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Exam 29: The Monetary System

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Question 51

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How are Federal Reserve Board Governors selected?

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The Fed Governors are appointed by the p...

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Question 52

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Which two of the Ten Principles of Economics imply that the Fed can profoundly affect the economy?

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1. Prices rise when the govern...

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Question 53

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A problem that the Fed faces when it attempts to control the money supply is that

If the money multiplier is 3 and the Fed wants to increase the money supply by $900,000, it could

The set of items that serve as media of exchange includes

A bank's reserve ratio is 7 percent and the bank has $1,000 in deposits. Its reserves amount to

What is the difference between commodity money and fiat money? Why do people accept fiat money in trade for goods and services?

The ease with which an asset can be converted into the economy's medium of exchange is known as _____.

Fractional reserve banking is a system where banks must hold an amount of cash based on a percentage of its loans.

In an economy that relies on barter, trade requires a double-coincidence of wants.

Which of the following is included in M2 but not in M1?

In a system of 100-percent-reserve banking,

When conducting an open-market purchase, the Fed

Monetary policy is determined by a committee whose voting members include all the presidents of the regional Federal Reserve Banks.

Name three actions the Fed can take to increase the money supply.

Draw a simple T-account for First National Bank which has $5,000 of deposits, a required reserve ratio of 10 percent, and excess reserves of $300. Make sure your balance sheet balances.

Scenario 29-1 The Monetary Policy of Tazi is controlled by the country's central bank known as the Bank of Tazi. The local unit of currency is the Tazian dollar. Aggregate banking statistics show that collectively the banks of Tazi hold $375 million of required reserves, $225 million of excess reserves, have issued $7,500 million of deposits, and hold $750 million of Tazian Treasury bonds. Tazians prefer to use only demand deposits and so all money is on deposit at the bank. -Refer to Scenario 29-1. Assuming the only other thing Tazian banks have on their balance sheets is loans, what is the value of existing loans made by Tazian banks?

Sandra routinely uses currency to purchase her groceries. She is using money as a medium of exchange.

Describe the role of the Federal Deposit Insurance Corporation (FDIC).

Bottles of very fine wine are less liquid than demand deposits.