Exam 29: The Monetary System

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

List the two main functions performed by the Fed?

Which of the following is included in both M1 and M2?

One of the features of money is its store of value. However, most people do not hold their wealth as currency. Given that currency is the most liquid type of asset, why don't people hold all their wealth as currency?

Monetary policy is made by the ______.

The leverage ratio is calculated as

Table 29-6 Metropolis National Bank Assets Liabilities Reserves \ 60,000 Deposits \ 500,000 Loans 440,000 ​ -Refer to Table 29-6. Metropolis National Bank is holding 2% of its deposits as excess reserves. Assume that no banks in the economy want to maintain holdings of excess reserves and that people only hold deposits and no currency. The Fed makes open market purchases of $10,000. The person who sold bonds to the Fed deposits all the funds in Metropolis National Bank. If the bank now loans out all its excess reserves, by how much will the money supply increase?

M2 is both larger and less liquid than M1.

List two examples of commodity money.

The federal funds rate is the

Scenario 29-1 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 Tazian dollar. Aggregate banking statistics show that collectively the banks of Tazi hold $375 million of required reserves, $225 million of excess reserves, have issued $7,500 million of deposits, and hold $750 million of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. -Refer to Scenario 29-1. Suppose that the Bank of Tazi changes the reserve requirement to 2 percent. Assuming that the banks still want to hold the same percentage of excess reserves what is the value of the money supply after banks adjust to the change in the reserve requirement?

In many circumstances, prisoners are not allowed to possess cash. Does this mean there is no money in prison? Explain.

Why is the Chairman of the Federal Reserve often referred to as the "second most powerful person in the United States?"

Which of the following is correct?

Describe how the use of leverage affects the impact of bank investments.

Suppose a bank purchases $50 of government securities using funds from reserves. How much do bank assets change as a result of this transaction?

What does it mean for the Fed to be the "lender of last resort?"

Members of the Board of Governors of the Federal Reserve System are appointed for life.