Macroeconomics Chapter 16 Monetary System

% change in total assets/bank's capital (hint: same formula)

( [New total / old total] / old total ) *100

Relativity Asset Chart from 1 (most liquid) to 5 (least liquid)

1. dollar bill 2. funds in account 3. share of stock 4. house

Money multiplier

1/RR where RR = reserve ratio

How many federal reserve regional banks are there?

12

Leverage ratio formula

= (Banks total assets/bank capital)

New loans formula

= Loans - (10% * loans)

Required reserves formula

= Reserve ratio * money supply

Increase in deposits formula

= money multiplier * deposits = (1/RR) * deposits where RR = reserve ratio

What is in M2?

EVERYTHING in M1 (currency (bills), traveler's check, and checkable deposits) as well as the following: market deposits, accounts, saving accounts deposits, certificates of deposits (like CD), and miscellaneous hear-moves.

What is the primary role of the federal bank?

Open market operations by buying bonds (increases the money supply) and selling bonds (decreases the money supply)

Medium of exchange

Providing an accepted payment of method for goods and services

What is in M1?

currency (bills), traveler's check, and checkable deposits

what would make the money supply decrease?

households holding more money as well as banks holding more excess reserves

Increase in money supply formula

money multiplier * bonds purchased

fiat money

money whose value from government device like the US dollar as people accept it in exchange for goods and services

commodity money

money with intrinsic value, or value outside its use as money like energy bard

new money supply formula

new money supply = qty. in reserve * money multiplier = qty. in reserve * (1/RR)

Unit of account

providing buyers and sellers a common reference point for providing goods and services

Store of value

providing means of transferring purchasing power from present to future

how do the federal reserve and banks function when there is an instability of money supply?

the federal reserve is the LAST resort to prevent instability from happening