Exam 29: The Monetary System

A bank loans Benjamin's Print Shop $130,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

A bank has $30,000 in deposits and has $5,400 in reserves. What is its reserve ratio?

U.S. government bonds, fine art, and silver are all

The Federal Reserve primarily uses open-market operations to change the money supply.

What is meant by the term "lender of last resort?" In what circumstances might the Fed be a lender of last resort?

Which of the following does the Federal Reserve not do?

Suppose that in a country the total holdings of banks were as follows: required reserves = $45 million excess reserves = $15 million deposits = $750 million loans = $600 million Treasury bonds = $90 million Show that the balance sheet balances if these are the only assets and liabilities. Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and banks don't change their holdings of Treasury bonds? How much does the money supply change by?

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

If the Fed raised the reserve requirement, the demand for reserves would

Credit cards are a medium of exchange.

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

Which of the following is an example of barter?

Commodity money cannot be used as a unit of account.

When you purchase school supplies at the book store using cash, you are using money as a medium of exchange.

Roundabout trade decreases production.

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed sells $30 million worth of government bonds, bank reserves

A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can, given the reserve requirement.

​Which of the following policies can the Fed follow to increase the money supply?

In a fractional reserve economy where the required reserve ratio is 10%, must it be the case that an initial deposit of $100 increases the total money supply by $1,000? Explain.