| Question |
Answer |
| assets held by a bank to fulfill its deposit obligations |
bank reserves |
| total reserves minus required reserves |
excess reserves |
| an account that allows direct payment to a third party |
transactions account |
| represent a leakage from the flow of money because they cannot be used to make loans |
required reserves |
| the reciprocal of the required reserve ratio |
money multiplier |
| tends to increase with an increase in the money supply because new loans are used to purchase additional goods and services |
aggregate demand |
| the process by which bank lending causes the money supply to increase |
deposit creation |
| the direct exchange of one good for another without the use of money |
barter |
| currency held by the public, plus balances in transactions accounts |
money supply |
| the ratio of bank reserves to total transactions deposits |
reserve ratio |
| throughout history gold coins, tobacco, and bullets have functioned in this role |
money |
| barter is an efficient mechanism for acquiring goods and services |
false |
| credit cards are a form of money because they are used to facilitate exchanges |
false |
| when you get a loan at a bank, the bank creates money |
true |
| the withdrawal of money from a checking account causes the money supply to get smaller |
false |
| the minimum-reserve ratio is established by the Federal Reserve System |
true |
| the higher the legal minimum reserve ratio, the lower the lending power of the banks |
false |
| if the required reserve ratio is 12.5 percent, then $1 of reserves can support $8 in transactions-account balances |
true |
| the amount any one bank can lend is equal to its total reserves |
false |
| a bank transfers money from savers to spenders by lending a fraction of the deposits it holds |
true |
| if people stop using checks and instead switch to cash, banks will not be able to acquire or maintain reserves and the lending activity will cease |
true |
| money is anything: a)that can be used to barter b)that a govt declares to have value c)that has value d)generally accepted as a medium of exchange |
d)generally accepted as a medium of exchange |
| which of the following is a necessary characteristic of money? a)if serves as a medium of exchange b)its value must be supported by govt reserves of gold and silver c)the govt declares it to have value d)all of the above are necessary characteristics |
a)it serves as a medium of exchange |
| barter: a)facilitates specialization in production b)is most efficient for an economy c)is the direct exchange of one good or service for another d)all of the above are correct |
c)is the direct exchange of one good or service for another |
| the different components of the money supply reflect: a)variation in liquidity and accessibility of assets b)whether deposits are domestic or international c)how often depositors use their accounts d)all of the above |
a)variation in liquidity and accessibility of assets |
| MI refers to: a)one component of the money supply b)currency held by the public plus transactions-account balances c)the smallest of the money-supply aggregate watched by the fed d)all of the above |
d)all of the above |
| which of the following appears in M2 but not in M1? a)credit-union share drafts b)treasury bills c)saving account balances d)US savings bonds |
c)saving account balances |
| immediately aftr cash is depositd nto a bank, compositions of money supply: a)n size of money supply both chnge b)chngs, bt size of money supply remains same c)remains the same, but the size of the money changes d)n size of money supply both remain same |
b)changes, but the size of the money supply remains the same |
| suppose total amt of transactions accounts on the books of all of the banks in the system is $1 million and the required reserve ratio is 0.25. the amount of required reserves for the banking system is, then: a)$1,000,000 b)$400,000 c)$250,000 d)$750,000 |
c)$250,000 |
| refer to question #9 |
d)required reserves, excess reserves, lending capacity |
| banks r requird to keep a minimum amt of funds in reserve becus: a)depositors may decide to withdraw funds b)it provides a constraint on bank's ability to create money c)it provides a constraint on the bank's ability to affect aggregate demand d)all above |
d)all of the above are correct |
| suppose a bank has $5 million in deposits, a required reserve ratio of 20%, and reserves of $1 million. then it has excess reserves of: a)$50,000 b$0 c)$500,000 d)$1,500,000 |
b)$0 |
| suppose a bank has $100,000 in deposits, a required reserve ratio of 15%, and bank reserves of $25,000. then it can make new loans in the amount of: a)$10,000 b)$15,000 c)$3,750 d)$25,000 |
a)$10,000 |
| a higher resserve requirement: a)further limits deposit creation b)increase the ability of banks to make loans c)lowers the interest rate d)increases teh borrowing capability of borrowers |
a)further limits deposit creation |
| if ppl nvr w/drew cash frm banks n thr was no reserve requiremnt, how much $ culd bankin systm potentially create fr a gvn amt of nw deposits? a)0 b)same amt as new deposits c)amount of new deposits multiplied by reserve ratio d)an infinite amt of money |
d)an infinite amount of money |
| if the minimum-reserve ratio is 10%, the money multiplier is: a)9 b)10 c).10 d)1.10 |
b)10 |
| suppose a banking system has $200,000 in deposits, a required reserve ratio of 5%, and total banking reserves for the whole system of $12,000. then the whole system can potentially make new loans in the amount of: a)$2,000 b)$240,000 c)$40,000 d)$200,000 |
c)$40,000 |
| the main goal of banks is to: a)earn a proft b)create money c)lend all of its deposits d)minimize its reserve ratio |
a)earn a profit |
| refer to question #18 |
d)all of the above |
| deposit insurance: a)reduces the bankruptcy rate of banks b)reduces the number and magnitude of bank runs c)must be subsidized and run by the government in order to have credibillity d)all of the above |
b)reduces the number and magnitude of bank runs |
| which of followin culd cause money supply to decrease? a)an increase in depositors confidence in banking system b)an increase in amt of borrowing by business and individuals c)a decrease in lending activity to banks d)rapid growth on the part of economy |
c)a decrease in lending activity by banks |
| money supply M1 |
currency held by the public, plus balances in transactions accounts |
| money supply M2 |
M1 plus balances in most savings accounts and money market mutual funds |
| money supply M1 includes: |
1. currency in circulation 2. transactions account balances 3. traveler's checks |
| money supply basic principles |
1. transactions account balances are a large portion of the money supply 2. banks can create transactions account balances by making loans |
| reserve ratio formula |
bank reserves divided by total deposits |
| required reserves formula |
required reserve ratio times total deposits |
| excess reserves formula |
total reserves minus required reserves |
| money multiplier formula |
one divided by required reserve ratio |
| potential deposit creation formula |
excess reserves times money multiplier |
| banks perform two essential functions for the macro economy: |
1. banks transfer money from savers to spenders funds (reserves) held on deposit 2. the banking system creates additional money by making loans in excess of total reserves |
| constraints on deposit creation |
1. deposits 2. borrowers 3. regulation |
| fiat money |
Currency that a government has declared to be legal tender, despite the fact that it has no intrinsic value and is not backed by reserves |
| full-bodied money |
Exchange value = intrinsic value; has value in use as well as exchange |
| specie money |
Coins or other metal money in mass circulation |
| commodity money |
is a certificate or token which can be exchanged for the underlying commodity. Example include gold, silver, copper, salt, peppercorns, large stones |
| what makes money valuebale/what do we look for when we seek for a money system? |
1. limited scarce 2.durable 3.easily divisible 4.trasnportable 5.universally recognize |