Exam 9: The Nature and Creation of Money

Which of the following is an example of a bank's liabilities?

Use the following to answer questions . Exhibit: Fed Sells Bonds Scenario 2: Fed sells bonds to Henry Hyde Consider a banking system in which the reserve requirement is 10%, banks try not to hold excess reserves, consumers and firms hold money only in the form of checking account balances, and all loan proceeds are spent. Suppose initially all banks in the system are loaned up. Now, suppose that the Fed sells a $50,000 bond to Henry Hyde, who pays for the bond by writing a check drawn against Jekyll Bank. -(Exhibit: Fed Sells Bonds) Which of the following happens when Henry Hyde pays for the bond by writing a check from his checking account at the Jekyll Bank?

If a bank has $20,000 in deposits and $2,000 in legal reserves, then it is loaned up if the required reserve ratio is 10%.

In a system with 100% reserve requirement, banks cannot create loans.

One disadvantage of commodity money is that

When the Federal Reserve conducts open market transactions, it

An activity performed by commercial banks that is not performed by insurance companies is

Which of the following is an example of a bank's reserves?

What happens when you withdraw cash from a bank?

Use the following to answer questions . Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $B in stage 1?

A bank's reserves are

Currency is paper money and coin issued by the government.

Use the following to answer questions. Exhibit: Money in the Economy -(Exhibit: Money in the Economy) In Year 2, the supply of money measured by M1 was

The Federal Reserve System was created in order to provide a constant money supply for the economy.

Inmates at the federal penitentiary at Lompoc, California, accepted packages of mackerel in exchange for goods and services. What function do these packages of mackerel perform?

The higher the discount rate, the greater the incentive for banks to hold excess reserves.

The discount rate is the rate of interest charged when banks lend excess reserves to one another.

Which of the following statements is false about M1 and M2?

Suppose the reserve ratio is 25% and banks do not hold excess reserves. When the Fed sells $40 million of bonds to the public,

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create?