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macroeconomics
Exploring Macroeconomics 7th Edition Robert L. Sexton - Solutions
Whenever excess reserves appear, banks will convert the _____________________ reserves into other _____________________ assets.
Required reserves equal _____________________ times _____________________.
Any time the aggregate amount of bank _____________________ changes, the aggregate amount of liabilities and capital must also change by the same amount, by definition.
Checking account deposits and time deposits constitute _____________________ of banks.
Most banks keep a majority of their reserves as _____________________.
The largest asset item for most banks is _____________________.
Money is created when banks _____________________.
Our banking system is sometimes called a(n)_____________________ system because banks find it necessary to keep cash on hand and reserves at the Federal Reserve equal to some fraction of their checkable deposits.
_____________________ require banks to keep on hand a quantity of cash or reserve accounts with the Federal Reserve equal to a prescribed proportion of their checkable deposits.
Banks make their profit by collecting _____________________ interest payments on the loans they make then they pay their depositors for those funds.
If you go into a bank and borrow $1,000, the bank probably will simply _____________________ to your checking account at the bank.
In making loans, financial institutions act as intermediaries between _____________________, who supply funds, and _____________________ seeking funds to invest.
Most important, financial institutions are _____________________ for savings and liquid assets that are used by individuals and firms for transaction purposes.
Aside from commercial banks, the banking system includes two other important financial institutions:_____________________ and _____________________.
The biggest players in the banking industry are _____________________.
The value of money fluctuates far ___________________ than the value of many individual commodities.
With money, a common _____________________ exists, so that the values of diverse goods and services can be precisely compared.
Money is both a(n) _____________________ of value and a(n) _____________________ of value.
The more complex the economy, the _____________________ the need for one or more universally accepted assets serving as money.
The primary function of money is to serve as a(n)_____________________.
Our money is money because of confidence that we have in _____________________ institutions as well as in our _____________________.
Something is money only if people will generally _____________________ it.
_____________________ law states that “cheap money drives out dear money.”
_____________________ includes M1, plus saving accounts, time deposits (except for some large-denomination certificates of deposit), and money market mutual funds.
Money market mutual funds are considered _____________________ money because they are relatively easy to convert into money for the purchase of goods and services.
Assets that can be quickly converted into money are considered highly _____________________ assets.
Two primary types of nontransaction deposits exist: _____________________ accounts and _____________________ deposits.
_____________________ deposits are fund accounts against which the depositor cannot directly write checks.
Credit cards are not money; they are ________________________ for the use of money in exchange.
Credit card payments are actually guaranteed _____________________, which merely defer customer payment.
Transaction deposits are a popular monetary instrument precisely because they lower _____________________ costs compared with the use of metal or paper currency.
__________________ deposits and ___________________ deposits have replaced paper and metallic currency as the primary source of money used for transactions in the United States.
_____________________ deposits are assets that can be easily converted into currency or used to buy goods and services directly.
Demand deposits are deposits in banks that can be _____________________ on demand by simply writing a check.
Assets in checking accounts in banks are more formally called _____________________ deposits.
Legal tender is _____________________ money.
_____________________ consists of coins and/or paper that some institution or government has created to be used in the trading of goods and services and the payment of debts.
The most important disadvantage of using commodities as money is that they _____________________ easily after a few trades.
What is the FDIC, and how did its establishment increase bank stability and reassure depositors?
What are the four reasons cited in the text for the collapse of the U.S. banking system in this period?
How did the combination of increased holding of excess reserves by banks and currency by the public lead to bank failures in the 1930s?
Which of the following statements is true?a. The banking system collapse in the Great Depression was at least partly caused by a fear of bank runs.b. Government attempts to deal with the Great Depression’s banking distress were too weak to prevent it.c. Bank distress in the Great Depression was
Which of the following is true of the Great Depression?a. It involved a near-collapse of America’s commercial banking system.b. Problems with the commercial banking system caused an abrupt and unprecedented decline in the money supply.c. Even rumors of a bank being in financial trouble could
How are bank failures avoided today?
What caused the collapse of the banking system between 1920 and 1933?
If the Fed raised the discount rate from 1 to 2 percent, what effect would this have on the money supply?
Would the money supply rise or fall if the Fed made an open market purchase of government bonds, ceteris paribus?
What four main tactics could the Fed use in pursuing an expansionary monetary policy?
What four main tactics could the Fed use in pursuing a contractionary monetary policy?
Reducing reserve requirements, other things being equal, would tend toa. increase the dollar volume of loans made by the banking system.b. increase the money supply.c. increase aggregate demand.d. do all of the above.e. do (a) and (b), but not (c).
If the Fed lowers the discount rate, what will be the effect on the money supply?a. The money supply will tend to increase.b. The money supply will tend to decrease.c. The money supply will not change nor influence an expansion or contraction process.d. Not enough data are given to answer.
If the Fed sells U.S. government bonds to the public in the nation’s bond market, the banking system hasa. more reserves, and the money supply tends to grow.b. fewer reserves, and the money supply tends to grow.c. more reserves, and the money supply tends to fall.d. fewer reserves, and the money
If the Fed wishes to decrease the money supply, ita. buys stocks.b. sells stocks.c. can buy government bonds from the public in the nation’s bond market.d. can sell government bonds to the public in the nation’s bond market.
In order to increase the rate of growth of the money supply, the Fed cana. raise the discount rate.b. raise the reserve requirement.c. buy U.S. governemnt bonds on the open market.d. sell U.S. government bonds on the open market.
How are bank failures avoided today?
What other powers does the Fed have?
What is the purpose of the Fed’s tools?
What are the four major tools of the Fed?
How is the Fed tied to the executive branch? How is it insulated from executive branch pressure to influence monetary policy?
What is the FOMC, and what does it do?
What are the six primary functions of a central bank?
The Fed is institutionally independent. A major advantage of this is that monetary policya. is subject to regular ratification by congressional votes.b. is not subject to control by politicians.c. cannot be changed once it has been determined.d. will always be coordinated with fiscal policy.e. will
Which of the following is not a function of the Federal Reserve System?a. being a lender of last resortb. being concerned with the stability of the banking systemc. serving as a major bank for the central governmentd. setting currency exchange rates
The most important role of the Federal Reserve System isa. raising or lowering taxes.b. regulating the supply of money.c. increasing or reducing government spending.d. none of the above.
How is the Fed tied to Congress and the executive branch?
Who controls the Federal Reserve System?
What are the functions of a central bank?
How did excessive leverage play a role in the financial crisis?
Why do banks choosing to hold excess reserves or borrowers choosing to hold some of their loans in the form of currency reduce the actual impact of the money multiplier below that indicated by the multiplier formula?
If a particular bank with a reserve requirement of 10 percent has $30,000 in new cash deposits, how much money could it create through making new loans?
Why would each bank involved in the process of multiple expansions of the money supply lend out a larger fraction of any new deposit it receives the lower the reserve requirement?
Why do the supply of money and the volume of bank loans both increase or decrease at the same time?
Which of the following is true?a. Financial institutions are often highly leveraged.b. Highly leveraged financial institutions could be at risk of bankruptcy if the value of their investments fell substantially.c. When one financial firm goes bankrupt, it can increase the risk that other financial
Which of the following statements is true?a. When someone invests only their own money, they cannot lose more than that amount.b. When someone borrows money to invest, they can lose more than their initial investment.c. The greater the extent of leverage in an investment, the greater the potential
If the required reserve ratio were increased, thena. the money supply would tend to decrease, but the outstanding loans of banks would tend to increase.b. both the money supply and the outstanding loans of banks would tend to decrease.c. the money supply would tend to increase, but the outstanding
A reserve requirement of 20 percent means a money multiplier ofa. 1.25.b. 2.c. 5.d. 20.
If a banking transaction created new excess reserves in the banking system, the result would tend to bea. an increase in the amount of loans made by banks and an increase in the supply of money.b. an increase in the amount of loans made by banks and a decrease in the supply of money.c. a decrease
What is the money multiplier?
How does the process of multiple expansions of the money supply work?
Suppose you found $10,000 while digging in your backyard, and you deposited it in the bank. How would your new demand deposit account create a situation of excess reserves at your bank?
If the Bonnie and Clyde National Bank’s only deposits were demand deposits of $20 million and it faced a 10 percent reserve requirement, how much money would it be required to hold in reserves?
Is a demand deposit an asset or a liability?
How do legal reserve deposit regulations lower bank profits?
In what way is it true that “banks make money by making money”?
What is happening to the number of banks now that interstate banking is allowed?
Which of the following statements is true?a. Unlike in other nations, few separate commercial banks operate in the United States.b. Financial institutions can create money by making loans.c. If you go into a bank and borrow $1,000, the bank will probably simply add $1,000 to your checking account
Which of the following will lead to an increase in the money supply?a. You pay back a $10,000 loan that you owe to your bank.b. Your bank gives you a $10,000 loan by adding $10,000 to your checking account.c. You pay $10,000 in cash for a new motorcycle.d. You bury $10,000 in cash in your backyard.
Required reserves of a bank are a specific percentage of theira. loans.b. cash on hand.c. total assets.d. deposits.
Under fractional reserve banking, when a bank lends to a customer,a. bank credit decreases.b. reserves drain away from the system.c. the bank is protected from a run.d. borrowers receive a newly created demand deposit; that is, money is created.e. bank profitability is decreased.
How do reserve requirements affect how much money can be created?
What is a reserve requirement?
How is money created?
How have interest-earning checking accounts and overdraft protection led to the relative decline in demand deposits?
What are M1 and M2?
Are credit cards money?
What is the main advantage of transaction deposits for tax purposes? What is their main disadvantage for tax purposes?
If you were buying a pack of gum, would using currency or a demand deposit have lower transaction costs?What if you were buying a house?
If everyone in an economy accepted poker chips as payment in exchange for goods and services, would poker chips be money?
Liquidity is defined asa. the cash value of fiat money.b. the value of fiat money when used to buy a good or service.c. the speed at which money is spent.d. the ease with which money can be divided to make payments.e. the ease with which an asset can be converted into cash.
An increase in demand deposits combined with an equal decrease in currency in circulation woulda. have no direct effect on M1 or M2.b. increase both M1 and M2.c. increase M1 and decrease M2.d. decrease M1 and increase M2.
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