Chapter 14 Macroeconomics

1/RRSimple Deposit Multiplier=
reserve ratioRR is
is smaller than the simple deposit multiplier because banks keep excess reserves and households hold excess cashThe real world money multiplier
principle of a double coincidence of wantsA baseball fan with a MT baseball acrd wants to trade it for a MC baseball card, but everyone the fan knows who has a MC card doesn’t want a MT card. Economists characterize this problem as a failure of the
fiat money has no value except as money, whereas commodity money has value independent of its use as moneyWhich of the following best explains the difference between commodity money and fiat money?
open market operationWhich of the following is not a function of money?
all four functionsif something is to be considered as money it has to fulfill ______
not valuablePaper currency is a good medium of exchange because it is
No. The goods are not a store of valueDo the goods Mademoiselle Zelie received as payment fulfill the four functions of money?
medium of exchange, unit of account, store of value, standard of deferred paymentWhat are the four functions of money?
Zimbabwean currency was worthlessThe people buying medical services at this hospital could not use money to pay for the medical services they were buying because the
it is a commodity money because it has value as recycled paperUnder these circumstances, was the chinese paper currency a commodity money or a fiat money?
a medium of exchangeWhen sellers are willing to accept money in exchange for goods and services, money is acting as
TrueIf coins could have been easily used to purchase goods and services in other areas, the coins would also have some intrinsic value.
firms lose since they don’t have the convenience of credit cardsSuppose congress changes the law to require all firms to accept paper currency in exchange for whatever they are selling all are correct except
it is still accepted as a legal tender for transactionsIt is possible for people to continue to use a currency when the government that issued it has replaced it with another currency because
the fact that for a barter trade to take place between two people, each person must want what the other one hasA double coincidence of wants refers to
prices of goods are stated in the terms of moneyMoney serves as a unit of account when
payments agreed to today but made in the future are in terms of moneyMoney serves as a standard of deferred payment when
(all of the above)Which of the following conditions make a good suitable for use as a medium of exchange?
money that is authorized by a central bank and that does not have to be exchanged for gold or some other commodity moneyWhat is fiat money?
money market deposit accounts in bankWhich of the following is included in M2 but not M1?
M1 is a narrow definition focusing more on liquidity, whereas M2 is a broader definition of the money supplyThe federal reserve uses two definitions of the money supply, M1 and M2, because
A person’s money is the currency held and the checking account balance, income is the earning and wealth is equal to value of assets minus all debtsDistinguish among money, income, and wealth.
the public plus their checking account balanceThe central bank of a country controls the money supply, which equals the currency held by
savings account and master cardWhich are not included in the M1 definition of the money supply?
Disagree. Money is currency plus checking deposits. Wealth is the value of assets minus debts.“I recently read that more than half of the money issued by the government is actually held by people in foreign countries. If that is true, then the US is less than half as wealthy as the government statistics indicate.”
Income is yearly earnings and it doesn’t measure wealth which is the value of personal assets less all debts“Income is only one way of measuring wealth”
Do you agree?
Both M1 and M2 will remain unchangedSuppose you have $2000 in a shoebox. One day you decide to deposit the money in a checking account. How will this action affect the M1 and M2 definitions of money supply?
M1 remains unchangedSuppose you decide to withdraw $100 from your checking account. What is the effect on M1?
with another reserve note of equal valueIf you took a $20 to the treasury dept or federal reserve bank, with what type of lawful money is the government likely to redeem it?
used to make anonymous transactionsDrug dealers might find using a virtual currency like bitcoin to be appealing because it can be
(all of the above) checking account deposits, holding of travlers check, currency in circulationThe M1 measure of the money supply includes which of the following components?
included only in M2Savings account balances, small denomination time deposits, and non institutional money market fund shares are
M1 will decrease by $100Jill makes a deposit into her savings account at the local bank with $100 in cash. As a result of this transaction,
loans are the largest asset and deposits are the largest liabilityWhat are the largest asset and the largest liability of a typical bank?
when there is an increase in checking account deposits, banks gain reserves and make new loans, and the money supply expandsHow do the banks “create” money?
this is when banks make loans to businessesWhat is commercial lending?
trueWe can say that loans are funded by deposits because deposits give banks financial capital, which can be loaned out so banks can make a profit. true or false?
Disagree. Checking accounts represent something that the bank owes to the owner of the account. It is a bank liability“assets are things of value that people own. Liabilities are debts. Therefore, a bank will always consider a cracking account deposit to bean asset and a car loan to be a liability.” agree or disagree?
depositsWhich of the following is the largest liability of a typical bank?
the required reserve rationWhich of the following refers to the minimum fraction of deposits banks that are required by law to keep as reserves?
$50 in required reservesSuppose American Bank has $500 in deposits and $200 in reserves and that the required reserve ratio is 10 percent. In this situation American Bank has
all of the aboveThe simple deposit multiplier equals
decreasesA higher required reserve ratio ____ the value of the simple deposit multiplier
decreasesAn increase in the amount of excess reserves that banks keep ____ the value of the real world deposit multiplier
expands/contractsWhenever banks gain reserves and make new loans, the money supply ____; and whenever banks lose reserves, and reduce their loans, the money supply ____
end the instability created by bank panics by acting as a lender of last resortCongress passed legislation to create the federal reserve system in 1913 in order to
controlling the money supply to pursue economic objectivesThe most important role of the federal reserve in todays US economy is
moral suasionWhich one of the following is not one of the policy tools the fed uses to control the money supply?
The fed conducts monetary policy principally through open market operationsWhich tool is the most important
the sellers of such securities deposit the funds in their banks and bank reserves increaseWhen the federal reserve purchases treasury securities in the open market
the buyers of these securities pay for them with checks and bank reserves fallWhen the federal reserve sells treasury securities in the open market
financial firms that raise money from investors and provide it to borrowersWhat is the shadow banking system?
more vulnerable than commercial banks to bank runs because they were more highly leveraged than commercial banksThe financial firms of the shadow banking system were
the FDIC insures deposits up to $250,000Why do most depositors seem to be unworried that banks loan out most of the deposits they receive?
You would have to reduce loans to make up for the necessary increase in reservesSuppose that you are a bank manager, and the federal reserve raises the required reserve ratio from 10 percent to 12 percent. What actions would you need to take?
decreasingAs you actions and those of other bank managers reduced the amount of loans made, we would expect that the money supply would end up
money market mutual funds, hedge funds, and other financial firms that raise money from investors and provide it to firms and householdsWhat did Geithner mean by the non bank financial system?
Many depositors simultaneously decide to withdraw their money from a bankWhat is a classic type of run?
since most depositors are insured, it is less likely that panicked buyers will simultaneously withdraw fundsWhy would deposit insurance provide the banking system with protection against runs?
constitutes offering discount loans to distressed banks, but the “bail out of the banks” involved the banks in exchange for ownership in the banksThe federal reserve acting as the lender of the last resort to prevent a bank panic
required reserve ratioWhen the peoples bank of china cut the amount of cash that banks must set aside as reserves, the monetary policy tool they used was a change in the
banks can make more loansHow would this action pump money into the financial system to support lending?
banks grant loans to households and bundle the loans into securities that are then sold to investorsIn the securitization process,
7/14 year non renewable term/4 year renewable termThere are ____ members of the Board of Governors, who the president of the US appoints to ____. one board member is appointed chairman for ______
buy US treasury securitiesTo increase the money supply, the FOMC directs the trading desk to
fewer/decreaseBy raising the discount rate, the feds leads banks to make ____ loans to household and firms, which _____ checking account deposits and the money supply.
M*Y=P*VWhich of the following is not the formula for the quantity theory of money?
the quantity equation shows that if the money supply grows at a faster rate than real GDP then there will be inflationHow does the quantity theory provide an explanation about the cause of inflation?
to explain the inflation rate in the long runThe quantity theory of money is better able
hyperinflationVery high inflation rates are called
when governments want to spend more than they collect in taxes, central banks increase the money supply at a rate higher than GDP growth, often resulting in hyperinflationGovernments sometimes allow hyperinflation to occur because
nominal GDP will increaseAccording to the quantity theory of money, if velocity does not change, when the money supply of a country increases, what will occur?
the period where velocity is constant because when velocity is constant the changes in the money supply can be shown to be the main cause of inflationDuring which period will the quantity theory of money be more useful in explaining changes in the inflation rate?
a fall in the price levelWhat is price deflation?
an increase in the money supply that exceeds the rate of growth of GDP will increase the price levelWhat is meant by Spencers statement “this printing of money will keep the deflation wolf from the door”?
consumers delay purchases, expecting prices to fall more, and the lack of demand causes prices to fall furtherWhy would deflation cause shoppers to hold back, and what does evans pritchard mean when he says, “once this psychology gains a grip, it can gradually set off a self feeding spiral that is hard to stop”?
it would have generated high inflation and therefore decreased the value of confederacy currencyHow would such a large quantity of confederate dollars have affected the value of the confederate currency?
trueDuring the german hyperinflation many households and firms in germany were hurt, however, people with debt actually benefitted from the hyperinflation. true or false?
Inflation rate = growth rate of the money supply – growth rate of real outputIf irving fisher was correct in his prediction about the value of velocity, then the quantity equation can be written to solve for the inflation rate as follows
in the long runThere is a string link between changes in the money supply and inflation