ECON HW 11

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In economics, money is defined as
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any asset people generally accept in exchange for goods and services.
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Money is
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an asset that people are willing to accept in exchange for goods and services.
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A major source of inefficiency in barter economies is that they require
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a double coincidence of wants in exchange.
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The statement “This Dell laptop costs $1,200” illustrates which function of money?
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B) unit of account
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The M2 measure of the money supply equals
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M1 plus savings account balances plus small-denomination time deposits plus noninstitutional money market fund shares.
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If households and firms decide to hold less of their money in checking account deposits and more in currency, then initially, the money supply
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Will not change
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Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy’s deposit, Bank A can make a maximum loan of
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8,000
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Banks can continue to make loans until their
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actual reserves equal their required reserves.
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The more excess reserves banks choose to keep,
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the smaller the deposit multiplier
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Net worth is
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the difference between a firm’s assets and liabilities.
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Suppose the reserve ratio is RR. Then,
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required reserves = RR × deposits.
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If the required reserve ratio is RR, the simple deposit multiplier is defined as
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1/RR.
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The Federal Reserve was established in 1913 to
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stop bank panics by acting as a lender of last resort.
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To increase the money supply, the Federal Reserve could
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conduct an open market purchase of Treasury securities.
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A central bank can help stop a bank panic by
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acting as a lender of last resort.
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Economies cannot function without money.
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False
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Liquidity increases as we move from the M1 to the M2 definition of the money supply.
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False
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A cash withdrawal reduces deposits, reserves, and excess reserves in the banking system
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True
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The Fed can change the money supply more quickly by using open market operations as compared to discount policy.
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True

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