ECON 2301 - Chapter 27
_______ is a firm that is chartered by the Comptroller of the Currency in the U.S. Treasury (or by a state agency) to accept deposits and make loans.
A commercial bank
_______ is a financial institution that obtains funds by selling shares and uses these funds to buy assets such as U.S. Treasury bills.
A money market fund
Choose the statement about money that is correct. A. Credit cards and debit cards are examples of money. B. In the United States today, money consists of currency and deposits at banks and other depository institutions. C. Money is a completely stable store of value. D. Inflation brings a rising value of money.
B. In the United States today, money consists of currency and deposits at banks and other depository institutions.
Choose the statement about the Fed that is correct. A. The Board of Governors has seven members, including the directors of the regional Federal Reserve Banks and the President of the United States. B. The FOMC meets approximately every six weeks to review the state of the economy. C. The Federal Reserve Bank of Chicago occupies a special place in the Federal Reserve System because it implements some of the Fed's most important policy decisions. D. The Board of Governors of the Federal Reserve System is located in New York City.
B. The FOMC meets approximately every six weeks to review the state of the economy.
In March 2006, currency held by individuals and businesses was $735 billion; traveler's checks in circulation were $7 billion; checkable deposits owned by individuals and businesses were $642 billion; small time deposits were $1,020 billion; money market funds and other deposits were $732; and M2 was $6,777 billion. Calculate M1 in March 2006. Calculate savings deposits in March 2006.
In March 2006 M1 was $1,384 billion m1 = currency+travellers check +checkable deposit m1 = $735 + $7 + $642 = $1384 Savings deposits in March 2006 were $3,641 Saving deposit = M2- M1 - small deposit -money market -other deposit Saving deposit = $6,777 - $1384 - $1,020 - $732 = $3,641
_______ sets the rules and regulates and influences the activities of banks and other institutions.
The Federal Reserve
A bank holds $5 for every $100 in deposits. The bank wants to hold $1 for every $100 in deposits. The bank holds excess reserves of $9,000 and actual reserves of $16,000. What is the actual reserve ratio, the desired reserve ratio, and the desired reserves? >>> Answer to 2 decimal places.
The actual reserve ratio is .05. 5/100 = .05 The desired reserve ratio is .01. 1/100 = .01 The desired reserves are $7,000. 16,000 - 9,000 = 7,000
The money multiplier is 2.0 and the currency drain ratio is 0.2. What is the desired reserve ratio? >>> Answer to 1 decimal place.
The desired reserve ratio is ___. R = Desired Reserve Ratio C = Currency Drain Ratio M = Money Multiplier (1 + C)/(R + C) = m 1.2/(R + 0.2) = 2 1.2 = 2(R + 0.2) 1.2 = 2R + 0.4 0.8 = 2R R = 0.4
The currency drain ratio is 0.5 and the desired reserve ratio is 0.4. What is the money multiplier? >>> Answer to 1 decimal place.
The money multiplier is 1.7. Money multiplier(m) = M/H M = Money Supply = C + D C = Currency D = Deposit H = Monetary Base = C + R C = Currency R = Desired Reserves => Money multiplier(m) = M/H = (C + D)/C + R) => m = (C/D + 1)/(C/D + R/D) => m = (0.5 + 1)/(0.5 + 0.4) = 1.7
The table shows the amounts held as the various components of M1 and M2. Calculate the value of M1 and M2. The value of M1 is $___ billion. The value of M2 is $___ billion. Item $billions --------------------------------------------------------- Savings deposits 350 Checking deposits 125 Small time deposits 280 Money market funds and other deposits 300 Currency and traveler's check 50
The value of M1 is $175 billion. M1 = currency held outside banks and traveller's checks + checking deposits owned by individuals and business ($125 + $50 = $175). The value of M2 is $1105 billion. M2 = M1 + savings deposits + time deposits + money market mutual funds and other deposits ($175 + $350 + $280 + $300 = $1105).
An example of a thrift institution is _______.
a savings and loan association
Currency _________.
and debit cards are fiat money
A bank's liquid assets consist of ______.
its short-term Treasury bills and overnight loans to other banks
The largest asset of commercial banks are _______.
loans
An open market operation is ______.
the purchase or sale of government securities by the Federal Reserve System in the open market