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35 Cards in this Set
- Front
- Back
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The United States, like most other countries today, has a ____________ banking system in which only a portion of checkable deposits are backed up by reserves of currency in bank vaults or deposits at the central bank. |
Fractional Reserve |
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The __________ of a commercial bank (or thrift) is a statement of assets and claims on those assets at a given time. |
balance sheet. |
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Assets = ________ |
liabilities + net worth |
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What are the claims of non-owners of the bank against the firm's assets? |
liabilities |
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What are the claims of the owners of the firm against the firm's assets? |
net worth |
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Cash held by the bank is sometimes called __________ or till money. |
Vault Cash |
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Each item listed in a balance sheet is called an _______. |
account |
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What are the two basic functions of commercial banks? |
Accept Deposits and Make Loans |
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Banks operating on the basis of Fractional Reserves are vulnerable to _______ or ______. |
"panics" or "runs" |
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Who creates money through lending? |
Banks |
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Banks create money by lending ________. |
excess reserves |
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Commercial banks and _____ provide checkable deposits. |
thrift institutions |
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On a balance sheet, the value of assets must _______ the amount of claims on those assets. |
be equal to |
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Will an increase in a bank's checkable deposits due to a cash deposit increase the money supply? |
No. Once the excess funds are loaned out, then the money supply will increase. |
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A withdrawal of cash will ______ the bank's checkable deposit liabilities but not change the total supply of money. |
reduce |
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The fraction of deposits that a bank is required by law to hold and not lend out is called its _________. |
Required reserves. |
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Is vault cash included as part of a bank's reserves? |
Yes. |
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The Fed has the authority to establish and vary the _________ within limits legislated by Congress. |
Reserve ratio |
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Reserve Ratio = |
Commercial bank's required reserves Commercial bank's check-dep liabilities |
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Excess Reserves = |
Actual Reserves - Required reserves |
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_________ help the Fed control the lending ability of commercial banks and to facilitate the collection or "clearing" of checks. |
Required reserves |
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The reserves that a commercial bank establishes by depositing money in a Federal Reserve Bank are a(n) ______ to the commercial bank and a(n) ______ to the Federal Reserve Bank. |
Asset Liability |
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How do commercial banks create money? |
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If banks create money when it lends excess reserves, what happens to money when borrowers pay off loans? |
Money is destroyed |
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Selling of government bonds to the public will ________ the supply of money. |
reduce |
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The interest rate paid on overnight loans from the federal funds market is the ___________. |
Federal funds rate |
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Who insures individuals' deposits in banks and thrifts? |
The Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) |
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Are checkable deposits bank debts? |
Yes. |
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Monetary multiplier = |
1 required reserve ratio |
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Maximum checkable-deposit creation = |
excess reserves x monetary multiplyer
(D = E x m) |
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The two conflicting goals facing commercial banks are ______ and ______. |
Profit and liquidity. |
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Suppose that last year $30 billion in new loans were extended by banks while $50 billion in old loans were paid off by borrowers. What happened to the money supply? |
It decreased. |
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The interest rate the Fed charges is the ________. |
Discount rate |
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A bank has $2 million in deposits and $300,000 in reserves. If the required reserve ratio is 10%, excess reserves are equal to _______. |
$100,000 |
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Decreasing the required reserve ratio shifts the money supply curve to the _____ and _____ the equilibrium interest rate. |
Right Decreases |
