Exam 21: The Monetary System

In the months of November and December, people in the United States hold a larger part of their money in the form of currency because they intend to shop and travel for the holidays. As a result, other things the same, the money supply increases.

When the Federal Reserve conducts open-market operations to increase the money supply, it

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve requirement is 10 percent, how much more money can banks create if they lend out the remaining amount?

To increase the money supply, the Fed could

A bank has $1000 in deposits and maintains a 12 percent reserve ratio. Its reserves are $ .

The agency responsible for regulating the money supply in the United States is

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. -Refer to Table 29-3. 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

During the Great Depression in the early 1930s,

Suppose the required reserve ratio is 20%. What is the maximum amount of total money supply that can be created from an initial deposit of $200? In general, why might the actual amount of total money creation be less than the maximum?

Consider five individuals with different occupations. Which of the following pairs of individuals has a double coincidence of wants?

The federal funds rate is the interest rate

A double coincidence of wants

You pay for cheese and bread from the deli with currency. Which function of money does this best illustrate?

Which of the following can the Fed do to change the money supply?

The existence of money

All of the presidents of the regional Federal Reserve banks

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

An open-market purchase

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by

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?