Macro Ch. 11

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Barter is more feasible in primitive societies than in modern societies because

specialization is limited and thus there are few goods available for trade in primitive societies

How does money function as a unit of account?

The prices of all goods and services are measured in terms of money.

In order for something to be used as money, it must be

generally acceptable

Commitments to make or receive payments in the future are made easier by money's function as a

unit of account

Gresham's Law states that people

spend lower-quality money and hoard higher-quality money

Goldsmiths are considered to be the forerunners of modern banks because they

created money by lending out gold reserves

Financial intermediaries do all of the following except one. Which is the exception?

Print money

The distinction between depository institutions and other financial institutions is that

only depository institutions receive funds through customer deposits

The powers of the Federal Reserve System do not include

the ability to provide deposit insurance for customers of only member banks

The Federal Reserve System has the power to

buy and sell federal government securities

The primary purpose of the Federal Open Market Committee (FOMC) is to

buy and sell government securities

The deregulation of U.S. banking in the 1980s led to

many bank failures as banks began to hold riskier assets

Compared to many other countries, the United States has

more commercial banks, with assets more widely distributed among banks

Stores need not accept your check but must accept currency because

currency is legal tender; checks are not

All of the following are part of M2 except one. Which is the exception?

large denomination time deposits

Which of the following is true of credit cards?

They are a way of postponing the payment of money.

Banks minimize the risk of loss to depositors by

making many different loans to different borrowers

If a bank has $1 million in assets and $50,000 in net worth, its liabilities must equal

$950,000

The ready cash kept on hand by a bank to meet the needs of those who want to withdraw funds does not earn interest for the bank.

True

Suppose the required reserve ratio is 0.1 and Linda deposits $4,000 in cash at the College State Bank. If the bank held no excess reserves before Linda's deposit and now increases its reserves by $500, which of the following is true?

The bank has excess reserves of $100.

A bank manager who wants to increase profitability would likely

reduce the liquidity of a bank's assets

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 20 percent,

the bank has $1,000 in additional excess reserves, all of which it can lend out

The banking system creates money in the sense that it

creates loans from excess reserves

If checking deposits increase by $6,000 after all rounds of the money-creation process when the Fed buys $1,200 worth of U.S. government securities, the maximum value of the required reserve ratio is

0.2

Under which of the following circumstances will the simple money multiplier most overstate the change in checkable deposits arising from a change in excess reserves?

The public withdraws cash and banks hold excess reserves.

Suppose the Fed sells $10 million in government securities to a commercial bank. If the required reserve ratio is 0.2, what is the maximum amount by which checkable deposits in the banking system can change? (Hint: Compare what the banking system might have done if it had loaned at every opportunity; also include the initial transaction with the Fed.)

-$50,000,000

The Fed's most important monetary policy tool today is

conducting open market operations

Raising the discount rate is

a contractionary policy on the part of the Fed because it raises commercial banks' cost of borrowing from it

To increase the money supply, the Fed might

decrease the reserve requirement and buy bonds on the open market

The immediate effect of a bank's purchase of U.S. government securities from the Fed is a(n)

decrease in the Fed's assets

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