EC 202 Lecture Notes - Lecture 15: Reserve Requirement, Money Market Fund, Money Multiplier

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19 Sep 2016

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A situation in which both of two people each wants some good or service that the other person can provide. Whatever is widely accepted as a form of payment. The common way in which market values are measured in an economy. Something that serves as a way of preserving economic value that can be spent or consumed in the future. Money is whatever serves society in these three function. Currency is the most narrow definition of money. Includes currency, plus traveler"s checks and checking deposits. Saving deposits, money market funds, certifications of deposit. An institution that receives money from savers and provides funds to borrowers. Interest payments to the bank from borrowers (loans) Bank must hold a certain percentage of deposit as reserves. An unexpected high level of loan defaults can be a problem because of the asset-liability time mismatch. A bank"s liabilities can be withdrawn in the short term while its assets are repaid in the long term.

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Which of the following is NOT a tool the Fed uses to manage the money supply? A) open market operations B) discount policy C) deposit insurance D) reserve requirements 0.4 points Question 2 The problem with barter economies is that they require A) less time and trouble to trade as compared with a money economy. B) that there be a double coincidence of wants. C) a banking system for trade to occur. D) that there be a single coincidence of wants. 0.4 points Question 3 If banks do not loan out all their excess reserves then the real world multiplier is A) smaller than 1/RR. B) larger than 1/RR. C) equal to 1/RR. D) not related to 1/RR. 0.4 points Question 4 If the Federal Open Market Committee wants to increase the money supply through open market operations it will A) buy U.S. Treasury Securities. B) sell U.S. Treasury Securities. C) increase the discount rate. D) decrease the discount rate. 0.4 points Question 5 M1 includes A) currency in circulation, checking account balances at banks, the value of traveler's checks. B) currency in circulation, savings accounts, checking account balances at banks. C) currency in circulation, savings accounts, checking account balances at banks, traveler's D) coins, savings account balances at banks, traveler's checks. 0.4 points Question 6 Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be A) 19 percent. B) 15 percent. C) 11 percent. D) 6 percent. 0.4 points Question 7 According to the quantity theory of money, the inflation rate equals A) the money supply minus real output. B) real output minus the money supply. C) the growth rate of the money supply minus the growth rate of real output. D) the growth rate of real output minus the growth rate of the money supply 0.4 points Question 8 Suppose that you sold a basketball ticket for the SEC tournament for $750. Assuming that you deposit the entire $750 in your bank and that the RR = 10%, Answer the following questions while also using the same assumptions in book/lecture slide. Correct answers contain no decimals. Please report them as they are. a) What is the total change in checking account deposits? Total change in checking account deposits is Blank 1 . b) How much new money is created? (or what is the change in money supply given the above state conditions?) Total change in money supply is Blank 2 . c) The amount of new money created in this example would be higher or lower than in the real world. The amount of money created this way would be Blank 3 than in the real world.

pucecamel584

1. Which of the following is NOT a tool the Fed uses to manage the money supply?

A) open market operations

B) discount policy

C) deposit insurance

D) reserve requirements 0.4 points

2. The problem with barter economies is:

A) less time and trouble to trade as compared with a money economy.

B) that there may be a double coincidence of wants.

C) a banking system for trade to occur.

D) that there be a single coincidence of wants.

3. If banks do not loan out all their excess reserves, then the real world multiplier is

A) smaller than 1/RR.

B) larger than 1/RR.

C) equal to 1/RR.

D) not related to 1/RR.

4. If the Federal Open Market Committee wants to increase the money supply through open market operations, it will

A) buy U.S. Treasury Securities.

B) sell U.S. Treasury Securities.

C) increase the discount rate.

D) decrease the discount rate.

5. M1 includes

A) currency in circulation, checking account balances at banks, the value of traveler's checks.

B) currency in circulation, savings accounts, checking account balances at banks.

C) currency in circulation, savings accounts, checking account balances at banks, travelers.

D) coins, savings account balances at banks, traveler's checks.

6. Using the quantity equation, if the velocity of money grows at 5 percent, the money supply grows at 10 percent, and real GDP grows at 4 percent, then the inflation rate will be

A) 19 percent.

B) 15 percent.

C) 11 percent.

D) 6 percent.

7. According to the quantity theory of money, the inflation rate equals

A) the money supply minus real output.

B) real output minus the money supply.

C) the growth rate of the money supply minus the growth rate of real output.

D) the growth rate of real output minus the growth rate of the money supply.

8. Suppose that you sold a basketball ticket for the SEC tournament for $750. Assuming that you deposit the entire $750 in your bank and that the RR = 10%, Answer the following questions while also using the same assumptions in the book/lecture slide. Correct answers contain no decimals. Please report them as they are.

a) What is the total change in checking account deposits?

b) How much new money is created? (or what is the change in money supply given the above state conditions?) The total change in the money supply is Blank 2.

c) The amount of new money created in this example would be higher or lower than in the real world. The amount of money created this way would be Bank 3 than in the real world.

orangegnu991

1. Which of the following both increase the money supply?

an increase in the discount rate and an increase in the interest rate on reserves
an increase in the discount rate and a decrease in the interest rate on reserves
a decrease in the discount rate and an increase in the interest rate on reserves
a decrease in the discount rate and a decrease in the interest rate on reserves

2. In the U.S., the average adult holds about $3,700 in

currency.
wealth.
M1.
M2.

3. The measure of the money stock called M1 includes

wealth held by people in their checking accounts.
wealth held by people in their savings accounts.
wealth held by people in money market mutual funds.
everything that is included in M2 plus some additional items

4. When the Fed decreases the discount rate, banks will

5. Reserve requirements are regulations concerning

the amount banks are allowed to borrow from the Fed.
the amount of reserves banks must hold against deposits.
reserves banks must hold based on the number and type of loans they make.
the interest rate at which banks can borrow from the Fed.

6. When we say that trade is roundabout we mean that

people sometimes trade goods for goods.
trades require a double coincidence of wants.
currency is accepted primarily to make further trades.
people must spend time searching for the products they wish to purchase.

7. Values of Assets

Asset	Amount in $Billions
Small-time deposits	780
Large time deposits	1,700
Demand deposits	450
Other checkable deposits	370
Savings deposits	4950
Traveller's checks	5
Money market mutual funds	740
Currency	880
Miscellaneous categories of M2	50

Refer to Value of Assets. What is the value of M1 in billions of dollars?

1705
2485
6295
7075

8. In 1991, the Federal Reserve lowered the reserve requirement from 12 per cent to 10 per cent. Other things the same this should have

increased both the money multiplier and the money supply.
decreased both the money multiplier and the money supply.
increased the money multiplier and decreased the money supply.
decreased the money multiplier and increased the money supply.

9. Consider four survivors on an island.

Rupert	has machete	wants fishing spear
Amber	has cooking pot	wants fishing spear
Rob	has fishing spear	wants machete
Tom	has cooking pot	wants machete

Which of the following pairs of survivors has a double-coincidence of wants?

Rupert with Amber, and Rob with Tom
Amber with Tom
Rupert with Rob
None of the above is correct.

10. Economists use the term money to refer to

all wealth.
all assets, including real assets and financial assets.
all financial assets, but not real assets.
those types of wealth that are regularly accepted by sellers in exchange for goods and services.

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EC 202 Lecture Notes - Lecture 15: Reserve Requirement, Money Market Fund, Money Multiplier

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