Hw 4

In defining money as M1, economists exclude time deposits because

they are not directly or immediately a medium of exchange.

. Lowerin the reserve ratio

turns required reserves into excess reserves.

What are mortgage backed securities?

bonds backed by mortgage payments

Banks create money when they

buy government bonds from households.

Checkable deposits are

included in M1

A fractional reserve banking system

is susceptible to bank "panics" or "runs."

Suppose the reserve requirement is 20 percent. If a bank has checkable deposits of $4 million and actual reserves of $1 million, it can safely lend out

$200,000.

Refer to the table. Money supply M1 for this economy is

130

The paper money used in the United States is

Federal Reserve Notes

. In the U.S. economy, the money supply is controlled by the

Federal Reserve System.

monetary policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

"Near monies" are included in

M2 only

The functions of money are to serve as a

Unit of account, store of value, and medium of exchange

The Financial Crisis of 2007-2008 started in which sector of the economy?

real estate and housing sector

What "backs" the money supply of the United States?

the U.S. government's ability to keep the value of money relatively stable

Assume the economy faces high unemployment but stable prices. Which combination of government

the purchase of government securities in the open market and an increase in government spending

Ficial Policy

the use of government spending and taxation to influence the economy.