ECON 2200 Lecture Notes - Lecture 36: Business Cycle, Fiat Money, Pound Sterling

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14 May 2018

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ECON 2200

Lecture 36

o Both banks were not exclusively “bankers’ bank”. Individuals

could use them.

o These banks had the flavor of central bank, but were not.

They:

▪ Sometimes served clearinghouse function

▪ Did not exercise macroeconomic policy

▪ Did not serve as lender of last resort (even though they

could have)

• Fed. Membership requirements

o Purchase stock in Fed district bank in amount of 3% of it’s

combined capital and surplus

▪ Annual return received on stock limited to 6%

o Deposit large cash reserves w/ district bank

▪ After 1917 all legal reserves of member banks had to be

deposits with Fed. Reserve Bank

o NBs must join the system

o Optional for SBs

• Characteristics of Central Bank:

o Lender of Last Resort: ultimate provider of funds during bank

runs to ease panic and keep system stable.

o Fiscal agent for federal government: receive payments and

make payments on behalf of the federal government.

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Document Summary

Lecture 36: both banks were not exclusively bankers" bank . Individuals could use them: these banks had the flavor of central bank, but were not. They: sometimes served clearinghouse function, did not exercise macroeconomic policy, did not serve as lender of last resort (even though they could have, fed. Great depression caused partially from the failure of the. Federal reserve: caused by periods of inadequate leadership and lack of understanding at the fed, greenbacks & gold, wartime inflation meant (1860-1865) U. s. prices > international prices: import increase/export decrease = us trade deficit. 1 because of higher prices in the us, countries do not want to buy us goods (make us exports go down), but us wants to buy other countries goods. Gold flowed out of u. s: other countries realize inflationary prices of us and want gold payment to pay for their trade deficit (the amount by which a country"s merchandise exports exceed its merchandise imports).

Related Questions

QUESTION 31

The Board of Governors of the Federal Reserve System is

		composed of seven members who are appointed by the President and approved by the Senate.
		composed of 12 members of the Senate and the U.S. House of Representatives.
		elected by the general public.
		composed of representatives from the country's 12 largest commercial banks.

1.11 points

QUESTION 32

The Fed is said to be the "lender of last resort" in that

		it charges a higher interest rate to borrowers than does any other bank.
		it functions as the government's bank only when commercial banks fail to do so.
		it makes loans to individuals whom commercial banks do not believe are credit-worthy.
		it stands ready to lend to any depository institution that it has decided should not fail.

1.11 points

QUESTION 33

The Federal Reserve System acts as the government's fiscal agent by

		providing checking account services for the government.
		preparing the budget the President presents to Congress every year.
		determining how to finance a deficit.
		auditing taxpayers.

1.11 points

QUESTION 34

The Federal Reserve System was established in which year?

		1913.
		1929.
		1865.
		1941.

1.11 points

QUESTION 35

By serving as the lender of last resort,

		the Fed provides check clearing services.
		the Fed aids in the sale of government securities.
		the Fed supervises depository institutions.
		the Fed can prevent bank failures.

1.11 points

QUESTION 36

Depository institutions must

		use and pay for the services of the Federal Reserve System.
		set their interest rates according to schedules established by the Federal Reserve System.
		keep a certain percentage of their deposits as reserves.
		turn over a percentage of their profits to the Federal Reserve System as payment for services provided by the Fed.

1.11 points

QUESTION 37

The Federal Reserve System has

		50 district banks.
		24 district banks.
		12 district banks.
		7 district banks.

1.11 points

QUESTION 38

The part of the Federal Reserve System (the Fed) that holds the reserve balances of depository institutions is

		the Board of Governors.
		the Federal Advisory Committee.
		the Federal Open Market Committee.
		the Federal Reserve district banks.

1.11 points

QUESTION 39

The potential for a financial breakdown at one financial institution to spread throughout the financial system is known as a

		systemic risk.
		liquidity risk.
		lending risk.
		moral hazard.

1.11 points

QUESTION 40

A system in which depository institutions hold reserves that are less than the amount of total deposits is called

		fiat money banking.
		required reserve banking.
		fractional reserve banking.
		central banking system.

1.11 points

QUESTION 41

Total reserves of private banks are

		all customer deposits.
		the minimum amount banks need to hold against time deposits.
		federal reserve notes.
		deposits held at the Fed and vault cash.

1.11 points

QUESTION 42

A statement of assets and liabilities of any business entity is called

		a cash flow statement.
		an income statement.
		a balance sheet.
		a statement of net worth.

1.11 points

QUESTION 43

Which of the following actions has no effect on the total money supply?

		The Federal Open Market Committee buys government securities.
		There is a transfer of deposits from one bank to another bank.
		There is change in the money multiplier.
		The Federal Open Market Committee sells government securities.

1.11 points

QUESTION 44

Given a required reserve ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans of

		$80.
		$0.
		$400.
		$20.

1.11 points

QUESTION 45

The Federal Open Market Committee has responsibility for

		appointing members to the Board of Governors of the Federal Reserve system.
		issuing orders to buy or sell government securities for the Fed.
		advising the Treasury Department on monetary policy.
		printing money.

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ECON 2200 Lecture Notes - Lecture 36: Business Cycle, Fiat Money, Pound Sterling

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