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ECON 2 Lecture Notes - Lecture 16: Mutual Fund, Negotiable Order Of Withdrawal Account

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Irvine Valley College
Department
Economics
Course
ECON 2
Professor
colins

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Hao Tran
htran170@ivc.edu
Macroeconomics
Notes: Econ 2
Money Supply
Money is defined in two ways: narrowly and broadly.
The narrow definition for money includes coins, currency, demand deposits and other checkable
deposits. The total of coins, currency, bank deposits and other checkable deposits is what we call
money supply in the narrow sense. This is also called M1.
Coins:
● Are a small proportion of the total quantity of money in an economy. They come in small
denominations.
● They are made of metal and normally the value of metal in them is less than the face value of
the coin.
Currency
● This is paper money e.g. 50/= and 100/= bills.
● Currency constitutes the second and far larger share of the total money supply than coins.
● The central bank of Kenya issues all the currency just as it does the coins.
● Initially, there used to be gold of equivalent value to the amount of currency issued to back it
and give it value. Currently, however, all the money is not backed by gold. Its value is derived
from its acceptability by people.
Bank Deposits
These are bank deposits subject to payment on demand. They are much larger than coins and
currency. They are also called checking accounts. These deposits are considered to be money
because they can be as easily used in transactions as cash, by simply issuing a check. They are as
much as money in storing value, as a medium of exchange and as a standard of value.
Other checkable deposits
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Document Summary

Money is defined in two ways: narrowly and broadly. The narrow definition for money includes coins, currency, demand deposits and other checkable deposits. The total of coins, currency, bank deposits and other checkable deposits is what we call money supply in the narrow sense. Are a small proportion of the total quantity of money in an economy. They are made of metal and normally the value of metal in them is less than the face value of the coin. This is paper money e. g. 50/= and 100/= bills. Currency constitutes the second and far larger share of the total money supply than coins. The central bank of kenya issues all the currency just as it does the coins. Initially, there used to be gold of equivalent value to the amount of currency issued to back it and give it value. Currently, however, all the money is not backed by gold. Its value is derived from its acceptability by people.

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Related Questions

The M1 measure of the money supply equals

a. paper money plus coins in circulation.

b. currency plus checking account balances.

c. currency plus checking account balances plus traveler's checks.

d. currency plus checking account balances plus traveler's checks plus savings account balances. 

 
 

Question: The M1 Measure Of The Money Supply Equals Paper Money Plus Coins In Circulation. Currency Plus Checking Account Balances. Currency Plus Checking Account Balances Plus Traveler's Checks. Currency Plus Checking Account Balances Plus Traveler's Checks Plus Savings Account Balances. If A Person Withdraws Exist500 From His/her Savings Account And Puts It ...

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QUESTION 21 2.5 points Save Answer The M1 measure of the money supply equals O paper money plus coins in circulation. O currency plus checking account balances. O currency plus checking account balances plus travelers checks. O currency plus checking account balances plus travelers checks plus savings account balances. QUESTION 22 2.5 points Save Answer If a person withdraws S500 from his/her savings account and puts it in his/her checking account, then M1 will_---and M2 will_- O increase; decrease O increase; not change O not change; increase O not change; decrease O not change; not change QUESTION 23 2.5 points Save Answer If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits in the banking system (including the original deposit) of up to $100. $1,000. $10,000. $100,000

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21. M1 includes currency(both paper and coin),checking accounts,traveler's checks(of non-bank issuers),demand deposits,other checkable deposits and negotiable order of withdrawl accounts(NOW). M1 doesview the full answer

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The M1 measure of the money supply equals paper money plus coins in circulation. currency plus checking account balances. currency plus checking account balances plus traveler's checks. currency plus checking account balances plus traveler's checks plus savings account balances.

Based on the following information (which is in billions of dollars), the value of the M1 measure of the money supply is ____ and the value of the M2 measure of the money supply is ______.

Currency 20
Demand deposits 300
Money market mutual funds 800
Travelers' checks 10
Saving deposits 1,800
Other checkable deposits 200
Small-denomination time deposits 1,100

a. $530 billion; $3,700 billion

b. $330 billion; $4,230 billion

c. $520 billion; $4,320 billion

d. $530 billion; $4,230 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