Exam 16: The Monetary System

When conducting an open-market sale, the Fed

If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 10 percent, this action by itself initially makes the money supply

The interest rate that the Fed charges banks that borrow reserves from it is the

Treasury Bonds are

For purposes of analyzing the money stock and its relationship to relevant economic variables, money is best thought of as

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

The primary difference between commodity money and fiat money is that

Table 16-2. An economy starts with $10,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $9,250. The T-account of the bank is shown below. -Refer to Table 16-2. If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves of $150 for this bank has the potential to increase deposits for all banks by

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. What is the reserve requirement?

The manager of the bank where you work tells you that your bank has $5 million in excess reserves. She also tells you that the bank has $300 million in deposits and $255 million dollars in loans. Given this information you find that the reserve requirement must be

Economists argue that the move from barter to money increased trade and production. How is this possible?

Suppose that in a country the total holdings of banks were as follows: required reserves = $45 million excess reserves = $15 million deposits = $750 million loans = $600 million Treasury bonds = $90 million Show that the balance sheet balances if these are the only assets and liabilities.Assuming that people hold no currency, what happens to each of these values if the central bank changes the reserve requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and banks don't change their holdings of Treasury bonds? How much does the money supply change by?

Table 16-6. -Refer to Table 16-6. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what is the reserve requirement?

If the Fed sells government bonds to the public, then reserves

Suppose that in a country people gain more confidence in the banking system and so hold relatively less currency and more deposits. As a result, bank reserves will

If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply.

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $625. Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits. If, at a point in time, reserves for all banks amount to $500, then at that same point in time, loans for all banks amount to $2,625.

The Federal Reserve primarily uses open-market operations to change the money supply.

Draw a simple T-account for First National Bank which has $5,000 of deposits, a required reserve ratio of 10 percent, and excess reserves of $300. Make sure your balance sheet balances.