Chapter 25 MACRO
The required reserves of a bank equal its ____ by the required reserve ratio
deposit multiplied by
A fractional reserve banking system is one in which banks hold less than 100 percent of ___ as reserves.
deposits
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit, Bank A's reserves immediately increase by
$10,000
Which of the following best describes how banks create money?
Banks create checking account deposits when making loans from excess reserves
The M1 measures of the money supply equals
Currency plus checking account balances plus traveler's checks
The M2 measure of the money supply equals
M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares.
Which of the following is one of the most important benefits of money in an economy?
Money makes exchange easier, leading to more specialization and higher productivity
The largest liability on the balance sheet of most banks is its
checking account and savings account deposits of its customers
To decrease the money supply, the Federal Reserve could
conduct an open market sale of Treasury securities
Which of the following is not counted in M1
credit card balances
A person's wealth
equals the value the person's assets minus his or her liabilities.
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 of their savings account and puts it in their checking account, the M1 will ___ and M2 will ____.
increase, not change
A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate.
increases, increases
A decrease in the reserve requirement ___ bank reserves and ___ the money supply
increases, increases
Banks can make additional loans when required reserves are
less than total reserves
Fiat money has
little to no intrinsic value and is authorized by the central bank or governmental body.
A balance sheet
measures assets, liabilities, and net worth at a given instance in time
Of the 3 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
The major assets on a bank's balance sheet are its
reserves, loans, and holdings of securities
If the central bank can act as a lender of last resort during a banking panic, banks can
satisfy costume withdrawal needs and eventually restore the public's faith in the banking system
Which of the following is not a major function of the Federal Reserves System?
setting income tax rates
The 7 members of the Board of Governors of the Federal Reserve System are appointed by
the President
A bank holds its reserves as ___ and ______________
vault cash, deposits at the federal reserve
Imagine Kristy deposits $10,000 of currently into her checking deposit at bank A and the reserve ratio is 20%. 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%. 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 loan 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%. 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%. As a result of Kristy's deposit, Bank A's excess reserves increases by
$8,000
If the required reserve ration is 5 percent, then the simple deposit multiplier is
20
The Federal Open Market Committee consists of the seven members of the _______________, the president of the Federal Reserves Bank of New York, and the ___________________.
Federal Reserve's Board of Governors four presidents from the other eleven Federal Reserve Banks
The most liquid measure of money supply is
M1
The discount rate is
The interest rate the Fed charges to banks for loans from the Fed
Open market operations refer to the purchase or sale of ______ to control the money supply
U.S Treasury securities by the Federal Reserves
The statement "My iPhone is worth $700" represent money's function as
a unit of account
Banks can continue to make loans until their
actual reserves equal their required reserves
