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Exam 29: The Monetary System

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Question 1

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Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. -Refer to Table 29-3. If all banks in the economy have the same reserve ratio as this bank, then the value of the economy's money multiplier is

A) 9.33.
B) 1.09.
C) 10.76.
D) 11.76.

E) B) and C)
F) None of the above

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Question 2

Multiple Choice

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If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

A) fewer reserves, so the money multiplier will fall.
B) fewer reserves, so the money multiplier will rise.
C) more reserves, so the money multiplier will fall.
D) more reserves, so the money multiplier will rise.

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

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Question 3

Multiple Choice

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Which of the following is a store of value?

If the reserve ratio is 5 percent, then $600 of additional reserves can create up to

Credit cards are a medium of exchange.

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

What does it mean for the Fed to be the "lender of last resort?"

Money

Describe the role of bank leverage in bank insolvency during times of falling asset prices.

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

Table 29-9 Metropolis National Bank is currently holding 2% of its deposits as excess reserves. -Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assuming that all banks have the same required reserve ratio, and then none want to hold excess reserves what is the value of the money multiplier?

The Fed can decrease the money supply by conducting open-market

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

The Federal Open Market Committee meets approximately

You believe the dollars you have today will be accepted in the future in exchange for goods and services. Which function of money does this illustrate?

During wars the public tends to hold relatively more currency and relatively fewer deposits. This decision makes reserves

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

Why is the Chairman of the Federal Reserve often referred to as the "second most powerful person in the United States?"

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.

The reserve requirement is 12 percent. Lucy deposits $600 into a bank. By how much do excess reserves change?