Economics 111 Test 4

Front 1

Whatever serves as the medium of exchange.

Back 1

Money

Front 2

Has substantial value in the nonmonetary uses. Ex: gold, silver, pigs, horses, etc.

Back 2

Commodity Money

Front 3

Without substantial value in nonmonetary uses. Ex: dollar bills

Back 3

Fiat Money

Front 4

How is money measured? M1

Back 4

M1= Currency in circulation + Checking Accounts

Front 5

How is money measured? M2

Back 5

M2= M1 + Savings and time deposits + Money market mutual funds

Front 6

Refers to the ease with which it can be converted into cash.

Back 6

Asset's liquidity

Front 7

Money Supply Formula

Back 7

Ms= CU + D

Front 8

What does Money Supply affect?

Back 8

Aggregate Demand & the economy

Front 9

a system under which banks keep only a fraction of their deposit funds as reserves.

Back 9

Fractional Reserve Banking

Front 10

many depositors withdraw cash from their accounts all at once.

Back 10

Bank Run

Front 11

implemented by FDIC; is designed to prevent bank runs.

Back 11

Deposit Insurance

Front 12

Banks keep portions of their deposits in cash or the equivalent.

Back 12

Reserves

Front 13

Actual Reserves =
AR =

Back 13

Required Reserves + Excess Reserves
RR + ER

Front 14

the minimum amount of reserves required by law.

Back 14

Required Reserves (RR)

Front 15

Required Reserves =
RR =

Back 15

Required reserve ratio x Deposits
rr x D

Front 16

any reserves held in excess of the legal minimum.

Back 16

Excess Reserves (ER)

Front 17

Net worth =

Back 17

Assets - Liabilities

Front 18

Assets =

Back 18

Liabilities + Net Worth

Front 19

Money Multiplier =

Back 19

1/rr

Front 20

Change in D=

Back 20

(Change in initial deposit) x 1/rr

Front 21

Since Ms = CU + D, then Change of Ms=

Back 21

Change of CU + Change of D

Front 22

Simplified Money Multiplier Formula=

Back 22

Change of Ms= (Change in initial ER) x 1/rr

Front 23

An open market purchase by the Fed will lead to a ______ in the price level and a ________ in GDP.

Back 23

rise; rise

Front 24

If a bank has $1,000,000 in reserves and checking depoists of $3,000,000, what is the bank's reserve position if the required reserve ratio is 10 percent?

Back 24

The bank has $300,000 of required reserves and $700,000 of excess reserves.

Front 25

Which of the following might limit the money creation process to an amount less than the full potential amount? increased lending by banks, banks holding some excess reserves, business deman for loans, increased use of credit cards, or the public using checks instead of cashes.

Back 25

Banks holding some excess reserves.

Front 26

Which one of the following will lead to a right shift in the money demand schedule?

Back 26

an increase in real GDP

Front 27

If you have a student loan with your bank, the loan is a(n)

Back 27

asset to the bank and a liability of yours.

Front 28

Fiat money is

Back 28

backed only by government decree.

Front 29

Fractional reserve banking takes its name from the fact that banks

Back 29

keep only a fraction of their total deposits on reserve.

Front 30

Both real GDP and the price level will be expected to fall if the Federal Reserve

Back 30

raises the federal funds rate, raises the required reserve ratio, and increases the discount rate.

Front 31

If the Fed reduces the required reserve ratio, the money supply will _____ and the interest rate will _______.

Back 31

increase; fall

Front 32

The banking system receives a new cash deposit of $100,000. Total deposits eventually rise by $500,000. The value of the required reserve ratio is

Back 32

0.20

Front 33

The Fed conducts an open market purchase of Treasury bills of $30 million. If the required reserve ratio is 0.25, what is the maximum change in the money supply?

Back 33

$120 million

Front 34

Bank 1 receives a new checking deposit of $30. What will be the initial increase in bank 1's excess reserves as a result of a new deposit? Assume the required reserve ratio is 20%.

Back 34

$24

Front 35

Money market mutual funds as part of _____ are ______ liquid than checking deposits.

Back 35

M2; less

Front 36

To close an inflationary gap in an economy, which monetary policy response is appropriate?

Back 36

An increae int he interest rate

Front 37

If the Fed conducts an open market sale of T-bills, it increases the supply of T-bills in the open market. How will this affect the price of T-bills and the interest rate?

Back 37

T-bill prices fall and interest rates rise.

Front 38

Which of the following will increase interest rates in the short run?

Back 38

a rise in the price level.

Front 39

When Archie deposits $50 cash to her checking account, from the immediate effect of this single transaction,

Back 39

the money supply does not change.

Front 40

The Federal Funds rate

Back 40

is the rate at which banks lend to each other overnight.

Front 41

To reduce bank reserves and ultimately the money supply, the Federal Reserve can adopt which one of the following?

Back 41

Conduct an open market sale.

Front 42

Bankers tend to _____ lending during an economic boom, which would _____ the economy's inflationary gap.

Back 42

increase; increase

Front 43

The principal difference between income and money is that income is a ______ and money is a _______.

Back 43

flow; stock

Front 44

Members of the Board of Governors of the Fed are

Back 44

appointed by the President for 14-year terms and confirmed by the Senate.