Exam 16: The Monetary System: Part A

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Trace the effects on the money supply when the Fed decreases the discount rate.

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Question 1

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The discount rate represents the cost of bank borrowing from the Fed. When the cost of bank borrowing decreases, banks will increase the amount of borrowing which will create additional reserves. The additional reserves mean banks can make more loans. These new loans end up as deposits by people which increases the amount of money in the economy (through the multiplier effect).

The money multiplier is _____ when the reserve ratio is 12.5 percent.

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Question 2

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What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

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Question 3

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Commodity money has "intrinsic value," or value in uses other than as money. Fiat money is established as money by the government. It has very little, if any, intrinsic value. Although fiat money has no intrinsic value, people accept it in trade when they are confident that others will also accept it. The government's decree that fiat currency serves as legal tender increases this confidence.

What is the difference between money and wealth?

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Question 4

Why is the president of the New York Fed always a voting member of the FOMC?

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Question 5

A bank operates with reserves of $100,loans of $300 and securities of $100.The bank's only liability is deposits of $400 since it has zero debt.Calculate the bank's leverage ratio.

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Question 6

Draw a simple T-account for First National Bank which has $5,000 of deposits,a required reserve ratio of 10 percent,and excess reserves of $300.Make sure your balance sheet balances.

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Question 7

What is the Term Auction Facility?

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Question 8

When the federal funds rate is below the target rate, the Fed will _ bonds. This action will _ the money supply

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Question 9

A bank has $1000 in deposits and maintains a 12 percent reserve ratio. Its reserves are $_____.

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Question 10

If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by _ and M2 will change by _.

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Question 11

Describe the role of the Federal Deposit Insurance Corporation (FDIC).

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Question 12

What is the change in the money supply when the Fed purchases $700 worth of bonds and the required reserve ratio is 14 percent assuming banks hold no excess reserves?

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Question 13

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits.Describe why this statement is or is not true.

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Question 14

Are credit cards and debit cards money? What's the difference between credit and debit cards?

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Question 15

The Fed bonds when it conducts an open-market purchase. This action _ the money supply.

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Question 16

Name three actions the Fed can take to increase the money supply.

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Question 17

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

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Question 18

The existence of money makes trade easier.How is it that money can also increase the standard of living?

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Question 19

Suppose a bank is operating with a leverage ratio of 20.What is the maximum decrease in the market value of assets before the bank becomes insolvent?

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Question 20

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Exam 16: The Monetary System: Part A

Trace the effects on the money supply when the Fed decreases the discount rate.

The money multiplier is _____ when the reserve ratio is 12.5 percent.

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

What is the difference between money and wealth?

Why is the president of the New York Fed always a voting member of the FOMC?

A bank operates with reserves of $100,loans of $300 and securities of $100.The bank's only liability is deposits of $400 since it has zero debt.Calculate the bank's leverage ratio.

Draw a simple T-account for First National Bank which has $5,000 of deposits,a required reserve ratio of 10 percent,and excess reserves of $300.Make sure your balance sheet balances.

What is the Term Auction Facility?

When the federal funds rate is below the target rate, the Fed will _____ bonds. This action will _____ the money supply

A bank has $1000 in deposits and maintains a 12 percent reserve ratio. Its reserves are $_____.

If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by _____ and M2 will change by _____.

Describe the role of the Federal Deposit Insurance Corporation (FDIC).

What is the change in the money supply when the Fed purchases $700 worth of bonds and the required reserve ratio is 14 percent assuming banks hold no excess reserves?

The fractional reserve characteristic of the banking system allows banks to create money and also create wealth from bank deposits.Describe why this statement is or is not true.

Are credit cards and debit cards money? What's the difference between credit and debit cards?

The Fed ____ bonds when it conducts an open-market purchase. This action _____ the money supply.

Name three actions the Fed can take to increase 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?

The existence of money makes trade easier.How is it that money can also increase the standard of living?

Suppose a bank is operating with a leverage ratio of 20.What is the maximum decrease in the market value of assets before the bank becomes insolvent?

Ten Principles of Economics

Ten Principles of Economics: How People Make Decisions

Ten Principles of Economics: How People Interact

Ten Principles of Economics: How the Economy As a Whole Works

Ten Principles of Economics: Part A

Ten Principles of Economics: Part B

Thinking Like an Economist

Thinking Like an Economist: The Economist As Scientist

Thinking Like an Economist: The Economist As Policy Adviser

Thinking Like an Economist: Why Economists Disagree

Thinking Like an Economist: Lets Get Going

Thinking Like an Economist: Graphing a Brief Review

Thinking Like an Economist: Part A

Thinking Like an Economist: Part B

Interdependence and the Gains From Trade

Interdependence and the Gains From Trade: A Parable for the Modern Economy

Interdependence and the Gains From Trade: Comparative Advantage the Driving Force of Specialization

Interdependence and the Gains From Trade: Applications of Comparative Advantage

Interdependence and the Gains From Trade: Conclusion

Interdependence and the Gains From Trade: Part A

Interdependence and the Gains From Trade: Part B

The Market Forces of Supply and Demand

The Market Forces of Supply and Demand:Markets and Competition

The Market Forces of Supply and Demand: Demand

The Market Forces of Supply and Demand: Supply

The Market Forces of Supply and Demand: Supply and Demand Together

The Market Forces of Supply and DemandConclusion How Prices Allocate Resources

The Market Forces of Supply and Demand: Part A

The Market Forces of Supply and Demand: Part B

Elasticity and Its Applications

Elasticity and Its Applications: The Elasticity of Demand

Elasticity and Its Applications: The Elasticity of Supply

Elasticity and Its Applications: Three Applications of Supply,demand,and Elasticity

Elasticity and Its Applications: Part A

Elasticity and Its Applications: Part B

Supply Demand and Government Policies

Supply Demand and Government Policies: Controls on Prices

Supply Demand and Government Policies: Taxes

Supply Demand and Government Policies: Part A

Supply Demand and Government Policies: Part B

Consumers Producers and the Efficiency of Markets

Consumers Producers and the Efficiency of Markets: Consumer Surplus

Consumers Producers and the Efficiency of Markets: Producer Surplus

Consumers Producers and the Efficiency of Markets: Market Efficiency

Consumers Producers and the Efficiency of Markets: Conclusion Market Efficiency and Market Failure

Consumers Producers and the Efficiency of Markets: Part A

Consumers Producers and the Efficiency of Markets: Part B

Application the Cost of Taxation

Application the Cost of Taxation: The Deadweight Loss of Taxation

Application the Cost of Taxation: The Determinants of the Deadweight Loss

Application the Cost of Taxation: Deadweight Loss and Tax Revenue As Taxes Vary

Application the Cost of Taxation: Conclusion

Application the Cost of Taxation: Part A

Application the Cost of Taxation: Part B

Application International Trade

Application International Trade: The Determinants of Trade

Application International Trade: The Winners and Losers From Trade

Application International Trade: The Arguments for Restricting Trade

Application International Trade: Conclusion

When the federal funds rate is below the target rate, the Fed will _ bonds. This action will _ the money supply

If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by _ and M2 will change by _.

The Fed bonds when it conducts an open-market purchase. This action _ the money supply.