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Exam 25: Monetary Institutions

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Question 41

True/False

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M1 includes currency,checkable deposits,traveler's checks,and savings deposits.

A) True
B) False

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Question 42

Multiple Choice

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Other things constant,a decrease in credit card balances would ____ M1 and ____ M2.

A) increase; increase.
B) not change; increase.
C) decrease; decrease.
D) not change; not change.

E) A) and B)
F) All of the above

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Question 43

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Ceteris paribus,expanding loans made by the commercial banking system:

The primary benefit of monetary exchange compared to barter exchange is:

What limits a bank's ability to extend loans?

A bank receives a demand deposit of $3,000.The bank loans out $1,800 of this deposit and increases its excess reserves by $300.What is the required reserve ratio?

Deposit insurance and government's willingness to help distressed banks have virtually eliminated the potential for serious bank runs.

Paper money is fiat money because it has been declared by government as a means of exchange.

Exhibit 25-2 A bank's assets consist of $1,000,000 in total reserves,$2,100,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital. Refer to Exhibit 25-2.If the required reserve ratio is 20 percent,what is the level of the bank's excess reserves? How much could it loan out as a result?

Even though the use of checks lower transaction costs when compared to the use of paper currency,it is unlikely that the use of paper or metallic currency will disappear entirely.Why?

Assume that the reserve requirement is 20 percent.First National Bank has vault cash and deposits with the Fed of $80 million,loans and securities of $320 million,and demand deposits of $400 million.First National:

A reserve requirement of 10 percent means a money multiplier of:

If the reserve requirement is 15 percent and a customer makes a new cash deposit of $50,000,how much new excess reserves are created?

Exhibit 25-1 A bank's assets consist of $500,000 in total reserves,$1,600,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $2,000,000 in demand deposits and $1,300,000 in capital. Refer to Exhibit 25-1.If the required reserve ratio is 10 percent,what is the level of the bank's excess reserves? How much money could the excess reserves be used to create in the banking system as a result?

If banks faced a 100 percent reserve requirement,a $10,000 reduction in banking reserves would decrease the money supply by:

Which of the following is included in both M1 and M2?

Exhibit 25-2 A bank's assets consist of $1,000,000 in total reserves,$2,100,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital. Refer to Exhibit 25-2.If the bank is required to keep reserves equal to one-third of deposits,what is the level of the bank's excess reserves? How much could it loan out as a result?

An increase in demand deposits would ____ M1 and ____ M2.

Why is the money multiplier considered to be a potential multiplier rather than an indication of exactly how much multiplication should be expected?

Exhibit 25-2 A bank's assets consist of $1,000,000 in total reserves,$2,100,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital. Refer to Exhibit 25-2.If the bank is required to keep reserves equal to one-third of deposits,what is the level of the bank's excess reserves? How much money could the excess reserves be used to create in the banking system as a result?