Econ 1040 chapter 11 – Flashcards
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Which of the following is not included in either M1 or M2?
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U.S. Treasury bills
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In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits, then
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M1 would not change.
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If a bank desires to hold no excess reserves, the reserve requirement is 8 percent, and it receives a new
deposit of $500,
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its required reserves increase by $40.
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If the reserve ratio is 10 percent, the money multiplier is
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10
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When the Fed conducts open-market purchases,
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it buys Treasury securities, which increases the money supply.
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When the Fed conducts open-market sales,
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it sells Treasury securities, which decreases the money supply.
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The Fed's primary tool to change the money supply is
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conducting open market operations.
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If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money
supply?
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it increases by $150,000
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The interest rate that the Fed charges banks that borrow reserves from it is the
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discount rate.
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When the Fed decreases the discount rate, banks will
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borrow more from the Fed and lend more to the public. The money supply increases.
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A problem that the Fed faces when it attempts to control the money supply is that
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since the U.S. has a fractional-reserve banking system, the amount of money in the economy depends in part on the behavior of depositors and bankers.
