Exam 16: The Monetary System

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.

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves

Money, such as gold, with some intrinsic value is called . Money with no intrinsic value is called .

Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $800. 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 $750, then at that same point in time, loans for all banks amount to $6,000.

Reserves increase if the Federal Reserve

Scenario 29-2. 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 29-2. Assume that banks desire to continue holding the same ratio of excess reserves to deposits. What is the reserve requirement and the reserve ratio for Tazian Banks?

Table 29-5. -Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

The Federal Reserve

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

The discount rate is the interest rate that

Why do Federal Reserve Board of Governors have long 14 year) terms?

The president of each regional Federal Reserve Bank is appointed by

If the reserve ratio is 8 percent, then the money multiplier is

Commodity money cannot be used as a unit of account.

A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve requirement.

If the Federal Reserve increases the interest rate on bank deposits at the Fed, banks will want to hold

When we measure and record economic value, we use money as the

If R represents the reserve ratio for all banks in the economy, then the money multiplier is

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

People can write checks against