Exam 29: The Monetary System

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer,

If the Fed increases the reserve ratio from 5 percent to 12.5 percent, then the money multiplier

What does the text mean by the question, "Where Is All the Currency?" How does it answer the question?

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. -Refer to Table 29-3. The bank's reserve ratio is

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is

An open-market sale

​Which government body is primarily responsible for regulating banks and ensuring the health of the banking system?

To increase the money supply, the Fed could

If the central bank in some country raised the reserve requirement, then the money multiplier for that country

The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000.

At one time, people in a certain country had no access to banks; they relied exclusively on currency. Then, a fractional-reserve banking system was created. As a result, the money supply

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

Scenario 29-2. The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. -Refer to Scenario 29-2. Assuming the only other thing Tazian banks have on their balance sheets is loans, what is the value of existing loans made by Tazian banks?

List two reasons why the Fed can not control the exact size of the money supply.

​Under a 100-percent-reserve banking system, banks do not influence the supply of money.

Scenario 29-2. The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. -Refer to Scenario 29-2. Suppose the Bank of Tazi loaned the banks of Tazi 10 million tazes. Suppose also that both the reserve requirement and the percentage of deposits held as excess reserves stay the same. By how much would the money supply change?

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

If the Fed buys bonds in the open market, the money supply decreases.

If the discount rate is lowered, banks borrow

You receive money as payment for babysitting your neighbors' children. This best illustrates which function of money?