ScienceEconomicsEcon Chapter 9 example #79975
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Econ Chapter 9

Paulina Mitchell avatar Paulina Mitchell
2 October 2022
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question
The functions of money are to serve as a:
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unit of account, store of value, and medium of exchange.
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What function is money serving when you buy a ticket to a movie?
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A medium of exchange.
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Money functions as a store of value if it allows you to:
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delay purchases until you want the goods.
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Smith deposits $200 in currency in his checking account at a bank. This deposit is treated as:
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no change in the money supply because the $200 in currency has been converted to a $200 increase in checkable deposits.
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Paper money in the United States comes in the form of
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Federal Reserve Notes.
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Refer to the above table. The size of the M1 money supply is:
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The M1 money supply includes currency and checkable deposits: $639 + 597 =$ 1236.
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A $70 price tag on a sweater in a department store window is an example of money functioning as a:
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unit of account.
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Mike transfers $4000 from her savings account to her checking account. What effect is this change likely to have on M1 and M2?
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M1 increases and M2 stays the same.
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One reason that "near-monies" are important is because:
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they can be easily converted into money or vice versa, and thereby can influence the stability of the economy.
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U.S. currency has value primarily because it:
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is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services.
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What "backs" the money supply?
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The U.S. government's ability to keep the value of money relatively stable.
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The Federal Reserve System consists of which of the following?
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Board of Governors and the 12 Federal Reserve Banks
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The Federal Open Market Committee (FOMC):
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sets policy on the sale and purchase of government bonds by the Fed.
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What is the most important function of the Federal Reserve System?
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Controlling the money supply
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The 12 Federal Reserve Banks can best be characterized as:
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central banks, bankers' banks, and quasi-public banks.
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A commercial bank has checkable-deposit liabilities of $50,000 and a reserve ratio of 20 percent. What is the amount of required reserves?
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Required reserves = reserve ratio * checkable-deposit liabilities = 20% * $50,000= $10, 000.
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A bank owns a 10-story office building. In the bank's balance sheet, this would be an example of:
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an asset
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A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be an example of:
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a liability
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Which of the following is correct?
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The actual reserves of a commercial bank equal its excess reserves plus its required reserves.
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Other things being equal, an expansion of commercial bank lending:
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increases the money supply
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Answer the question based on the following balance sheet for the First National Bank. Assume the reserve ratio is 15% percent. Refer to the above data. This commercial bank has excess reserves of:
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Excess reserves=Actual reserves - Required reserves. Required reserves=Required reserve ratio * Checkable-deposit liabilities= 15%*$120,000=$18,000. So excess reserves = $50,000-$18,000=$32,000.
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What are the components of the M1 money supply?
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1. Currency - coins or dollar bills/paper money 2. Checkable Deposits - commercial, savings institutions, or thrifts
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Why is the face value of a coin greater than its intrinsic value?
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The face value of a coin is greater than its intrinsic value because if the intrinsic value was greater people may melt the coin down and sell it for its material value. This would mean money would constantly be destroy and go out of circulation.
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What near-monies are included in the M2 money supply?
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1. small-time deposits 2. non-checkable savings deposits 3. money market mutual funds 4. money market deposit accounts
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What is meant when economists say that the Federal Reserve Banks are quasi-public banks?
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It can be said that Federal Reserve Banks are quasi-public because each Federal Reserve is owned by the commercial banks within its district. However, the Board of Governers is independent and generates laws and regulations for commercial banks. This means that the commercial banks do not compete with the Federal Reserves, and Federal Reserves aren't motivated by profit because they're funded by other banks. Although they practice public institutions, they aren't in business with the public, just commercial banks and the government.