Like this study set? Create a free account to save it.

Sign up for an account

Already have a Quizlet account? .

Create an account

Money is

whatever is generally accepted in exchange for goods and services.

Commercial banks can borrow reserves directly from the Fed at the

discount rate

Demand deposits are

deposits of individuals that can either be withdrawn or made payable on demand to a third party by a check

If you have a checking account at a local bank, your bank account there is

liability of the bank and an asset to you

The main purpose of the Fed is to

maintain the proper functioning of our money system

Are "smart cards" or E-cash cards part of the money supply?

No, because they are merely means to transfer checking deposits.

In the United States, the money supply (M1) consists of

coins, paper currency, demand deposits, other checkable deposits, and traveler's checks.

Excess reserves are

actual reserves held by banks that exceed the legal requirement.

The fraction that banks must, by law, hold as reserves against the checking deposits of their customers is called the

required reserve ratio.

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is

the federal funds rate

Which of the following is the best definition of money?

anything generally accepted as a payment for goods or repayment of debt

Which one of the following is the largest component of the money supply (M1) in the United States?

demand and other checking deposits

The funds that banks are required by law to hold in the form of either vault cash or deposits with the Fed are called

required reserves

Fiat money is money

that has little intrinsic value and is not backed by a commodity

If the Fed buys a T-bill from a commercial bank, how will it pay for the T-bill?

It will give the bank new reserves.

If a customer deposits $1,000 cash into her checking account, the bank's

assets and liabilities both rise by $1,000.

Best National Bank is subject to a 10 percent required-reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of


In order to increase the money supply, the banking system must have

excess reserves.

You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?

There is no change in the money supply, and the reserves of your bank decline

When a banker accepts a deposit of $1,000 in cash and puts $200 aside as required reserves and then makes a loan of $800 to a new borrower, this set of transactions

increases the money supply by $800

The main source of profit for financial institutions is

the difference between interest paid on deposits and interest received on loans.

When the Federal Reserve System wants to increase the money supply, what does it typically do?

It purchases U.S. government securities

If the prices of goods and services fall, the value of money (its purchasing power)


Open market operations is the

tool most often used by the Fed to alter the money supply.

If the banking system has $5 million in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased?

$20 million

An individual bank can lend out at most its

excess reserves.

Please allow access to your computer’s microphone to use Voice Recording.

Having trouble? Click here for help.

We can’t access your microphone!

Click the icon above to update your browser permissions and try again


Reload the page to try again!


Press Cmd-0 to reset your zoom

Press Ctrl-0 to reset your zoom

It looks like your browser might be zoomed in or out. Your browser needs to be zoomed to a normal size to record audio.

Please upgrade Flash or install Chrome
to use Voice Recording.

For more help, see our troubleshooting page.

Your microphone is muted

For help fixing this issue, see this FAQ.

Star this term

You can study starred terms together

Voice Recording