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ECON 1101 Lecture 9: MacroEcon Notes - Chapter 9

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greyleopard748
10 Mar 2017
School
Temple University
Department
Economics
Course
ECON 1101
Professor
Sorrentino

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Document Summary

Financial intermediaries firms that extend credit to borrowers using funds raised from savers. Money any asset that can be used in making purchases. Medium of exchange an asset used in purchasing goods and services. Barter the direct trade of goods or services for other goods or services. Unit of account a basic measure of economic value. Store of value an asset that serves as a means of holding wealth. M1 the sum of currency outstanding and balances held in checking accounts. M2 all the assets in m1 plus some additional assets that are usable in making payments but at greater cost or inconvenience than currency or checks. M1 and m2 are two ways of measuring money. Bank reserves cash or similar assets held by commercial banks for the purpose of meeting depositor withdrawals and payments. 100 percent reserve banking a situatio(cid:374) i(cid:374) (cid:449)hi(cid:272)h (cid:271)a(cid:374)ks" (cid:396)ese(cid:396)(cid:448)es e(cid:395)ual (cid:1005)(cid:1004)(cid:1004) pe(cid:396)(cid:272)e(cid:374)t of thei(cid:396) deposits. Reserve-deposit ratio bank reserves divided by deposits.

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Related Questions

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
borrow more from the Fed and lend more to the public. The money supply increases.
borrow more from the Fed and lend less to the public. The money supply decreases.
borrow less from the Fed and lend more to the public. The money supply increases.
borrow less from the Fed and lend less to the public. The money supply decreases.
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.

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 money supply will be ____ than the monetary base when reserves are ___ than

deposits.

A) smaller; less

B) smaller; greater

C) bigger; less

D) There is not enough information provided to answer the question.

2. Which of the following include liabilities of the Fed?

A) bank reserves

B) loans to commercial banks in the 10th district

C) government bonds

D) loans to commercial banks in the 8th district

3. Which of the following are assets of the Fed?

A) bank reserves

B) coins

C) government bonds

4.Without a banking system, the monetary base and money supply are equal to:

A) deposits.

B) reserves.

C) currency in circulation.

D) None of the answers are correct.

D) federal reserve notes

5.M1 is:

A) currency + traveler's checks + checking deposits

B) currency +coins

C) currency + checking deposits

D) currency

6.If a bank's assets are $200 and the value of its weighted assets is $125, which is the

more restrictive capital requirement: the U.S. minimum equity ratio or the Basel Accord

requirement?

A) They are the same.

B) The United States ratio is the most restrictive.

C) The Basel Accord is the most restrictive.

D) There is not enough information provided to answer the question.

7. Which of the following includes consequences of the purchase and assumption method

of dealing with an insolvent bank?

A) The FDIC sells most of the assets and liabilities of the insolvent bank to another

bank.

B) Depositors lose their deposits and bank branches close.

C) The FDIC sells the insolvent bank's liabilities and earns a profit.

D) The bank keeps its original name.

8. Which of the following is a consequence of the payoff method of dealing with an

insolvent bank?

A) The FDIC sells the bank's assets for as much as it can get to pay off depositors.

B) The insolvent bank remains open under a new management.

C) The FDIC fund is not affected.

D) Small depositors lose 50 percent of their deposits.

9. Deposit insurance creates a moral hazard because it:

A) eliminates depositors' incentives to monitor banks.

B) reduces the cost of a bank failure for depositors.

C) encourages depositors to leave their funds in a weak bank.

D) All of the answers are correct.

10. The Basel Accord set international standards for:

A) interest rate volatility.

B) reserve ratios.

C) bank capital requirements.

D) loan risk.

11. U.S. capital requirements mandate a ________ minimum capital–assets ratio.

A) 0 percent

B) 10 percent

C) 5 percent

D) 50 percent

12. Which of the following securities are banks not allowed to hold?

A) high-rated corporate bonds

B) stocks

C) municipal bonds

D) Treasury bonds

13. A bank run is an extreme form of:

A) credit risk.

B) interest rate risk.

C) low bank esteem.

D) liquidity risk.

14. One explanation for a bank run is:

A) adaptive expectations.

B) self-fulfilling expectations.

C) poor bank management.

D) that rising oil prices mean depositors require more cash.