Macroeconomics Chapter 13: Money and Banks – Flashcards
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The direct exchange of one good for another
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Is barter.
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Money is functioning as a standard of value when you
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Use it to compare two houses that are different prices.
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Which of the following statements is not correct about the US monetary system?
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Credit cards are the most common form of money today.
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The basic money supply or M1 includes
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Currency in circulation, transactions accounts, and traveler's checks.
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Which of the following is not correct about the money kept in transactions accounts?
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It is backed by gold held by the government. Money kept in transactions accounts DO permit direct payment to a third party, ARE part of the basic money supply, and ARE good substitutes for cash in many cases.
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Savings accounts are included in
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M2 only.
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Suppose Oscar withdraws $100 from his checking account and deposits it into his savings account. This transaction causes M1 to
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Decrease by $100 and M2 to remain the same.
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One of the main functions of banks is
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Creating money.
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The term factional reserves refers to
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Reserves being a small fraction of total transactions account balances.
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The ratio of a bank's total reserves to its total transactions deposits is known as the
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Reserve ratio.
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Banks are required to keep a minimum amount of funds in reserve because
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Depositors may decide to withdraw funds at any time.
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Suppose University Bank has zero excess reserves. If the required reserve ratio decreases the
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Bank will be able to make more loans.
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Which of the following explains why banks try to keep their holding of excess reserves low?
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To maximize profits. It IS NOT to keep the money multiplier low, to escape Fed penalties or to please bank examiners.
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Suppose a bank has $200,000 in deposits, a required ratio of 10 percent and bank reserves of $45,000. Then this bank can make new loans in the amount
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$25,000
Explanation:
Required Reserves = Required Reserves Ratio x Total Deposits
Excess Reserves = Total Reserves- Required Reserves
10 x 200,000 = 20,000
45,000-25000 = 25,000
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If the banking system has a required reserve ratio of 20 percent, the money multiplier is
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5.
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Ceteris Paribus, the money supply becomes smaller when
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A loan is repaid to the banking system by a bank customer.
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Students Bank and Trust has zero excess reserves. ceteris paribus, if the required reserve ratio decreases
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The bank will be able to make additional loans.
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Which of the following insures deposits at banks?
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The FDIC. NOT the Federal Reserve, the RTC, or the FSLIC.
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According to a World View article titled "The Cashless Society," the Russian economy turned to a barter system because
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Russian citizens lost confidence in the ruble as a form of money.
