Exam 25: Money, banks, and the Federal Reserve System

Table 25-2 -Refer to Table 25-2.Suppose a transaction changes a bank's balance sheet as indicated in the following T-account,and the required reserve ratio is 10 percent.As a result of the transaction,the bank can make a maximum loan of

You earn $500 a month,currently have $200 in currency,$100 in your checking account,$2,000 in your savings accounts,$3,000 worth of illiquid assets and $1,000 of debt.You have

Banks can make additional loans when required reserves are

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent.If the Federal Reserve reduces the required reserve ratio to 15 percent,then the bank will now have excess reserves of

A bank will consider a car loan to a customer ________ and a customer's checking account to be ________.

Suppose the required reserve ratio is 20 percent.If banks are conservative and choose not to loan all of their excess reserves,the real-world deposit multiplier is

Suppose you deposit $4,000 in currency into your checking account at Bank of America.Assume that Bank of America has no excess reserves at the time you make your deposit and that the required reserve ratio is 10 percent. a.Use a T-account to show the initial effect of this transaction on Bank of America's balance sheet. b.Suppose that Bank of America makes the maximum loan they can from the funds you deposited.Use a T-account to show the initial effect on Bank of America's balance sheet from granting the loan.Also include in this T-account the transaction from question (a.). c.Now suppose that whoever took out the loan in question (b)writes a check for this amount and that the person receiving the check deposits it in Bank of Boston.Show the effect of these transactions on the balance sheet of Bank of America and Bank of Boston,after the check has been cleared.On the T-account for Bank of America,include the transactions from questions (a)and (b). d.What is the maximum increase in checking account deposits that can result from your $4,000 deposit? What is the maximum increase in the money supply? Explain.

Which of the following is not counted in M1?

According to the quantity theory of money,if the money supply grows at 20 percent and real GDP grows at 5 percent,then the inflation rate will be

A series of bank runs in a country should have no effect on M1 as money simply moves from checking deposits to currency.

Suppose there is a bank panic.Which of the following would not be a consequence of this bank panic?

The quantity equation states that the

Hyperinflations occur because governments want to spend more than they raise in taxes,and they pay for the extra purchases by printing money.

Refer to Scenario 25-2.As a result of Kristy's deposit,checking account deposits in the banking system as a whole (including the original deposit)could eventually increase up to a maximum of

If the required reserve ratio (RR)is 20 percent,the simple deposit multiplier is

There is a strong link between changes in the money supply and inflation

As recently as 2007,the amount of seigniorage on a U.S.penny is ________,and the amount of seigniorage U.S.paper fiat money is ________.

If households choose to take some fraction of each check they deposit and hold it as currency,then the simple deposit multiplier ________ the real-world multiplier.

Suppose you withdraw $1,000 from your savings account and put it under your mattress.Briefly explain how this will affect M1 and M2.

Which of the following best describes how banks create money?