ECON 201: Aplia Ch. 21 (The Monetary System) – Flashcards

The money supply includes all of the following EXCEPT metal coins. paper currency. lines of credit accessible with credit cards. bank balances accessible with debit cards.

Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply ________, but if the bank lends out some of the $100, the money supply ________.

If the reserve ratio is ¼ and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by

Which of the following actions by the Federal Reserve would reduce the money supply?

In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold ________ currency or if banks choose to hold ________ excess reserves.

Indicate whether the function is a medium of exchange, a unit of account, or a store of value in the U.S. economy. 1. U.S. Penny 2. Mexican Peso 3. Picasso painting 4. Plastic credit card

Indicate whether each of the following is considered money in the U.S. economy. 1. U.S. Penny 2. Mexican Peso 3. Picasso painting 4. Plastic credit card

Money has what 3 functions?

medium of exchange

A unit of account

A store of value

Reserves=

Loans=

What 3 ways can a bank return to its reserve ratio?

Increase in money deposits=

You take $100 you had kept under your mattress and deposit it in your bank account. Suppose this $100 stays in the banking system as reserves and banks hold reserves equal to 10 percent of deposits. The total amount of deposits in the banking system increases by______, and the money supply increases by______

Happy Bank starts with $200 in bank capital. It then takes in $800 in deposits. It keeps 12.5 percent (1/8th) of deposits in reserve. It uses the rest of its assets to make bank loans. Complete the T-Account Assets: Liabilities: Reserves= Deposits= Loans= Bank Capital=

Levarage Ratio=

Suppose that Happy Bank has $900 in loans and $100 in reserves. 10 percent of the borrowers default and the loans become worthless. The banks total assets decline by___% and the banks capital declines by__%

Percent change in total assets=

Percent change in bank assets=

The Federal Reserve conducts a $10 million open-market purchase of government bonds. If the required reserve ratio is 10 percent, the largest possible increase in the money supply that could result is ____ million, and the smallest possible increase is _____ million.

Assume that the reserve requirement is 5 percent. If the Federal Reserve buys $2,000 worth of bonds, the largest possible increase in the money supply is ____. If someone deposits in a bank $2,000 that she had been hiding in her cookie jar, the largest possible increase in the money supply is ____.

Suppose that the reserve requirement for checking deposits is 10 percent and that banks do not hold any excess reserves. If the Fed sells $1 million of government bonds, the economy's reserves ________(increase/decrease) by ____million, and the money supply will ________(increase/decrease) by ____million. Now suppose the Fed lowers the reserve requirement to 5 percent, but banks choose to hold another 5 percent of deposits as excess reserves. This will _______(change/not change) the money multiplier, and it will________(change/not change) the money supply.

Assume that the banking system has total reserves of $100 billion. Assume also that required reserves are 10 percent of checking deposits and that banks hold no excess reserves and households hold no currency. The money multiplier is____. The money supply is____ billion. Suppose the Fed raises required reserves to 20 percent of deposits. The new money multiplier is_____. and the money supply (increases/decreases) to _____ billion.

Money Supply=

Assume that the reserve requirement is 20 percent. Also assume that banks do not hold excess reserves and there is no cash held by the public. The Federal Reserve decides that it wants to expand the money supply by $40 million using open-market operations. In order to accomplish its goal, the Fed needs to (buy/sell) ____million worth of bonds.

Increase in money supply=

The economy of Elmendyn contains 2,000 $1 bills. Determine the quantity of money in this economy: People hold all money as currency.

The economy of Elmendyn contains 2,000 $1 bills. Determine the quantity of money in this economy: People hold all money as demand deposits, and banks maintain 100 percent reserves.

The economy of Elmendyn contains 2,000 $1 bills. Determine the quantity of money in this economy: People hold equal amounts of currency and demand deposits, and banks maintain 100 percent reserves.

The economy of Elmendyn contains 2,000 $1 bills. Determine the quantity of money in this economy: People hold all money as demand deposits, and banks maintain a reserve ratio of 10 percent.

The economy of Elmendyn contains 2,000 $1 bills. Determine the quantity of money in this economy: People hold equal amounts of currency and demand deposits, and banks maintain a reserve ratio of 10 percent.