Exam 16: The Monetary System: Part B

An increase in the reserve requirement increases reserves and decreases the money supply.

Demand deposits are balances in bank accounts that depositors can access by writing a check or using a debit card.

Members of the Board of Governors are appointed by the president of the U.S.and confirmed by the U.S.Senate.

U.S.dollars are an example of commodity money and hides used to make trades are an example of fiat money.

The Federal Reserve can alter the size of the money supply by changing reserves or changing reserve requirements.

If the Fed decreases reserve requirements,the money supply will increase.

Commodity money cannot be used as a unit of account.

Because of the multiple tools at its disposal,the Fed can control the money supply very precisely.

When the Soviet Union began breaking up in the late 1980s,cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender.The cigarettes provide an example of commodity money.

The discount rate is the rate the Federal Reserve charges banks for loans.By lowering this rate,the Fed provides banks with a greater incentive to borrow from it.

The money multiplier is higher when bankers are more cautious and hold excess reserves.

Bottles of very fine wine are less liquid than demand deposits.

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.

Currently,bank runs are a major problem for the U.S.banking system and the Fed.

Bank runs and the accompanying increase in the money multiplier caused the U.S.money supply to rise by 28 percent from 1929 to 1933.

The money supply of Granov is $10,000 in a 100-percent-reserve banking system.If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent,the money supply could increase by no more than $9,000.

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

The federal funds rate is a long-term interest rate banks charge one another for loans.

M1 includes savings deposits.

One plausible explanation for the large amount of U.S.currency outstanding is that many dollars are held abroad.