Macroeconomic-Exam4a

Description:	bradley r. schiller
Category:	Business
Created by:	leepao07 on 2009-07-28

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