Banking and the Money Supply

Question 1

Savings Deposits

Answer 1

Deposits that earn interest and have no specific maturity date

Question 2

time deposits

Answer 2

deposits that earn a fixed interest rate if held for the specified period. AKA certificates of deposit

Question 3

M2

Answer 3

a money aggregate consisting of M1 plus savings, small time deposits, money market mutual funds, and other almost monies

Question 4

Checkable Deposits

Answer 4

checking accounts

Question 5

money aggregates

Answer 5

measures of the economy’s money supply

Question 6

M1

Answer 6

the narrow measure of the money supply. All physical currency held by the nonbanking public, checkable deposits, and traveler’s checks.

Question 7

asymmetric information

Answer 7

a situation in which one side of the market has more reliable information than the other side

Question 8

net worth

Answer 8

assets minus liabilities

Question 9

required reserves

Answer 9

dollar amount of reserves a bank is obligated by regulation to hold as cash in the bank’s vault or account at the fed

Question 10

required reserve ratio

Answer 10

ratio of reserves banks are obligated to hold

Question 11

excess reserves

Answer 11

bank reserves exceeding required reserves

Question 12

liquidity

Answer 12

a measure of the ease with which an asset can be converted into money without significant loss of value

Question 13

federal funds market

Answer 13

a market for overnight lending and borrowing of reserves among banks to ensure that banks meet RRR.

Question 14

fed funds rate

Answer 14

interest rate charged in fed funds market

Question 15

money multiplier

Answer 15

the multiple by which the money supply changes as a result of a change in fresh reserves in the banking system (1/rrr)

Question 16

simple money multiplier

Answer 16

Change in the money supply

reciprocal of the required reserve ratio.

change in fresh reserves x (1/r)

Question 17

the higher the reserve rate, the less ______ created

Answer 17

money

Question 18

Simple government multiplier

Answer 18

change in RGDP

Change in G x 1/(1-MPC)

Question 19

Simple Tax multiplier

Answer 19

Change in RGDP

Change in NT x -MPC/(1-MPC)