multiplier

M1 will decrease by $100

Jill makes a deposit into her savings account at the local bank with $100 in cash. As a result of this transaction,

decreases

An increase in the amount of excess reserves that banks keep ____ the value of the real world deposit multiplier

decreasing

As you actions and those of other bank managers reduced the amount of loans made, we would expect that the money supply would end up

fewer/decrease

By raising the discount rate, the feds leads banks to make ____ loans to household and firms, which _____ checking account deposits and the money supply.

end the instability created by bank panics by acting as a lender of last resort

Congress passed legislation to create the federal reserve system in 1913 in order to

the period where velocity is constant because when velocity is constant the changes in the money supply can be shown to be the main cause of inflation

During which period will the quantity theory of money be more useful in explaining changes in the inflation rate?

A person's money is the currency held and the checking account balance, income is the earning and wealth is equal to value of assets minus all debts

Distinguish among money, income, and wealth.

No. The goods are not a store of value

Do the goods Mademoiselle Zelie received as payment fulfill the four functions of money?

used to make anonymous transactions

Drug dealers might find using a virtual currency like bitcoin to be appealing because it can be

true

During the german hyperinflation many households and firms in germany were hurt, however, people with debt actually benefitted from the hyperinflation. true or false?

when governments want to spend more than they collect in taxes, central banks increase the money supply at a rate higher than GDP growth, often resulting in hyperinflation

Governments sometimes allow hyperinflation to occur because

when there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply expands

How do the banks "create" money?

the quantity equation shows that if the money supply grows at a faster rate than real GDP then there will be inflation

How does the quantity theory provide an explanation about the cause of inflation?

it would have generated high inflation and therefore decreased the value of confederacy currency

How would such a large quantity of confederate dollars have affected the value of the confederate currency?

True

If coins could have been easily used to purchase goods and services in other areas, the coins would also have some intrinsic value.

Inflation rate = growth rate of the money supply - growth rate of real output

If irving fisher was correct in his prediction about the value of velocity, then the quantity equation can be written to solve for the inflation rate as follows

with another reserve note of equal value

If you took a $20 to the treasury dept or federal reserve bank, with what type of lawful money is the government likely to redeem it?

it is still accepted as a legal tender for transactions

It is possible for people to continue to use a currency when the government that issued it has replaced it with another currency because

payments agreed to today but made in the future are in terms of money

Money serves as a standard of deferred payment when

prices of goods are stated in the terms of money

Money serves as a unit of account when

not valuable

Paper currency is a good medium of exchange because it is

constitutes offering discount loans to distressed banks, but the "bail out of the banks" involved the banks in exchange for ownership in the banks

The federal reserve acting as the lender of the last resort to prevent a bank panic

M1 is a narrow definition focusing more on liquidity, whereas M2 is a broader definition of the money supply

The federal reserve uses two definitions of the money supply, M1 and M2, because

more vulnerable than commercial banks to bank runs because they were more highly leveraged than commercial banks

The financial firms of the shadow banking system were

to explain the inflation rate in the long run

The quantity theory of money is better able

is smaller than the simple deposit multiplier because banks keep excess reserves and households hold excess cash

The real world money multiplier

7/14 year non renewable term/4 year renewable term

There are ____ members of the Board of Governors, who the president of the US appoints to ____. one board member is appointed chairman for ______

buy US treasury securities

To increase the money supply, the FOMC directs the trading desk to

it is a commodity money because it has value as recycled paper

Under these circumstances, was the chinese paper currency a commodity money or a fiat money?

hyperinflation

Very high inflation rates are called

true

We can say that loans are funded by deposits because deposits give banks financial capital, which can be loaned out so banks can make a profit. true or false?

medium of exchange, unit of account, store of value, standard of deferred payment

What are the four functions of money?

loans are the largest asset and deposits are the largest liability

What are the largest asset and the largest liability of a typical bank?

money market mutual funds, hedge funds, and other financial firms that raise money from investors and provide it to firms and households

What did Geithner mean by the non bank financial system?

Many depositors simultaneously decide to withdraw their money from a bank

What is a classic type of run?

this is when banks make loans to businesses

What is commercial lending?

money that is authorized by a central bank and that does not have to be exchanged for gold or some other commodity money

What is fiat money?

an increase in the money supply that exceeds the rate of growth of GDP will increase the price level

What is meant by Spencers statement "this printing of money will keep the deflation wolf from the door"?

a fall in the price level

What is price deflation?

financial firms that raise money from investors and provide it to borrowers

What is the shadow banking system?

a medium of exchange

When sellers are willing to accept money in exchange for goods and services, money is acting as

consumers delay purchases, expecting prices to fall more, and the lack of demand causes prices to fall further

Why would deflation cause shoppers to hold back, and what does evans pritchard mean when he says, "once this psychology gains a grip, it can gradually set off a self feeding spiral that is hard to stop"?

since most depositors are insured, it is less likely that panicked buyers will simultaneously withdraw funds

Why would deposit insurance provide the banking system with protection against runs?

all four functions

if something is to be considered as money it has to fulfill ______


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