Exam 28: The Financial Sector and the Economy

State whether the following illustrates the speculative,precautionary or transactions motive for holding money. (a. )A bond broker holds cash for the possibility of buying a bond whose price is expected to rise. (b. )John's mother tells him to keep $10 in his pocket any time he goes out in case he needs to put gas in the car. (c. )Julio withdraws $100 from the bank to buy vegetables at the local organic farm market. (d. )Mary takes out $50 from the bank to buy lunches during the week. (c. )As stock prices begin to tumble,investors sell stock and increase their cash holdings.

The three functions of money are to serve as: (1)a medium of exchange, (2)a unit of account,and (3)a store of wealth.Briefly explain each of these functions and give an example of each.

The U.S. dollar bills you sometimes have in your wallet are:

Some colleges charge for student parking. Currently, your college does not charge for parking but the administration announced a possible charge of $2 per day. You are not sure when the new parking policy will start; therefore you decide to keep a $5 bill in your wallet. You hold to $5 for the:

Suppose the required reserve ratio is 0.15. Total bank deposits are $100 million and the bank holds $20 million in reserves. How much more money can the bank create if it does not hold excess reserves?

Banks hold people's cash for free, and sometimes even pay for the privilege of holding it, because:

Which of the following are examples of financial assets that pay a long-term interest rate?

Explain the difference between the way real assets are created and the way financial assets are created.

The measure of money most closely correlated with the price level and economic activity is:

Suppose the banking system has $100,000 in outstanding deposits and actual reserves of $35,000. If the required reserve ratio is 25 percent, the maximum amount the banking system can now add to the money supply is:

Credit cards:

In order to function as a medium of exchange, money must:

If you expect interest rates to rise, you will want to be holding:

A reserve ratio of 0.10 means that a bank can lend an amount equal to:

John Deere deposits $1,000 into Lawnmowers Community National Bank.Suppose banks hold reserves of 10% and people hold no currency outside of banks.What will be the amount of new money the banking system can create as a result of John's deposit?

Why is the financial sector important in macroeconomic debates?

M2 includes which of the following?

What is the interest rate? How does it relate to the buying and selling of financial assets?

One of the three functions of money is to serve as a:

According to the rule of 72, a savings account with an interest rate of 12 percent will double in value in approximately: