Module 25

Question 1

bank

Answer 1

financial intermediary that uses liquid assets (deposits) to finance illiquid investments of borrowers

Question 2

bank reserves

Answer 2

liquid assets that banks hold as currency or deposits in the federal reserve

Question 3

reserve ratio

Answer 3

the fraction of bank deposits that a bank holds as reserves

Question 4

required reserve ratio

Answer 4

the smallest fraction of deposits that the fed allows a bank to hold

Question 5

bank run

Answer 5

phenomenon in which many of a bank’s depositors try to withdraw their funds due to fears of a bank failure
often contageous

Question 6

deposit insurance

Answer 6

guarantee that a bank’s depositors will be paid up to a certain amount per account even if the bank can’t come up with the funds

Question 7

capital requirements

Answer 7

requirements to have much more assets than liabilities to disincentivize risky behavior

Question 8

bank’s capital

Answer 8

excess of assets

Question 9

reserve requirements

Answer 9

rules set by the fed that determine a required reserve ratio

Question 10

discount window

Answer 10

an arrangement in which the fed stands ready to lend money to banks

Question 11

excess reserves

Answer 11

bank’s reserves over and above its required reserves

Question 12

monetary base

Answer 12

sum of currency in circulation and bank reserves

Question 13

money multiplier

Answer 13

ratio of monetary supply to monetary base

shows amount of money created by the banking system for each additional $1 to the monetary base