🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeStudy Guides420,000CA160,000

ECON 209 Study Guide - Midterm Guide: Aggregate Supply, Liquidity Preference, Aggregate Demand

94 views18 pages
purplesnail948
17 Apr 2014
School
McGill University
Department
Economics (Arts)
Course
ECON 209
Professor
Paul Dickinson

For unlimited access to Study Guides, a Grade+ subscription is required.

Document Summary

Further, assume the banks keep no excess reserves. Bank a receives a new deposit of ,000. The largest new loan this bank could make is: ,000, ,000, ,000, ,000, ,000. creation. The bank of canada sells million worth of government securities to an investment dealer with a cheque drawn on the dealer"s account with a chartered bank. The desired reserve ratio of all banks is 10 percent. Suppose the bank of canada sells million worth of government securities to an investment dealer with a cheque drawn on the dealer"s account with a chartered bank. The desired reserve ratio of all banks is 10 percent but there is now a cash drain of an additional 10 percent. The bank of canada purchases million worth of government securities from an investment dealer with a cheque drawn on the bank of canada. The dealer deposits this cheque at a canadian chartered bank.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers

Related Documents

ECON 209 Lecture Notes - Lecture 13: Reserve Requirement, Commercial Bank, Savings Account
maroonyak232
ECON 209 Lecture Notes - Lecture 15: Economic Equilibrium, Opportunity Cost, Negative Relationship
tealduck852
ECON 209 Lecture Notes - Lecture 27: Fiat Money, Commercial Bank, Reserve Requirement
lemongoldfish251

Related Questions

A. Do bankers create money?

  1. No, they cannot do this as private businesses
  2. No, they are prevented by federal law
  3. Yes, through multiple deposit creation
  4. Yes, by opening checking accounts for customers

B. If the Fed sells $5 million in government bonds, how much will the money supply change?

  1. It will increase by $5 million
  2. It will increase by more than $5 million
  3. It will decrease by $5 million
  4. It will decrease by more than $5 million

C. Bankers' business decisions affect the money supply because bankers:

  1. are respected men and women
  2. have the ability to create money
  3. use a special accounting system developed by the Federal Reserve Board
  4. All of the above are correct

D. One intention of deposit insurance is to reduce the danger of:

  1. excess lending
  2. excess profits
  3. risky lending
  4. bank runs

E. Open market operations have their initial effect on the bank:

  1. lending
  2. reserves
  3. profit
  4. revenue

F. Banks are required to keep a minimum level of reserves on hand. The intent of this regulation is:

  1. monetary control rather than bank safety
  2. bank safety in case of bank runs
  3. maintenance of bank profits
  4. limiting the level of bank profits

 

 

 

1.

Assets

Liabilities

Reserves $2,000

Deposits $10,000

Loans 8,000

  

Refer to Table.

Starting from the situation as depicted by the T-account, if someone deposits $500 into the First Bank of Fairfield, and if the bank makes new loans to keep its reserve ratio unchanged, then the number of new loans that it makes will be $320.

$400.
$680.
$750.

2.
Bank of Springfield

Assets

Liabilities

Reserves

$19,200

Deposits

$240,000

Loans

228,000

    
1. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?
5.00 per cent
8.00 per cent
8.42 per cent
95.00 per cent
2. Mia puts money into a piggy bank so she can spend it later. What function of money does this illustrate?
store of value
medium of exchange
unit of account
None of the above is correct.
3. Under a fractional-reserve banking system, banks
hold more reserves than deposits.
generally lend out a majority of the funds deposited.
cause the money supply to fall by lending out reserves.
All of the above are correct.
4. Over one-time horizon or another, Fed policy decisions influence
inflation and employment.
inflation but not employment.
employment but not inflation.
neither inflation nor employment.
5. If a bank desires to hold no excess reserves, the reserve requirement is 5 per cent, and it receives a new deposit of $1,000

its required reserves increase by $50.
its total reserves initially increase by $1,000.
it will be able to make a new loan of up to $950.
All of the above are correct.

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.