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Study Guide 4

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ECON 2001.01
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H201 Study Guide 4 Chapters 13 and 14 1. What is the definition of money? 2. What is the definition of commodity money and fiat money? 3. What are five desirable characteristics about items that serve as money? 4. What are the four roles that money plays? 5. What macroeconomic experiment did Pol Pot attempt? 6. Are credit cards money? 7. What is the definition of “Liquidity”? 8. What are the main components of M1 and M2? 9. How is money created? 1 10. What is the definition of assets and liabilities? 11. Are deposits assets or liabilitities? What about loans? 12. What is the definition of the Reserve Ratio? 13. What is the definition of Excess Reserves? 14. What is the maximum size of the money multiplier? 15. Draw the money multiplier graph being sure to label all the terms - Explain how the money multiplier is calculated relative to the graph you have drawn. 16.. What is included in the monetary base? What is the definition of “high powered money”? 2 17. What level of control does the FED have over the monetary base and over the money supply? 18. How do increases in required reserves, deposit uncertainty, interest rates and the currency to deposits ratios affect the size of the money multiplier? 19. What has happened to the proportion of M2 made up of checkable deposits since 1960? 20. Which is larger, the M1 multiplier or the M2 multiplier? 21. What are three constraints on deposit creation? 22. What was the total cost of the Savings and Loan Crisis? 23. What was the Glass-Steagall Act and what did it try to limit? 24. What was “Regulation Q”? 25 What role was envisioned for Savings and Loans? What is disintermediation? Why did Savings and Loans start to suffer disintermediation in the 1960s? 3 26. Explain the role of deposit insurance and moral hazard in causing the Savings and Loan crisis? 27. Why was the Federal Reserve created in 1913? 28. What three Federal Reserve Banks have more that half of all the Federal Reserve deposits? 29. Who belongs to the Board of Governors? 30. Who belongs to the Federal Open Market Committee (FOMC)? 31. What part of the Federal Reserve most actively conducts monetary policy? 32. What are the four goals of monetary policy? 33. What are the three tools of monetary policy? 34. Why does the FED not use changes in the reserve requirement to conduct monetary policy? 4 35. What is the discount rate and how is it used by the FED? Why is the discount rate potentially an extremely powerful instrument of monetary policy? 36. What is the Federal Funds Rate? What is the relationship between the Federal Funds rate and the discount rate? 37. Where does the FED get the money to buy bonds? 38. What is the effect on the money supply when the FED buys or sells bonds? 39. What is the opportunity cost of holding money? 40. What is the relationship between bond prices and interest rates? 41. What is a zero coupon bond? 42. Using graphs of the money market and the loanable fund market, show what happens when the FED buys bonds. Explain in words. 43. What is the effect on the money supply when the Treasury sells bonds to the public? 5 44. With regar
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