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Exam 29: The Monetary System

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Question 21

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Which of the following is not a function of money?

A) Unit of account
B) Store of value
C) Medium of exchange
D) Protection against inflation

E) A) and B)
F) A) and C)

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Question 22

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How does the Fed Open Market Committee increase the money supply?

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Question 23

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If you withdraw $500 from your savings account and deposit it in your checking account, then M1 will change by _____ and M2 will change by _____.

Currently, bank runs are a major problem for the U.S. banking system and the Fed.

If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be

Table 29-2 The information in the following table pertains to the hypothetical economy of Florencial. ​ $\begin{array} { | c | c | } \hline \text { Type of Money } & \begin{array} { c } \text { Amount } \\\text { (Billions of dollars) }\end{array} \\\hline \text { Large time deposits } & 120 \\\hline \text { Small time deposits } & 80 \\\hline \text { Demand deposits } & 300 \\\hline \text { Other checkable deposits } & 50 \\\hline \text { Savings deposits } & 65 \\\hline \text { Traveler's checks } & 5 \\\hline \text { Money market mutual funds } & 200 \\\hline \text { Currency } & 150 \\\hline \text { Credit card balances } & 300 \\\hline \text { Miscellaneous categories of M2 } & 30 \\\hline\end{array}$ -Refer to Table 29-2. What is the M2 money supply in Florencial?

The _____ is the interest rate at which banks make overnight loans to other banks.

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

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, then $500 of additional reserves would ultimately generate

According to economists, "money" means the same thing as "wealth".

Just after the terrorist attack on September 11, 2001, the Fed stood ready to lend financial institutions funds. When the Fed did this, it was acting in its role of lender of last resort.

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

Table 29-4 ​ -Refer to Table 29-4. The Bank of Cheerton's reserve ratio is

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

Banks can hold deposits at the Federal Reserve. Balances in these accounts can be used by banks to meet their reserve requirements, but the Fed pays no interest on these deposits.

The use of money allows trade to be roundabout.

The existence of money makes trade easier. How is it that money can also increase the standard of living?

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If customers deposit $50 into the bank, what is the value of the money supply?

You believe the dollars you have today will be accepted in the future in exchange for goods and services. Which function of money does this illustrate?