ECON 161 HW #11 – Flashcards
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In December 2004, currency and traveler's checks held by individuals and businesses was $705 billion; checkable deposits owned by individuals and businesses were $667 billion; savings deposits were $3,520 billion; small time deposits were $817 billion; and money market funds and other deposits were $713 billion.
Calculate M1 and M2 in December 2004.
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M1 in December 2004 is $1,372 billion. M2 in December 2004 is $6,422 billion.
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What is money? Would you classify any of the following items as money?
a. A $50 discount voucher for your next laptop
b. An unused airline ticket
c. Store coupons for noodles
d. A $20 traveler's check
e. A bank loan
f. Civil War Greenbacks
g. An IOU signed by the director of the U.S. postal service
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Item d is money. Items g, e, c, a, b, and f are not money.
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Max takes $800 from his money market fund and deposits the $800 in his checking account.
What is the immediate change in M1 and M2?
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M1 increases by $800 and M2 does not change.
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Money serves the function of being ___.
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a medium of exchange, which means that it is generally accepted in return for goods and services
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Choose the correct statement.
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Deposits are money, checks are not money, and credit cards are not money.
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Currency consists of ___.
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notes (dollar bills) and coins
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M2 consists of ___ plus ___ and ___ deposits, ___, and other deposits.
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M1; savings deposits; small time; money market funds
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The institutions that make up the banking system are ___.
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the Federal Reserve, money market funds, commercial banks, and thrift institutions
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What is a bank's balancing act? A bank must balance ___ against ___.
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security for depositors; profit for stockholders
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A bank makes a profit by ___.
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lending at a higher interest rate than the interest rate it pays on its deposits
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Reserve consist of the currency in the ___ plus the balance on its ___ account at ___.
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bank's vaults; reserve; a Federal Reserve Bank
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The federal funds rate is the ___ rate on ___ loans.
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interest; interbank
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A central bank is ___. The ___ is the central bank of the United States.
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a public authority that provides banking services to banks and governments and regulates financial institutions and markets; Federal Reserve System
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The functions of money are
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medium of exchange, unit of account, and store of value
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The goal of a commercial bank is to
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maximize its stockholders' wealth.
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Which of the flowing lists includes only banks' assets?
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liquid assets, loans, securities, and reserves
