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13 Cards in this Set
- Front
- Back
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Banks create money by
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making loans and creating deposits, a process that is limited by the size of banks' excess reserves.
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Money performs all of the following functions EXCEPT serving as ai. medium of exchange.ii. unit of account.iii. barter mechanism.
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iii.barter mechanism |
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M1 is defined as a measure of money including, in part,
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checkable deposits and currency.
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The required reserve ratio is 20 percent and banks have no excess reserves. Katie deposits $300 in her bank. What are the bank's excess reserves immediately after Katie makes her deposit?
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(300)*(.2)=60 300-60=240 240 |
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Required reserve ratios are the minimum amount of
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reserves any one bank must hold as a percentage of its deposits.
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The unit of account is defined as
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an agreed upon measure for stating prices of goods and services.
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The Federal Reserve Bank could increase the money supply by doing all of the following except
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decreasing taxes.
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The supply of money
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is a fixed value |
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In the United States,
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the Federal Reserve sets monetary policy.
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An increase the money supply will
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causes interest rates charged by banks to decrease.
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If the money supply grows faster than real GDP, there will likely be
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inflation |
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The discount rate is
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the interest rate the Federal Reserve charges banks for loans.
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An increase in the supply of money would cause
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aggregate demand to increase. |
