Exam 13: Money and the Banking System

Suppose the and the reserve requirement is 10 percent. If Bob writes a check to you for $100 and you choose to cash the check and hold on to $100 in currency, then:

What are the three functions of money?

The money multiplier is represented by 1/(1- reserve ratio).

Mike makes excellent cheesecake and Sue is very good at changing the oil in a car. Sue agrees to change the oil in Mike's car if he makes her a cheesecake. This is an example of:

Which of the following would not be included in M2?

Comment on the following statement: "A bank's owners' equity will be equal to the sum of its assets and liabilities."

Suppose that Bob had $500 in travelers checks unused from his trip to Italy and he decides to deposit the checks to his savings account. This transaction will:

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 Stock Market Crash in 1987 could have caused a recession in the economy had it resulted in:

Recall Application 2, "The Growth in Excess Reserves" to answer the following questions: -Based on what you learned from the application, the Fed can increase incentives for banks to lend less and decrease the money supply by:

ecall Application 1, "City-Issued Money in the Great Depression," to answer the following questions: -According to the application, all scrip money issued during the Great Depression were paper money similar to government issued currency.

Recall Application 4, "Coping with the Financial Chaos Caused by the Mortgage Crisis," to answer the following questions: -According to Application 4, which insurance company did the Fed take an 80 percent stake in and made an $85 billion loan to?

As a lender of last resort, the Fed makes loans to any investor who loses money in the stock market.

Recall Application 2, "The Growth in Excess Reserves" to answer the following questions: -According to the application, prior to 2007, banks earned:

The required reserve ratio is 10%. The money multiplier is:

If the total assets of the bank exceeds the banks total liabilities, then:

Suppose that the required reserve ratio is 0.4. If a customer withdraws $10 million from a bank, then the money supply could potentially:

The chairperson of the Board of Governors of the Federal Reserve has terms of what length?

In the U.S., the Federal Reserve gets directives regarding the conduct of monetary policy from:

When you use money to fill your car with gas every week, you are using money as a unit of account.

The seven members of the board of governors are appointed to 14- year terms by