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Exam 29: The Monetary System

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Question 71

Multiple Choice

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Which of the following functions as both a store of value and a medium of exchange?

A) Cash and stocks
B) Cash but not stocks
C) Stocks but not cash
D) Neither cash nor stocks

E) B) and C)
F) A) and D)

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Question 72

Multiple Choice

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If the reserve ratio is 4 percent, then the money multiplier is

A) 0.04.
B) 25.
C) 2.5.
D) 4.

E) A) and C)
F) B) and C)

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Question 73

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Federal Reserve governors are given long terms to insulate them from politics.

Money is the only asset that functions as a store of value.

When you list prices for necklaces sold on your website, www.sparklingjewels.com, in dollars, this best illustrates money's function as

Scenario 29-1 The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Tazian dollar. Aggregate banking statistics show that collectively the banks of Tazi hold $375 million of required reserves, $225 million of excess reserves, have issued $7,500 million of deposits, and hold $750 million of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. -Which of the following will help to prevent bank runs?

Which of the following lists is included in what economists call "money"?

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.

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

If the Fed buys bonds in the open market, the money supply decreases.

Suppose banks decide to hold more excess reserves relative to deposits. Other things the same, this action will cause the money supply to

Table 29-3 ​ $\begin{array}{l}\text { The First Bank of Rosw ell }\\\begin{array} { l l | l l } & \text { Assets } & { \text { Liabilities } } \\\hline \text { Reserves } & \$ 30,000 & \text { Deposits } & \$ 200,000 \\\text { Loans } & 170,000 & &\end{array}\end{array}$ ​ ​ ​ -Refer to Table 29-3. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

The Federal Reserve

​Under a 100-percent-reserve banking system, banks do not influence the supply of money.

Table 29-5 ​ -Refer to Table 29-5. This bank's leverage ratio is

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

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement.

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

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.

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.