Exam 13: Money and the Banking System

The amount of money banks can loan out is determined by the discount rate.

Who serves as the chairperson to the FOMC?

Explain why a country with a central bank that is not independent of external political pressure is a country that tends to have higher inflation.

John transfers $1,000 from his checking account to his savings account. This transaction will:

The seven members of the Board of Governors are appointed to _______ terms by the President.

-Refer to Table 13.1. First Commercial Bank's total loans equal $ _______.

Which of the following is included in M2 but not included in M1?

A monetary system in which gold backs up paper money is called:

_______ is a monetary system in which the money has no intrinsic value. In this system, the money is backed by the government.

Assume there is only one bank in Maldavia-The First National Bank. The required reserve ratio is 25%. The First National Bank has no excess reserves. Suppose that there is a new deposit of $200 million into the banking system. What is the value of the money multiplier in Maldavia? By how much can the money supply increase in Maldavia?

Which of the following assets is the largest component of M1?

Money:

-Refer to Table 13.4. If First Charter Bank earns a loss of $100,000, then:

Bank of Sim City has $500 million in deposits. The required reserve ratio is 25%. Bank of Sim City must keep _______ in reserves.

M1 does not include savings deposits.

COPING WITH A STOCK MARKET CRASH: BLACK MONDAY, 1987 How did the Fed successfully respond to the major stock market crash in 1987? On October 19, 1987, known as "Black Monday," the Dow Jones index of the stock market fell a dramatic 22.6 percent in one day. Similar declines were felt in other indexes and stock markets around the world. These declines shocked both businesses and investors. In just 24 hours, many people and firms found themselves much less wealthy. The public began to worry that banks and other financial institutions—to protect their own loans and investments—would call in borrowers’’ existing loans and stop making new ones. A sharp drop in available credit could, conceivably, plunge the economy into a deep recession. Alan Greenspan had just become chairman of the Federal Reserve that year. As a sophisticated economist with historical knowledge of prior financial crises, he recognized the seriousness of the situation. He quickly issued a public statement in which he said that the Federal Reserve stood ready to provide liquidity to the economy and the financial system. Banks were told that the Fed would let them borrow liberally. In fact, the Fed provided liquidity to such an extent that interest rates even fell. As a result of Greenspan’s action, "Black Monday" did not cause a recession in the United States. -The dramatic drop in stock values on October 19, 1987, known as "Black Monday," was potentially catastrophic for the economy because:

A commercial bank lists:

We know that money is an asset that can be used to transport purchasing power from one time period to another. This description of money illustrates its role as a:

First National Bank has liabilities of $1 million and owners' equity of $300,000. First National Bank's assets are:

The most basic measure of money in the U.S. is: