Exam 9: The Nature and Creation of Money

Use the following to answer questions Exhibit: Reserves, Loans, and Money -(Exhibit: Reserves, Loans, and Money) The required reserve ratio is 10%.By how much could the banking system ultimately increase the money supply if all excess reserves are loaned out, people never withdraw cash, and all loan proceeds are spent?

For a given level of reserves, a decrease in the reserve requirement ratio will

Suppose the Fed conducts an open market sale of $50 million in government securities.If the required reserve ratio is 20%, what is the maximum change in the money supply? Assume that banks try not to hold excess reserves and there is no currency withdrawal from the banking system.

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 rate of interest charged for reserves in the federal funds market is the

The principle of fractional reserve banking makes it possible for a

Membership in the Federal Reserve System

In the federal penitentiary at Lompoc, California, inmates used packages of mackerel to buy items such as haircuts at the prison barber shop and laundry services.What function do these packages of mackerel serve?

The monetary aggregate, M1, increases when

A primary function of a central bank is to

The deposit multiplier is given by the formula

A bank that has no excess reserves

A bank is "loaned up" when

Use the following to answer questions Exhibit: Money in the Economy -(Exhibit: Money in the Economy) In Year 2, if the supply of money measured by M2 was $1,000 billion, then the components of M2 not shown in the table must have totaled

The Board of Governors of the Federal Reserve System is

Suppose the Fed purchases $1,000 of government securities from the general public who then deposit the proceeds into their checking accounts in commercial banks.Which pair of the T-accounts below shows this transaction?

When the Fed sells government bonds it ____ reserves and ______ the money supply.

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

Which of the following statements is true?

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%.