Chapter 16: Macroeconomics

T/F: Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

Which of the following is included in both M1 and M2? A. demand deposits B. currency C. other checkable deposits D. All of the above are correct.

Money is A. not the most liquid asset but a perfect store of value. B. the most liquid asset but an imperfect store of value. C. neither the most liquid asset and nor a perfect store of value. D. the most liquid asset and a perfect store of value.

The primary difference between commodity money and fiat money is that A. fiat money is a medium of exchange but commodity money is not. B. fiat money has intrinsic value but commodity money does not. C. commodity money has intrinsic value but fiat money does not. D. commodity money is a medium of exchange but fiat money is not.

The existence of money A. reduces specialization. B. allows for barter. C. hinders production. D. makes trade easier.

T/F: An increase in the reserve requirement increases reserves and decreases the money supply.

If the reserve ratio is 5 percent, then $500 of additional reserves can create up to A. $10,500 of new money. B. $10,000 of new money. C. $9,500 of new money. D. $2,500 of new money.

The Fed increases reserves if it conducts open market A. sales or auctions term credit B. purchases or auctions term credit. C. purchases but not if it auctions term credit D. term-8sales but not if it auctions term credit

Assets: 1. Reserves $1200 2. Loans $8000 3. Short term securities $800 Liabilities: 1. Deposits $9000 2. Debt $800 3. Capital $200 The required reserve ratio is 12 percent. Which of the following is true? A. This banks reserve ratio is 12 percent. Its excess reserves are $0. B. This banks reserve ratio is 13.3 percent. Its excess reserves are $120. C. This banks reserve ratio is 10 percent. Its excess reserves are $300. D. This banks reserve ratio is 15 percent. Its excess reserves are $240.

The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. Suppose the Bank of Tazi loaned the banks of Tazi 10 million tazes. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply change? A. 125 million tazes B. 250 million tazes C. 200 million tazes D. None of the above is correct.

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer, A. M1 increases by $2,100 and M2 increases by $2,100. B. M1 decreases by $2,100 and M2 stays the same. C. M1 decreases by $2,100 and M2 increases by $2,100. D. both M1 and M2 decrease by $2,100.

Savings deposits are included in A. M1 and M2. B. M2 but not M1. C. neither M1 nor M2. D. M1 but not M2.

When colonists in Virginia used tobacco as money, their money A. was commodity money. B. had no intrinsic value. C. had no store of value. D. was fiat money.

T/F: The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000.

When a bank loans out $1,000, the money supply A. decreases. B. increases. C. does not change. D. may do any of the above.

The money supply decreases if A. households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively fewer excess reserves and make more loans. B. households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively more excess reserves and make fewer loans. C. households decide to hold relatively less currency and relatively more deposits and banks decide to hold relatively less excess reserves and make more loans. D. households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans.

When prisoners use cigarettes or some other good as money, cigarettes become A. commodity money and function as a unit of account. B. fiat money, but do not function as a unit of account. C. fiat money and function as a unit of account. D. commodity money, but do not function as a unit of account.

Given the following information, what are the values of M1 and M2? Small time deposits $2,200B Demand deposits and other checkable deposits $1,700 billion Savings deposits $2,600 billion Money market mutual funds $1,500 billion Traveler's checks $60 billion Large time deposits $1,500B Currency $350 billion Miscellaneous categories in M2 $75 billion A. M1 = $2,110 billion, M2 = $8,485 billion. B. M1 = $2,050 billion, M2 = $9,985 billion. C. M1 = $4,310 billion, M2 = $6,285 billion. D. M1 = $3,610 billion, M2 = $9,985 billion.

Which of the following might explain why the United States has so much currency per person? A. U.S. citizens are holding a lot of foreign currency. B. Currency may be a preferable store of wealth for criminals. C. People use credit and debit cards more frequently. D. All of the above help explain the abundance of currency.

Which of the following defer payments? A. neither credit cards nor debit cards B. debit cards but not credit cards C. credit cards but not debit cards D. credit cards and debit cards

T/F: Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

When the Fed decreases the discount rate, banks will A. borrow less from the Fed and lend less to the public. The money supply decreases. B. borrow more from the Fed and lend less to the public. The money supply decreases. C. borrow more from the Fed and lend more to the public. The money supply increases. D. borrow less from the Fed and lend more to the public. The money supply increases.

The First Bank of Fairfield Assets: 1. Reserves $1000 2. Loans $7000 Liabilities: 1. Deposits $8000 If $800 is deposited into the First Bank of Fairfield, and the bank takes no other actions, its A. reserves will increase by $100. B. loans will increase by $800. C. assets will decrease by $800. D. liabilities will increase by $800.

All U.S. paper dollars read "This note is legal tender for all debts, public and private." This statement represents which characteristic of US currency? A. U.S. paper money is commodity money. B. The U.S. operates under the gold standard. C. U.S. paper money is fiat money. D. U.S. paper money is a convenient store of wealth.

An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. Assets: 1. Reserves $4250 2. Loans $45750 Liabilities: 1. Deposits $50,000 If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves of $150 for this bank has the potential to increase deposits for all banks by A. $287.25. B. $1,764.71. C. $2,000 or more. D. $1,614.71.

Today, bank runs are A. common because the FDIC is nearly bankrupt. B. uncommon because of the high reserve requirement. C. common because of the low reserve requirement. D. uncommon because of FDIC deposit insurance.

A bank's assets equal its liabilities under A. fractional-reserve banking but not under 100-percent-reserve banking. B. neither 100-percent-reserve banking nor fractional-reserve banking. C. both 100-percent-reserve banking and fractional-reserve banking. D. 100-percent-reserve banking but not under fractional-reserve banking.

T/F: The Federal Reserve primarily uses open-market operations to change the money supply.

Bank of Springfield Assets: 1. Reserves $19800 2. Loans $160200 Liabilities: 1. Deposits $180,000 If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement? A. 8.1 percent B. 89.0 percent C. 11.0 percent D. 12.4 percent

T/F: U.S. dollars are an example of commodity money and hides used to make trades are an example of fiat money.

If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank A. will initially see its total reserves increase by $10.50. B. must increase its required reserves by $10. C. will be able to make new loans up to a maximum of $9.50. D. All of the above are correct.

The discount rate is A. the percentage of deposits banks hold as excess reserves. B. the rate at which the Fed lends to banks. C. the percentage difference between the face value of a Treasury bond and what the Fed pays for it. D. the rate at which public banks lend to other public banks.

Economists use the term "money" to refer to A. all financial assets, but not real assets. B. all wealth. C. all assets, including real assets and financial assets. D. those types of wealth that are regularly accepted by sellers in exchange for goods and services.

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve A. sells government bonds from its portfolio to the public. B. sells various types of stocks and bonds from its portfolio to the public. C. creates dollars and uses them to purchase government bonds from the public. D. creates dollars and uses them to purchase various types of stocks and bonds from the public.

A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement. A. It has $10,000 in deposits. B. It has $9,600 in deposits. C. It has $6,400 in deposits. D. It has $1,600 in deposits.

What would happen without money?

Barter

Double coincidence of wants

3 Functions of Money

Medium of Exchange

Unit of Account

Store of Value

2 Types of Money:

Commodity money

Examples of Commodity money

Fiat money

Examples of fiat money

Money Supply

Money

Formula for Money

Currency

Demand Deposits

M1 (4)

M2 (4)

Central Bank

Monetary Policy

Federal Reserve (the Fed)

What is achieved by monetary policy?

Fiscal Policies

What is achieved by fiscal policies?

What does the Fed system consist of? (3)

Board of Governors

12 Regional Fed banks

Federal Open Market Committee

Fractional Reserve Banking System

Reserve Requirements

Reserve ratio (R)

Required reserve ratio

Reserve ratio formula

T-Account

What is included in liabilities (owe)

What is included in assets (own)

T/F: A fractional reserve banking system creates money, but not wealth

Money Multiplier

Money Multiplier formula

Bank Capital

Bank Capital formula

Leverage

Leverage Ratio

Capital Requirement

Change of money supply formula

How can the Fed change the money supply (2)

Fed's main tools of monetary control (3)

Open-Market Operations

What happens if the Fed buys a government bond from a bank

What happens if the Fed sells government bonds to banks?

T/F: With more reserves, the bank can make more loans increasing the money supply

What happens to reserves when the Fed makes loans to banks

How the Fed traditionally influences reserves

Discount rate

How the Fed influences reserves now

Term Auction Facility

T/F: The LESS banks borrow, the more reserves they have for funding new loans and increasing the money supply