Exam 29: The Monetary System

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 fiat money.

The "yardstick" people use to post prices and record debts is called

The banking system currently has $100 billion of reserves,none of which are excess.People hold only deposits and no currency,and the reserve requirement is 10%.If the Fed lowers the reserve requirement ratio to 5% and at the same time buys $10 billion dollars of bonds,then by how much does the money supply change?

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.

Other things the same,if banks decide to hold a smaller part of their deposits as excess reserves,the money supply will fall.

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?

If the Fed decreases reserve requirements,the money supply will increase.

Changes in the quantity of money affect

Which of the following actions would have the combined effect of raising the money supply and raising the money multiplier?

If the reserve ratio is 5 percent,$1,000 of additional reserves can create

When the Fed conducts open-market sales,

Just after the terrorist attack on September 11,2001,the Fed stood ready to lend financial institutions funds.When the Fed did this,it was acting in its role of lender of last resort.

When the Fed conducts open-market purchases,

As the reserve ratio increases,the money multiplier

If the reserve ratio is 12.5 percent,the money multiplier is

Which of the following is not included in M1?

In 1991 the Federal Reserve lowered the reserve requirement ratio from 12 percent to 10 percent.Other things the same this should have

A decrease in the money supply might indicate that the Fed had

Compare the Board of Governors and the Federal Open Market Committee.

Bank runs and the accompanying increase in the money multiplier caused the U.S.money supply to rise by 28 percent from 1929 to 1933.