Exam 29: The Monetary System

Reserve laws were circumvented in the United States, where banks did not highlight loans given 'off-balance-sheet'.This led to liquidity crises that have been called the credit crunch.Explain how crises can be exacerbated when laws demanding a fractional reserve level are flouted.

If the reserve ratio is 20 per cent and a bank receives a new deposit of $100, then this bank:

If a bank uses $80 of reserves to make a new loan when the reserve ratio is 25 per cent, then:

When the Governor of the RBA gives a press conference, his comments are often an indicator of RBA intention.This has been dubbed as 'Open Mouth Operations', enabling the RBA to change retail bank policy without making a cash rate decision.Explain how this can be an effective method of managing the monetary policy? Explain your reasoning.

The term wealth is used to refer to the total of all stores of value, including both money and non-monetary assets.

If the reserve requirement is increased to 25 per cent, then the First Bank of Oz:

If you withdraw $100 from your bank, then:

When the RBA is trying to control rising inflation, it:

Monetary policy seeks to affect all interest rates in the economy, not just the overnight cash rate.

What determines the amount of money in the economy?

Explain what will happen to the money supply under each of the following circumstances: a.The public decides to increase the amount of currency it holds. b.Banks decide to hold fewer excess reserves.

Store of value deteriorates when:

In the absence of money, people would have to rely on credit cards in order to obtain the things they needed.

A decrease in reserve requirements will likely result in banks:

Money has value to society because it performs three socially useful functions.What are those functions of money?

The RBA is required to ensure that:

Banks attempt to hold as much reserves as possible.

What was the purpose of the deposit guarantee scheme in Australian and NZ banks?

Under a fractional-reserve banking system, banks:

One of the functions of money comes from the use of money to transfer purchasing power to the future.This is called: