Chapter 15- Section 2

Question 0

Requires banks and other depository institutions to keep a fraction of the deposits in the form of legal reserves

Answer 0

Fractional reserve system

Question 1

The expansion or contraction of the money supply in order to influence the cost and the availability of credit

Answer 1

Monetary policy

Question 2

Consists of coins and currency that the depository institutions hold in their vaults, plus deposits with Federal Reserve district banks

Answer 2

Legal reserves

Question 3

Rules stating that a percentage of every deposit be set aside as legal reserves

Answer 3

Reserve requirement

Question 4

Legal reserves in excess of the reserve requirement

Answer 4

Excess reserves

Question 5

Excess reserves are the funds the bank can what?

Answer 5

Lend to others who may want a loan

Question 6

The debtss and obligations to others

Answer 6

Liabilities

Question 7

The properties, possessions, and claims on others

Answer 7

Assets

Question 8

A condensed statement showing all assets and liabilities at a given time

Answer 8

Balance sheet

Question 9

The excess of assets of liabilities, which is a measure of the value of a business

Answer 9

Net worth

Question 10

What side are the assets on on a balance sheet and what side are the liabilities and net worth on a balance sheet?

Answer 10

Assets on the left; liabilities and net worth on the right

Question 11

How does the T-account work like an equal sign?

Answer 11

Entries on the left must always be equal to the entries on the right

Question 12

The size of the reserve is determined by what?

Answer 12

The reserve requirement

Question 13

The income from loans and other income is used to pay what?

Answer 13

Officers and employees, It’s utility bills, taxes, other business expenses, and its stock dividends

Question 14

The potential to be converted into cash in a very short time

Answer 14

Liquidity

Question 15

What’s the difference between saving accounts and time deposits?

Answer 15

Prior notice must be given to withdraw time deposits, while no prior notice is needed to withdraw savings.

Question 16

The fractional reserve system allows what?

Answer 16

Money supply to grow to several times the size of the reserves the banking system keeps

Question 17

A deposit a member bank keeps at the Fed to satisfy reserve requirements

Answer 17

Member bank reserve (MBR)

Question 18

Because each new loan is smaller than the one before, the money supply will stop growing at some point. True or false?

Answer 18

True

Question 19

The Fed allows this money supply to grow and interest rates to fall, which normally stimulates the economy

Answer 19

Easy Money policy

Question 20

The Fed restricts the growth of the money supply, which drives interest rates up

Answer 20

Tight money policy

Question 21

What is the first tool of monetary policy?

Answer 21

The reserve requirement; gives the Fed considerable control over the money supply

Question 22

The buying and selling of government securities in financial markets

Answer 22

Open market operations; the second and most popular tool of monetary policy

Question 23

Open-market operations affect the amount of what in banks?

Answer 23

Excess reserves, and the ability of banks to support new loans

Question 24

Who conducts the open-market operations and decides if interest rates and monetary growth are too high, too low, or just right?

Answer 24

The FOMC

Question 25

The interest the Fed charges on loans to financial institutions; the third major tool of monetary policy

Answer 25

Discount rate

Question 26

Private individuals and businesses cannot borrow from the Fed. True or false?

Answer 26

True

Question 27

Minimum deposits left with a stockbroker to be used as down payments to buy other securities, made much of the speculation possible

Answer 27

Margin requirements

Question 28

The Fed uses margin requirements to do what?

Answer 28

To dampen or stimulate spending on equities in the stock market

Question 29

What other two methods do the Fed use to control the money supply?

Answer 29

Moral suasion and selective credit controls

Question 30

The use of persuasion such as announcements, press releases, articles in newspapers and magazines, and testimony before Congress

Answer 30

Moral suasion

Question 31

Credit rules pertaining to loans for specific commodities or purpose

Answer 31

Selective credit controls