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The financial sector of an economy
transfers savings back into spending
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If the reserve ratio is .08, the simple money multiplier is
12.5
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Short term interest rates and long term interest rates are determined in the ___ and ___ respectively
money market, loanable funds market
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If the required reserve ratio is .10 and individuals hold no cash, a new cash deposit of 2 million will increase the money supply a total of
20 million
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Total reserve 100,000
demand deposit 100,000
Assuming the reserve ratio is 10 percent and that the bank does not want to hold excess reserves. What will the bank's loans at the end of the money creation process?
900,000
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Which of the followin is not one of the functions of money?
standard of economic well-being
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when a cashier gives you a pair of jeans for your 20 bill, money is serving which function
medium of exchange
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As the reserve ratio goes up, the simple money multiplier goes
down, and less money will be created
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If the required reserve ratio is .20 and individuals hold no cash, a 5 million new cash deposit in the banking system will increase the money supply by a total amount of
25 mil
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Suppose required reserve ratio is .15 and individuals hold no cash. Total bank deposits are 100 mil and the bank holds 20 mil in reserves. How much additional money can the bank create if it does not hold excess reserves?
33 mil
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The measure of money most cloesly correlated with the price level and economic activity is
m2
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total reserves 800,000
demand deposit 800,000
if the reserve ratio is 5 percent, this bank is in a position to make a maximum new loan of
760,000
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Non liquid assets are able to perform which of the following functions
store of value
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the required reserve ratio refers to the ratio of a banks
required reserves to its deposits
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when banks offer checking accounts they are issuing a
financial asset that functions as money
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A single bank has reserve requirement of 10 percent. If a customer deposits 100 mil the bank may lend how much of this deposit?
90 mil
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Small denomination time deposits are included in
m2
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total reserve 800,000
demand deposit 800,000
If the reserve ratio is 5 percen how much does this bank have in excess reserve
760,000
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total reserve 100,000
demand deposit 100,000
Assuming the reserve ratio is 10 percent what will be the banks required reserves at the end of the money creation process?
100,000
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Total reserves 100,000
demand deposits 100,000
Assuming the reserve ratio is 10 percent, what will be the bank's excess reserves at the end of the money creation process
zero
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real sector
the market for the production and exchange of goods and services
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interest rates
the prices paid for the use of financial asset
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money
highly liquid financial asset thats generally accepted in exchange for other goods, is used as a reference in valuing other goods and can be stored as wealth
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Functions of money
- 1. serves as a medium of exchange
- 2. serves as a unit of account
- 3. serves as a store of wealth
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m1
the component of the money supply that consists of currency in the hands of public plus checking accounts and traveler's checks
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m2
m1 plus savings, small denomination time deposits, and money market mutual fund shares
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asset management
how a bank handles its loans and other assets
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liability management
how a bank attracts deposits and what it pays for them
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reserves
currency and deposits a bank keeps on hand or at the Fed or central bank, to manage the normal cash inflows and outflows
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reserve ratio
ratio of reserves to total deposits
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amount of demand deposits that will ultimately exist
- 1/reserve ratio = a
- a x initial amount = ultimately exist
- ultimately exist - initial amount = money created in the process
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simple money multiplier
measure of amount of meony ultimately created per dollar deposited in the banking system, when people hold no currency 1/r
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excess reserves
reserves held by banks in excess of what banks are required to hold
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money multiplier
- (1+c)/(r+c)
- where r is the percentage of deposits banks hold in reserve and c is the ratio of money people hold in currency to the money they hold as deposits
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