Chapter 28

Question 0

Define M2

Answer 0

Includes M2 plus savings deposits small denomination time deposits money market mutual funds and other miscellaneous near monies

Question 1

Define M1

Answer 1

Currently held by the nonbanking public plus checkable deposits in travelers checks

Question 2

How are banks unlike other financial intermediaries?

Answer 2

They can turn a borrowers I OU into money they create money.
Banks match the different desires of savers and borrowers.
They evaluate loan applications and try to diversified portfolios of assets to reduce the risk to anyone saver.

Question 3

What is the key to changes in the money supply?

Answer 3

The feds impact on excess reserves in the banking system

Question 4

How does the feds increase excess reserves and thus increase the money supply?

Answer 4

The Fed can buy US government bonds reduce the discount rate or lower the reserve requirement

Question 5

Equation for simple money multiplier

Answer 5

1/r times change in revenue