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ECON 102 Lecture Notes - Lecture 18: Credit Union, Reserve Requirement, Financial Intermediary

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harlequinmink794
18 Nov 2020
School
GCC
Department
Economics
Course
ECON 102
Professor
ames

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Document Summary

Liquidity: the easy with which an asset can be converted to cash with little or no loss of purchasing power. Chartered banks are the primary depository institutions. Currency held by the bank of canada and chartered banks is excluded from m1 and other measures of the money supply. Also excluded from the money supply are any deposits of the federal government or the bank of canada that are held by chartered banks. Near monies are highly liquid financial assets that do not directly function as a medium of exchange but can be readily converted into currency. Eg. currency or funds in nonchequable savings accounts. Term deposits become available to a depositor only at maturity. Deposits at trust and mortgage loan companies. Deposits at caisses populaires, credit unions and other non-bank deposit-taking institutions. M2++ is m2 plus canadian saving bonds and non-money market mutual funds. If the price level is 1. 0, then the value of the dollar is 1.

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Related Questions

INTRO - MACROECONOMICS - Money & Banking - & The Money Market and Monetary Policy

Answer the questions below from the data in the table (all figures are in billions of dollars).

Total currency issued by the Bank of Canada $17
Total personal savings deposits 186
Total demand deposits 19
Deposits of government at the Bank of Canada 3
Currency held by commercial banks 3
Government bonds owned by the public 96
Nonpersonal term deposits (certificates of deposit) 41


a. Total currency in circulation is $ _____ billion.

b. How much larger is M1 than the total currency in circulation?

M1 is larger than the total currency by $ _____ billion.

c. How much larger is M2 than M1?

M2 is larger than M1 by $ _____ billion.

Please provide an explanation as you solve this question.

d. How much larger is M3 than M2?

M3 is larger than M2 by $ _____billion.

All of the following are part of the narrowest definition of moneysupply, M1, except:
A) Bill has $50 worth of pennies in a coffee jar
B) Mike has $600 in his checking account
C) Jill has $400 in traveler’s checks
D) Jules has $400 worth of $1 bills in the piggybank
E) John has $500 in his savings account
2. Which of the following make up the money supply as it is mostnarrowly defined?
A) coins and currency held by the nonbank public, traveler'schecks, and savings deposits
B) all coins and currency held by the nonbank public
C) coins and currency held by the nonbank public, checkingdeposits, and traveler's checks
D) coins and currency held by the nonbank public, checkingdeposits, and savings deposits
E) checking deposits, savings deposits, and money market mutualfund accounts
3. Which of the following are included in the narrowest definitionof the money supply?
A) cash in bank vaults
B) savings deposits
C) money market mutual fund accounts
D) negotiable certificates of deposit
E) checkable deposits
4. If you returned a $5 Federal Reserve note to the Fed, you couldreceive
A) $5 in silver
B) $5 in gold
C) 5 one-dollar bills
D) 10 one-dollar bills
E) a small gold bar
5. The Federal Reserve's narrowest definition of money is
A) M3
B) M2
C) M1
D) near money
E) money market mutual funds
6. As a lender, a bank holds an advantage over any individualperson because
A) individuals do not diversify their asset holdings
B) individuals are better at enforcing loan contracts
C) banks have to engage in extensive and costly searches forpotential borrowers
D) banks develop expertise in evaluating borrowers' loanapplications
E) individuals have extensive knowledge of and experience inwriting loan contracts
7. If a bank has $1 million in assets and $50,000 in net worth, itsliabilities must equal
A) $50,000
B) $1,050,000
C) $50 million
D) $1,000,000
E) $950,000
8. Suppose the required reserve ratio is 0.1 and Linda deposits$4,000 in cash at the College State Bank. If the bank held noexcess reserves before Linda's deposit and now increases itsreserves by $500, which of the following is true?
A) The bank must have lent out an additional $4,000.
B) The $500 are required reserves.
C) The bank has excess reserves of $100.
D) Both the bank's assets and its liabilities rise by $500.
E) The bank has $500 in excess reserves.
9. Suppose that the First National Bank acquires $500,000 in newdeposits and the required reserve ratio is 12 percent. Which of thefollowing is true?
A) The First National Bank can increase the money supply by$500,000.
B) The First National Bank can increase the money supply by$400,000.
C) The First National Bank can increase the money supply by$440,000.
D) The entire banking system can increase the money supply by nomore than $500,000 if the First National Bank lends out its excessreserves.
E) The entire banking system can increase the money supply by nomore than $440,000 if the First National Bank lends out its excessreserves.
10. The ability to convert a store of value into a medium ofexchange with little loss of value is known as
A) arbitrage
B) solvency
C) liquidity
D) liability
E) currency
11. Which of the following would likely increase the moneysupply?
A) One bank buys government securities from another bank.
B) The required reserve ratio increases.
C) The Fed increases the reserves of commercial banks and the bankshold these as excess reserves.
D) The discount rate increases.
E) A bank sells government securities to the Fed.
12. The simple money multiplier equals
A) the required reserve ratio
B) the reciprocal of the required reserve ratio
C) 1 minus the required reserve ratio
D) 1 minus the reciprocal of the required reserve ratio
E) the square of the required reserve ratio
13. If the simple money multiplier is 5, the required reserve ratiomust be
A) 5 percent
B) 0
C) 10 percent
D) 50 percent
E) 20 percent
14. If an increase in excess reserves of $10 million increasescheckable deposits in the banking system by a maximum of $200million, the required reserve ratio is
A) 0
B) 5 percent
C) 10 percent
D) 20 percent
E) 2 percent
15. Suppose the reserve requirement ratio is 20 percent. Assumingno bank holds excess reserves and nobody withdraws cash, a $10,000injection of new excess reserves by the Fed can create
A) $2,000 in new checkable deposits
B) $10,000 in new checkable deposits
C) $50,000 in new checkable deposits
D) $500,000 in new checkable deposits
E) $50,000 in cash
16. Which of the following is not one of the procedures the Feduses to change the money supply?
A) buying government securities
B) selling government securities
C) lending reserves through the discount window
D) changing the required reserve ratio
E) extending loans to the public
17. Which of the following statements is correct?
A) To control the money supply, the Fed relies primarily on thereserve requirement.
B) The discount rate is the rate of interest banks charge to theirbest customers.
C) The Fed changes the reserve requirement frequently.
D) Because the Fed has no way to earn income, it is dependent uponCongress for appropriations.
E) Banks can turn a borrower's IOU into money--i.e., they cancreate money.
18. Lowering the discount rate is a way to expand the money supplybecause
A) it encourages banks to borrow from the Fed so they can moreeasily accommodate their customers' needs for loans
B) it encourages business customers to borrow directly from theFed
C) a lower discount rate reduces the amount of reserves banks arerequired to keep
D) a lower discount rate automatically reduces excessreserves
E) it encourages banks to sell U.S. government securities andincrease their cash reserves
19. The Fed operates
A) on a balanced budget
B) at a loss, since Federal Reserve notes and member bank depositsearn no interest
C) at a profit, since Federal Reserve notes and bank deposits earnno interest, but government securities and loans to commercialbanks do
D) at a profit, since Federal Reserve notes and member bankdeposits earn interest
E) at a loss, since Federal Reserve notes and member bank depositsearn interest, but government securities and loans to commercialbanks do not
20. Katie Sierra is willing to pay a higher interest rate. With noincome verification, she can apply for a type of loan commonlycalled
A) lion loans
B) liars loans
C) phantom loans
D) vaporware loans
E) prime-rate loans


1. The market in which loans are bought and sold is called the:

   

loan market.
   

money market.
   

secondary loan market.
   

primary loan market.

2. Which of the following is omitted in a barter transaction?

   

trade
   

medium of exchange
   

store of value
   

money

3. If Bill performs plumbing upgrades for Alice in exchange for her incorporating his business, then their _________________________ will be satisfied.

   

balance of trade
   

double coincidence of wants
   

convenience of exchange
   

division of labour

4. If loans become far less available, then sectors of the economy that ______________ like business investment, home construction, and car manufacturing can be dealt a crushing blow.

   

depend on borrowed money
   

typically generate extraordinary gains
   

make loans to financial capital markets
   

failed to diversify risk

5. Stealth bank has deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. If the bank sells its loans at the market value of $400 million, what will its total assets equal?

   

$110 million
   

$710 million
   

$480 million
   

$510 million

6. Lance paid $175,000 for his house in 2003 and sold it for $325,000 in 2006. What function did the house serve during the time Lance owned it?

   

medium of exchange
   

unit of account
   

store of value
   

unit of exchange

7.Which of the following terms is considered to be a narrow definition of the money supply that includes, among other things, currency?

   

savings
   

money
   

M2
   

M1

8. Which of the following institutions determines the quantity of money in the economy as its most important task?

   

U.S. Department of the Treasury
   

Federal Open Market Committee
   

Central Bank
   

Federal Reserve Board of Governors

9. How are the specific interest rates for the lending and borrowing markets determined?

   

U.S. Treasury Department Board policy
   

by the forces of supply and demand
   

through open market operations
   

by altering the discount rate

10.When the central bank lowers the reserve requirement on deposits:

   

the money supply increases and interest rates decrease.
   

the money supply and interest rates decrease.
   

the money supply and interest rates increase.
   

the money supply decreases and interest rates increase.