Exam 29: The Monetary System

During the early 1930s there were a number of bank failures in the United States. What did this do to the money supply? The New York Federal Reserve Bank advocated open market purchases. Would these purchases have reversed the change in the money supply and helped banks? Explain.

Trace the effects on the money supply when the Fed decreases the discount rate.

Describe the two things that limit the precision of the Fed's control of the money supply and explain how each limits that control.

Designers of the Federal Reserve System were concerned that the Fed might form policy favorable to one part of the country or to a particular party. What are some ways that the organization of the Fed reflects such concerns?

Table 29-2 The information in the following table pertains to the hypothetical economy of Florencial. ​ Type of Money Amount (Billions of dollars) Large time deposits 120 Small time deposits 80 Demand deposits 300 Other checkable deposits 50 Savings deposits 65 Traveler's checks 5 Money market mutual funds 200 Currency 150 Credit card balances 300 Miscellaneous categories of M2 30 -Refer to Table 29-2. What is the M1 money supply in Florencial?

If the reserve requirement is 10 percent, which of the following pairs of changes would both allow a bank to lend out an additional $10,000?

What is bank insolvancy?

The prices of goods at a grocery store are listed in dollars. Which function of money does this illustrate?

Suppose a bank is operating with a leverage ratio of 20. What is the maximum decrease in the market value of assets before the bank becomes insolvent?

In the months of November and December, people in the United States hold a larger part of their money in the form of currency because they intend to shop and travel for the holidays. As a result, other things the same, the money supply increases.

You saved $500 in currency in your piggy bank to purchase a new laptop. The $500 you kept in your piggy bank illustrates money's function as a _______. The laptop's price is posted as $500. The $500 price illustrates money's function as a _____. You use the $500 to purchase the laptop. This transaction illustrates money's function as a ______.

The federal funds rate is a long-term interest rate banks charge one another for loans.

U.S. dollars are an example of commodity money and hides used to make trades are an example of fiat money.

The discount rate is

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

Table 29-3 ​ The First Bank of Rosw ell Assets Liabilities Reserves \ 30,000 Deposits \ 200,000 Loans 170,000 ​ ​ ​ -Refer to Table 29-3. If the bank faces a reserve requirement of 6 percent, then the bank

A bank operates with reserves of $100, loans of $300 and securities of $100. The bank's only liability is deposits of $400 since it has zero debt. Calculate the bank's leverage ratio.

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange even though the ruble was legal tender. The cigarettes provide an example of commodity money.

Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account.

Suppose a bank has $3,000 in reserves, $25,000 of deposits, and a 10 percent reserve requirement. What is the amount of excess reserves?