Exam 13: Money and the Banking System

Suppose that the reserve requirement is 10 percent and Bob writes a check to you for $100. If you deposit the check to your checking account, then:

How many governors are included in the Board of Governors of the Federal Reserve?

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

Which of the following is a function of the Federal Reserve?

A loan made by a bank is considered _______ of that bank.

Suppose the required reserve ratio is 10%. A $10 million deposit allows commercial banks to create a maximum total of _______ in deposits.

When the manager of a department store attaches price tags on his products, he is using money as a:

How much does a bank earn if it leaves assets in the form of reserves?

Which of the following is a function of the Federal Reserve?

Recall Application 3, "The Financial System Under Stress: September 11, 2001," to answer the following questions: -To avoid a financial crisis after September 11, 2001, any policy by the implemented Fed must:

Excess reserves plus required reserves equal total reserves.

The development of money as a medium of exchange makes trade easier because:

In order to provide liquidity to the economy after the September 11, 2001, terrorist attacks against the United States, the Fed:

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. -Explain what the Fed did after the stock market crash in October 1987 in order to avert a financial crisis.

Which of the following is a function of the Federal Reserve?

What is the difference between assets in M2 and assets found only in M1?

-Refer to Table 13.2. The required reserve ratio is 20%. If the First Charter Bank is meeting its reserve requirement and has no excess reserves, its reserves equal:

Explain the money creation process.

The distribution of the 12 districts banks of the Federal Reserve across the U.S. reflected the distribution of economic and financial power in 1913.

Recall Application 1, "City-Issued Money in the Great Depression," to answer the following questions: -According to the application, which of the following were examples of scrip money issued during the Great Depression?