Exam 16: The Monetary System

The banking system currently has $200 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 4 percent. If the Fed raises the reserve requirement to 10 percent and at the same time buys $50 billion worth of bonds, then by how much does the money supply change?

Scenario 16-2.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 taz. Aggregate banking statistics show that collectively the banks of Tazi hold 300 million tazes of required reserves, 75 million tazes of excess reserves, have issued 7,500 million tazes of deposits, and hold 225 million tazes of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. -Refer to Scenario 16-2. Suppose that the Bank of Tazi changes the reserve requirement to 3 percent. Assuming that the banks still want to hold the same percentage of excess reserves what is the value of the money supply after the change in the reserve requirement?

The Fed increases reserves if it conducts open market

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.

Which of the following is not a tool of monetary policy?

M1 includes savings deposits.

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

The federal funds rate is the interest rate that

In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is

Sandra routinely uses currency to purchase her groceries. She is using money as a medium of exchange.

A problem that the Fed faces when it attempts to control the money supply is that

Scenario 16-1.The monetary policy of Namdian is determined by the Namdian Central Bank. The local currency is the dia. Namdian banks collectively hold 100 million dias of required reserves, 25 million dias of excess reserves, 250 million dias of Namdian Treasury Bonds, and their customers hold 1,000 million dias of deposits. Namdians prefer to use only demand deposits and so the money supply consists of demand deposits. -Refer to Scenario 16-1. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and what is the reserve ratio?

Which of the following does the Federal Reserve not do?

During recessions, banks typically choose to hold more excess reserves relative to their deposits. This action

If the Federal Open Market Committee decides to increase the money supply, then the Federal Reserve

Table 16-7 Metropolis National Bank is currently holding 2% of its deposits as excess reserves. -Refer to Balance Sheet of Metropolis National Bank. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assuming that all banks have the same required reserve ratio, and then none want to hold excess reserves what is the value of the money multiplier?

Most financial assets other than money function as

The Federal Reserve was created in 1913 after a series of bank failures in 1907.

Which of the following can banks use to borrow from the Federal Reserve?

Table 16-3. -Refer to Table 16-3. If $1,000 is deposited into the First Bank of Fairfield, and the bank takes no other actions, its