Exam 9: The Nature and Creation of Money

Use the following to answer questions . Exhibit: Fed Buys Bonds Scenario 1: Fed Buys Bonds from Sheila Jones 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 buys a $100,000 bond from Sheila Jones, who banks at the Perez Bank, and that she deposits her check in her checking account at Perez Bank. -(Exhibit: Fed Buys Bonds) As a result of Sheila's deposit, Perez Bank can increase its loans by

The quantity of reserves that banks must hold against deposits is called

The discount rate

Which of the following best illustrates the unit of account function of money?

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) As a result of the open market sale, Jekyll Bank

Banks play two primary roles in the economy: They take in deposits and lend them to borrowers, and they facilitate purchases of goods and services by allowing people to write checks against their deposits.

Use the following to answer questions . Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) New loans made in Stage 1($C) amount to

Which of the following is a store of value and a common medium of exchange?

The money supply is the total amount of checkable deposits in the economy.

Use the following to answer questions . Exhibit: Deposit Expansion Stages -(Exhibit: Deposit Expansion Stages) What is the value of $E in Stage 4?

The Federal Depository Insurance Corporation (FDIC) has the power to close a bank when

Any reserves that banks hold in excess of required reserves are called

The maximum amount of increase in the money supply that can be caused by an increase in excess reserves is equal to the

Why might monetary policy authorities be concerned when non-bank financial intermediaries account for a growing share of an economy's financial assets?

Suppose you deposit $1,000 cash in your checking account at a bank. If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is

If banks were required to keep 100% of deposits in reserves, they could

The deposit multiplier is given by the formula

Money that has value apart from its use as money is called

To reduce the political influence on the Board of Governors,

When you discover money in your coat that you placed there last winter, you unexpectedly find you were using money as a(n)