Exam 16: The Monetary System: Part B

Assume that when $100 of new reserves enter the banking system,the money supply ultimately increases by $800.Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits.If,at a point in time,reserves for all banks amount to $750,then at that same point in time,loans for all banks amount to $6,000.

As banks create money,they create wealth.

Other things the same,if banks decide to hold a smaller part of their deposits as excess reserves,the money supply will fall.

Monetary policy is determined by a committee whose voting members include all the presidents of the regional Federal Reserve Banks.

Banks can hold deposits at the Federal Reserve.Balances in these accounts can be used by banks to meet their reserve requirements,but the Fed pays no interest on these deposits.

A debit card is more similar to a credit card than to a check.

In the months of November and December,people in the United States hold a larger part of their money in the form of currency because they intend to shop and travel for the holidays.As a result,other things the same,the money supply increases.

Credit cards are a medium of exchange.

Roundabout trade decreases production.

Bank runs are only a concern under a fractional-reserve banking system.

If banks hold any amount of their deposits in reserve,then they do not have the ability to influence the money supply.

Assume that when $100 of new reserves enter the banking system,the money supply ultimately increases by $625.Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits.If,at a point in time,reserves for all banks amount to $500,then at that same point in time,loans for all banks amount to $2,625.

The Federal Reserve is a privately operated commercial bank.

Banks cannot influence the money supply if they are required to hold all deposits in reserve.

Marc puts prices on surfboards and skateboards at his sporting goods store.He is using money as a unit of account.

The use of money allows trade to be roundabout.

Sam wants to trade eggs for sausage.Sally wants to trade sausage for eggs.Sam and Sally have a double-coincidence of wants.

In a system of 100-percent-reserve banking,changes in the money supply depend on the decisions of the Fed as well as the behavior of depositors and bankers.

The series of bank failures in 1907 occurred despite the creation of the Federal Reserve many years earlier.

The chair of the Board of Governors regularly testifies to Congress about Fed policy.