ECON104 Lesson 10 HW
When sellers are willing to accept money in exchange for goods and services, money is acting as a:
Medium of exchange
Which of the following is included in M2 but not M1?
Money market deposit accounts in banks
Excess reserves:
are reserves banks keep above the legal requirement
Which of the following best explains the difference between commodity money and fiat money?
Fiat money has no value except as money, whereas commodity money has value independent of its use as money.
IF something is to be considered as money, it has to fulfill:
all four functions
The most important role of the Federal Reserve in today's US economy is:
controlling the money supply to pursue economic objectives
Which of the following is the largest liability of a typical bank? Which of the following refers to the minimum fraction of deposits banks that are required by law to keep as reserves
deposits the required reserve ration
Congress passed legislation to create the Federal Reserve System in 1913 in order to:
end the instability created by a savings and loan fiasco that occurred during that time
The Federal Reserve is divided into two bodies: Which of the following is NOT a Federal Reserve district? A. Richmond B. Philadelphia C. Dallas D. Denver
the Board of Governors and 12 regional districts D. Denver
The US dollar can best be described as:
Fiat Money
Using the information below compute the M1 money supply. Category Amount Currency and coin held by the public $700 Checking account balances $1,600 Traveler's checks $10 Savings account balances $3,300 Small denomination time deposits $5,000 Money market deposit accounts in banks $1,000 Noninstitutional money market fund shares $2,000 The M1 money supply is equal to:
$2130
The use of money:
- eliminates the double coincidence of wants - allows for greater specialization - reduces the transaction costs of exhange
The United States is divided into ____ Federal Reserve Districts. The Federal Reserve Bank's Board of Governors consists of ____ members appointed by the president of the U.S. to 14-year, non-renewable terms. One of the board members is appointed to a ___ year, renewable term as the chairman.
12; 7; 4
The (FOMC) Federal Open Market Committee:
A. includes the Board of Governors and the presidents of the 12 Federal Reserve regional banks (though not all are voting members). B. determines the target federal funds rate and the direction of open market operation policies. C. makes decisions that are voted on by all 7 members of the Board of Governors but only 5 of the 12 regional bank presidents.
The economic definition of money is:
Any asset that people are generally willing to accept in exchange for goods and services
Distinguish among money, income, and wealth. The central bank of a country controls the money supply, which equals the currency held by:
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. the public plus their checking acount balances.
Which one of the following is not a function of money? A. Medium of exchange. B. Open market operation. C. Store of value. D. Unit of account.
B. Open Market Operation
Which of the following is not a policy tool the Federal Reserve uses to manage the money supply?
Changing income tax rates
Which of the following is NOT a function of money? A. Unit of account B. Store of value C. Medium of exchange D. Acceptability
D. Acceptability
Suppose you decide to withdraw $100 in currency from your checking account. What is the effect on M1? Ignore any actions the bank may take as a result of your having withdrawn the $100.
M1 remains unchanged
In the late 1940s, the Communists under Mao Zedong were defeating the government of China in a civil war. The paper currency issued by the Chinese government was losing much of its value, and most businesses refused to accept it. At the same time, there was a paper shortage in Japan. During these years, Japan was still under military occupation by the United States. Some U.S. troops in Japan realized that they could use dollars to buy up vast amounts of paper currency in China, ship it to Japan to be recycled into paper, and make a substantial profit. Under these circumstances, was the Chinese paper currency a commodity money or a fiat money?
It is a commodity money because it has value as recycled paper
The Federal Reserve uses two definitions of the money supply, M1 and M2, because:
M1 is a narrow definition focusing more on liquidity, whereas M2 is a broader definition of the money supply.
Money serves as a unit of account when: Money serves as a standard of deferred payment when:
Prices of goods and services are stated in terms of money Payments agreed to today but made in the future are in terms of money
The formula for the simple deposit multiplier is:
SDM = 1/RR
What is commercial lending?
This is when banks make loans to businesses
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
How do the banks "create money"?
When there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply expands.
The Federal Reserve Bank of New York is always a voting member of the FOMC because:
it carries out the policy directives of the FOMC
A double coincidence of wants refers to:
the fact that for a barter trade to take place between two people, each person must want what the other one has
There are ________ members of the Board of Governors, who the President of the United States appoints to ________. One of the Board members is appointed Chairman for ________.
7; 14-year nonrenewable terms; a 4-year renewable term