Macro Policy Practice
In defining money as M1, economists exclude time deposits because
they are not directly or immediately a medium of exchange
The functions of money are to serve as a
unit of account, store of value, and medium of exchange
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 andactual reserves of $1 million, it can safely lend out
$200,000
In the U.S. economy, the money supply is controlled by the
Federal Reserve System
The paper money used in the United States is
Federal Reserve notes
"Near monies" are included in
M2 only
The Financial Crisis of 2007-2008 started in which sector of the economy?
real estate and housing sector
Lowering the reserve ratio
reduces the amount of excess reserves the banks keep.
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 governmentpolicies is most likely to reduce unemployment?
the purchase of government securities in the open market and an increase in government spending