Chapter 27 - Macroeconomics
A bank must balance ______ against ______. security for depositors; profit for stockholders
A bank makes a profit by borrowing from depositors at a low interest rate and lending at a higher interest rate. The bank must hold enough reserves to meet depositors' withdrawals. The bank's balancing act is to balance the risk of loans (profits for stockholders) against the security for depositors
Think about the definition of money, and then choose the correct statement.
Deposits are money, checks are not money, and credit cards are not money.
Choose the statement about money that is correct.
In the United States today, money consists of currency and deposits at banks and other depository institutions.
The table gives information from a bank's balance sheet. Calculate the bank's loans, securities, and reserves. The bank's loans are $1150 million. (Loans to businesses) The bank's securities are $700 million. (Government securities) The bank's reserves are $90 million. (reserves at the fed + currency)
Item (millions of dollars) Checkable deposits 300 Savings deposits 400 Small time deposits 1240 Loans to businesses 1,150 Government securities 700 Currency 40 Reserves at the Fed 50
Choose the statement about money that is correct.
Money acts as a unit of account, which is an agreed measure for stating the prices of goods and services.
A bank holds $6 for every $100 in deposits. The bank wants to hold $2 for every $100 in deposits. The bank holds excess reserves of $8,000 and actual reserves of $21,000. What is the actual reserve ratio, the desired reserve ratio, and the desired reserves?
The actual reserve ratio is 0.06 The desired reserve ratio is 0.02 The desired reserves are $13,000
The desired reserve ratio is 2 percent, and the currency drain ratio is 4 percent of deposits. The central bank makes an open market purchase of $4 million of securities. Calculate the change in the monetary base and the change in its components. When the central bank makes an open market purchase of $4 million of securities, the component of the monetary base that changes is _______.
The change in the monetary base is an increase of $4 million. Bank reserves
A bank has the following deposits and assets: Checkable deposits, $300 Savings deposits, $1,360 Small time deposits, $675 Loans to businesses, $1,734 Outstanding credit card balances, $400 Government securities, $200 Currency, $1 Reserve account at the Fed, $6 Calculate the bank's total deposits and the amount of deposits that are part of M1 and M2.
The bank's total deposits are $2335. (checkable deposits + saving deposits + small time deposits) Deposits that are part of M1 are $300. (Checkable deposits) Deposits that are part of M2 are $2335. (checkable deposits + saving deposits + small time deposits)
If the Fed makes an open market sale of $1 million of securities to a bank, the bank's reserves ______. Excess reserves ______.
decrease; decrease decrease; decreases
What is a bank's balancing act? A bank must balance ______ against ______.
security for depositors; profit for stockholders
One of the Fed's policy tools is ______.
the discount rate, which is the interest rate at which the Fed stands ready to lend reserves to commercial banks
The Fed's policy tools include ______. To increase its assets to $4 trillion, the Fed used ______.
the required reserve ratio, discount rate, and open market operations large-scale open market operations called quantitative easing
