Macro Chapter 13

The direct exchange of one good for another

Is barter.

Which of the following is not true about barter?

It allows people to obtain more goods than they would under a money payment system.

Which of the following is an example of barter?

Keisha takes care of the neighbor’s children, and the neighbor mows Keisha’s yard as repayment.

Which of the following is not a characteristic of money?

Mechanism for barter.

Money is functioning as a standard of value when you

Use it to compare two houses that are different prices.

When money serves as a mechanism for transforming current income into future purchases, it is functioning as a

Store of value.

Money is functioning as a store of value when you

Save your cash to pay for tuition next semester.

When money is used to acquire goods and services, it is functioning as a

Medium of exchange.

Money does all of the following except

Reduce the efficiency with which market exchanges take place.

Which of the following gave the U.S. federal government permanent authority to issue money?

The National Banking Act of 1863.

Which of the following statements is not correct about the U.S. monetary system?

Credit cards are the most common form of money today.

For something to be considered money it must be

Generally accepted as a medium of exchange.

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Which of the following is not a transactions account?

A savings account.

Which of the following is not included in the narrowest definition of the money supply or M1?

Credit card balance

The basic money supply or M1 includes

Currency in circulation, transactions accounts, and traveler’s checks.

Which of the following is not true about M1?

Savings accounts makes up approximately one-third of it.

Which of the following is true about the quantity of money in the U.S. economy?

It is much greater than the amount of currency in circulation.

A bank account that permits direct payment to a third party is a

Transactions account.

Which of the following is not correct about the money kept in transactions accounts?

It is backed by gold held by the government.

The majority of the basic money supply (M1) in the United States is in the form of

Transactions accounts and currency in circulation.

The different components of the money supply reflect

Variations in liquidity and accessibility of assets.

NOW and ATS accounts are included in

Both M1 and M2.

Transactions account balances are included in

Both M1 and M2.

Currency in circulation is included in

Both M1 and M2.

Traveler’s checks are included in which of the following?

Both M1 and M2.

Savings accounts are included in

M2 only.

Which of the following is not included in any of the measures of the money supply?

Cash in the vault of a commercial bank.

Which of the following is not included in M1?

Savings account balances at a federal savings bank.

Which of the following is not included in transactions accounts?

A money market mutual fund.

Which of the following is included in M2?

Savings accounts.

Which of the following appears in M2 but not in M1?

Savings accounts.

Suppose Oscar withdraws $100 from his checking account and deposits it into his savings account. This transaction causes M1 to

Decrease by $100 and M2 to remain the same.

Suppose Jason takes $150 he had in his wallet and deposits it into his checking account. The immediate result of this transaction is that M1

And M2 do not change.

Suppose Megan withdraws $75 from her savings account and deposits it into her checking account. This transaction causes M1 to

Increase by $75 and M2 to remain the same.

Suppose Jared takes $200 from his savings account and holds it as cash. The immediate result of this transaction is that M2

Remains the same and M1 increases by $200.

Bradley digs out $50 from his cookie jar and deposits it in his checking account. The immediate result of this transaction is that M1 has

Not changed.

Which of the following is not included in M2?

Treasury bills.

Which of the following is included in M1?

. Currency in circulation.

The various money supply measures (M1 and M2) are used to distinguish the

Liquidity and accessibility of assets.

Deposit creation occurs when

A bank lends money.

When a bank makes a loan, it

Creates a transactions account balance for the borrower.

One of the main functions of banks is

Creating money.

If bank customers decide as a group to pay off their loans and to not take out any new loans, ceteris paribus,

The money supply will decrease.

Which of the following is not considered to be a private depository institution?

The Federal Reserve.

One of the essential functions a bank performs is that of

Transferring money from savers to borrowers.

When cash or coins are initially deposited into a bank,

The composition of the money supply changes, but the size of the money supply does not change.

The term fractional reserves refers to

Reserves being a small fraction of total transactions account balances.

Which of the following reflects the concept of fractional reserves?

The money multiplier is greater than 1.

The banking system can lend the sum of its excess reserves because

Banks are required to keep only a fraction of deposits on reserve.

The ratio of a bank’s total reserves to its total transactions deposits is known as the

. Reserve ratio.

The minimum amount of reserves a bank is required to hold is known as

Required reserves.

Required reserves represent

A leakage from the flow of money.

When the reserve requirement changes, which of the following will change for an individual bank?

Required reserves, excess reserves, and lending capacity.

Suppose a bank has $500,000 in deposits and a required reserve ratio of 10 percent. Then required reserves are

$50,000.

Suppose a bank has $300,000 in deposits and a required reserve ratio of 15 percent. Then required reserves are

. $45,000.

Suppose a bank has $160,000 in deposits and a required reserve ratio of 10 percent. Then required reserves are

$16,000.

Suppose a bank has $200,000 in deposits and a required reserve ratio of 15 percent. Then required reserves are

$30,000.

Banks are required to keep a minimum amount of funds in reserve because

Depositors may decide to withdraw funds at any time.

Which of the following sets the legal minimum reserve ratio?

The Federal Reserve.

A single bank with $10,000 of reserves and a reserve ratio of 25 percent could support total transactions account balances of at most

$40,000.

A single bank with $20,000 of reserves and a reserve ratio of 5 percent could support total transactions account balances of at most

$400,000.

Suppose University Bank has zero excess reserves. If the required reserve ratio decreases, the

Bank will be able to make more loans.

Initially a bank has a required reserve ratio of 20 percent and no excess reserves. If $5,000 is deposited into the bank, then initially, ceteris paribus,

This bank can increase its loans by $4,000.

Initially a bank has a required reserve ratio of 10 percent and no excess reserves. If $1,000 is deposited into the bank, then, ceteris paribus,

This bank can increase its loans by $900.

Initially a bank has a required reserve ratio of 15 percent and no excess reserves. If $10,000 is deposited in the bank, then, ceteris paribus,

This bank can increase its loans by $8,500.

Which of the following explains why banks try to keep their holdings of excess reserves low?

To maximize profits.

For a small bank in a large banking system, excess reserves are equal to the

The amount of loans a bank can make after meeting the reserve requirement.

Excess reserves are

Total reserves less required reserves.

Which of the following is a bank liability?

Transactions account balances.

Suppose a bank has $2 million in deposits, a required reserve ratio of 10 percent, and total reserves of $500,000. Then it has excess reserves of

. $300,000.

Suppose a bank has $200,000 in deposits, a required reserve ratio of 15 percent, and total reserves of $100,000. Then it has excess reserves of

. $70,000.

Suppose a bank has $1 million in deposits, a required reserve ratio of 25 percent, and total reserves of $600,000. Then it has excess reserves of

$350,000.

Suppose a bank has $5,000,000 in deposits, a required reserve ratio of 20 percent, and total reserves of $1,000,000. Then the bank has excess reserves of

$0.

Suppose a bank has $600,000 in deposits, a required reserve ratio of 5 percent, and bank reserves of $90,000. Then the bank can make new loans in the amount of

$60,000.

Suppose a bank has $200,000 in deposits, a required reserve ratio of 10 percent, and bank reserves of $45,000. Then this bank can make new loans in the amount of

$25,000.

Suppose a bank has $100,000 in deposits, a required reserve ratio of 20 percent, and total reserves of $20,000. Then this bank can make new loans in the amount of

$0.

Suppose a bank has $200,000 in deposits, a required reserve ratio of 25 percent, and bank reserves of $100,000. Then this bank can make new loans in the amount of

$50,000.

If excess reserves are $10,000, demand deposits are $100,000, and the required reserve ratio is 10 percent, then total reserves are

$20,000.

If excess reserves are $30,000, demand deposits are $100,000, and the required reserve ratio is 15 percent, then total reserves are

$45,000.