Exam 13: Money and the Banking System

Recall the Application about how the Fed kept the U.S. financial system in operation following the attacks of September 11, 2001, to answer the following question(s). To help prevent financial firms from defaulting on their debts, the Fed took several steps to provide additional funds to the financial system, including allowing banks to borrow more, increasing the difference between the credits and debits it extended while serving as a clearinghouse for checks, purchasing government securities, and providing dollars to foreign central banks. Together, these actions increased the credit extended by the Fed by over $90 billion. -According to this Application, following the attacks of September 11, 2001, the Federal Reserve purchased government securities, putting $30 billion in the hands of private citizens and their banks. By extending cash to banks during the potential financial crisis following the September 11 attacks, the Fed was attempting to

Explain liabilities and assets as they relate to a bank's balance sheet.

Assuming all excess reserves are loaned out, currency holdings by the public are zero, and a reserve ratio of 20 percent, an initial deposit of $6,000 will lead to a total increase in deposits of

Suppose a bank has $200,000 in deposits and a reserve ratio of 15 percent. Its required reserves are

Recall the Application about how the Fed kept the U.S. financial system in operation following the attacks of September 11, 2001, to answer the following question(s). To help prevent financial firms from defaulting on their debts, the Fed took several steps to provide additional funds to the financial system, including allowing banks to borrow more, increasing the difference between the credits and debits it extended while serving as a clearinghouse for checks, purchasing government securities, and providing dollars to foreign central banks. Together, these actions increased the credit extended by the Fed by over $90 billion. -According to this Application, immediately following the attacks of September 11, 2001, the Fed provided additional funds to the financial system. On September 12, banks borrowed $45.5 billion dollars, up from $99 million the previous week. This was an example of the Fed acting as a

Money is the standard of exchange by which any type of goods can be purchased.

Inflation makes money an imperfect store of value.

The Federal Reserve System is the central bank of the United States.

Before they can be used in regular exchanges, the assets that make up M2 must often

If cash is deposited into a checking account, the supply of money increases.

Recall the Application about the Fed's response to the collapse of the investment house Bear Stearns as well as its handling of the 2008 financial crisis with respect to other financial institutions to answer the following question(s). -According to this Application, the Fed increased its lending by hundreds of billions of dollars to financial institutions as a response to the ongoing financial crisis. This increase in loans to financial institutions increased the supply of money in the economy. When the supply of money increases, the money supply curve will

Recall the Application about the Fed's response to the collapse of the investment house Bear Stearns as well as its handling of the 2008 financial crisis with respect to other financial institutions to answer the following question(s). -According to this Application, the Fed responded to the financial crisis by continuing to develop new programs. One example of this was its announcement that it would now purchase commercial paper, which is the short-term debt of corporations. This is an example of the Fed acting as a

Which of the following is NOT a subgroup of the Federal Reserve System?

Money that has no intrinsic value and is created by a government decree is called

Credits cards are NOT a part of the M1 or M2 money supply.

Recall the Application about the Brazilian city of Silva Jardim that has issued its own local currency to answer the following question(s). In order to entice local residents to spend their money on stores in town, the small city of Silva Jardim in Brazil, hatched a plan for its own currency. The currency is called the capivari and features a picture of a local rodent on the bills. The capivaris are issued by a local bank, which holds one unit of official Brazilian currency for each capivari it issued. Local merchants, however, give discounts for paying in capivaris so that local residents are therefore encouraged to make local purchases. -According to this Application, the small city of Silva Jardim in Brazil has issued its own currency called the capivari. When people use this currency to execute transactions, this currency is being used as a

The voting members of the Federal Open Market Committee are

Assuming all excess reserves are loaned out, if the reserve ratio is 8 percent, the money multiplier will be equal to

Financial monetary assets which often cannot be readily used in commercial exchanges are included in

Which of the following is NOT included in M1?