Ch 4 HW

Question 1

Financial intermediation is the process of

Answer 1

transferring funds from savers to borrowers.

Question 2

To prevent banks from using excess reserves to make loans that would increase the money supply, the Federal Reserve could conduct open-market ______ and _____ the interest rate paid on bank reserves.

Answer 2

sales; raise

Question 3

Checking account balances that are linked to debit cards are included in:

Answer 3

both M1 and M2.

Question 4

In 1932, the U.S. government imposed a two-cent tax on checks written on deposits in bank accounts. This action would be expected to ______ the currency–deposit ratio and ______ the money supply.

Answer 4

increase; decrease

Question 5

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then

Answer 5

the money supply decreases

Question 6

To increase the money multiplier, the Fed can:

Answer 6

lower the interest rate paid on reserves.

Question 7

The value of banks’ owners’ equity is called bank

Answer 7

capital.

Question 8

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

Answer 8

remains the same

Question 9

If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase.

Answer 9

the money supply

Question 10

Demand deposits are funds held in:

Answer 10

checking accounts

Question 11

(Table: Bank Balance Sheet) Based on the table, what is the leverage ratio at the bank?

Answer 11

5

Question 12

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals:

Answer 12

600B

Question 13

During a particular quarter, the Fed decreased the interest rate paid on reserves and the ratio of currency to deposits decreased. The monetary base was constant. Based on these facts,

Answer 13

the money supply increased.

Question 14

When a pizza maker lists the price of a pizza as $10, this is an example of using money as a:

Answer 14

unit of account.

Question 15

In a country on a gold standard, the quantity of money is determined by the

Answer 15

amount of gold

Question 16

In the United States, the money supply is determined

Answer 16

jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held.

Question 17

Liabilities of banks include:

Answer 17

demand deposits

Question 18

The ratio of the money supply to the monetary base is called

Answer 18

the money multiplier

Question 19

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

Answer 19

$800 billion.

Question 20

In a fractional-reserve banking system, banks create money when they:

Answer 20

make loans

Question 21

Money that has no value other than as money is called ______ money.

Answer 21

fiat