ECON Alhamdi HW10

Assets Liabilities Reserves +$7,000 Deposits +$50,000 Loans +$46,000 Net Worth +$3,000 8) Refer to Table above. Consider the above simplified balance sheet for a bank. If the required reserve ratio is 10 percent, the bank can make a maximum loan of A) $2,000. B) $5,000. C) $6,300. D) $45,000.

A) $2,000.

Open market operations refer to the purchase or sale of ________ to control the money supply. A) corporate bonds and stocks by the Federal Reserve B) U.S. Treasury securities by the Federal Reserve C) corporate bonds and stocks by the U.S. Treasury D) U.S. Treasury securities by the U.S. Treasury

B) U.S. Treasury securities by the Federal Reserve

The required reserves of a bank equal its ________ the required reserve ratio. A) deposits divided by B) deposits multiplied by C) loans divided by D) loans multiplied by

B) deposits multiplied by

If a person withdraws $500 from his/her savings account and puts it in his/her checking account, then M1 will ________ and M2 will ________. A) increase; decrease B) increase; not change C) not change; increase D) not change; decrease

B) increase; not change

When a financial asset is first sold, the sale takes place in the ________ market, and subsequent sales take place in the ________ market. A) stock; bond B) primary; secondary C) investment; commercial D) secure; risk

B) primary; secondary

The process of bundling loans together and buying and selling these bundles in a secondary financial market is called A) open market operations. B) securitization. C) fractional reserve lending. D) seigniorage.

B) securitization.

If the Federal Open Market Committee wants to decrease the money supply through open market operations it will A) buy U.S. Treasury Securities. B) sell U.S. Treasury Securities. C) increase the discount rate. D) decrease the discount rate.

B) sell U.S. Treasury Securities.

Which of the following tools of monetary policy is used least often? A) open market operations B) setting the required reserve ratio C) setting the discount rate D) acting as a lender of last resort

B) setting the required reserve ratio

A central bank can help stop a bank panic by A) raising the required reserve ratio. B) calling in consumer loans. C) acting as a lender of last resort. D) decreasing income taxes.

C) acting as a lender of last resort.

A bank's largest liability is its A) short-term borrowing. B) long-term debt. C) deposits of its customers. D) shareholder equity.

C) deposits of its customers.

Among potential stores of value, money A) offers the highest rate of return. B) increases in value during periods of inflation. C) has the advantage of being the most liquid asset. D) provides more services than the other assets.

C) has the advantage of being the most liquid asset.

The Federal Reserve was established in 1913 to A) prevent inflation by decreasing the money supply. B) stimulate the economy by increasing bank reserves. C) stop bank panics by acting as a lender of last resort. D) prevent bad loans by requiring banks to hold reserves.

C) stop bank panics by acting as a lender of last resort.

Suppose you withdraw $500 from your checking account deposit and bury it in a jar in your back yard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of A) $0. B) $50. C) $500. D) $5,000.

D) $5,000.

In economics, money is defined as A) the total value of one's assets in current prices. B) the total value of one's assets minus the total value of one's debts, in current prices. C) the total amount of salary, interest, and rental income earned during a year. D) any asset people generally accept in exchange for goods and services.

D) any asset people generally accept in exchange for goods and services.

Credit card balances are A) part of M1. B) part of M2. C) part of M3. D) not part of the money supply.

D) not part of the money supply.

Dollar bills in the modern economy serve as money because A) they are backed by the gold stored in Fort Knox. B) they can be redeemed for gold by the central bank. C) they have value as a commodity independent of their use as money. D) people have confidence that others will accept them as money.

D) people have confidence that others will accept them as money.

If bankers become more uncertain regarding future deposits and withdrawals and choose to hold more excess reserves against deposits, the money multiplier will increase. True False

False

The Fed has complete control over the money supply. True False

False

In an economy with money, as opposed to barter, people are more likely to specialize in the production of goods and services. True False

True

Most U.S. currency held outside the U.S. banking system is held by foreigners. True False

True