Second Set Flashcards

Question

Chp 16: Reserve Requirement

Answer 1

Minimum amount of reserves that banks must hold; set by the fed

Answer 2

Banks may hold reserves above the legal minimum

Answer 3

Banks hold only a fraction of deposits in reserve -banks create money *assets *liabilites -increase in money supply -does not create wealth

Answer 4

Original deposit $100.00 -First national lending = $90 [.9x100.00] this continues, taking this base formula original deposit/ loan amt x RR (reserve ratio)

Answer 5

To find out how much money will be in the economy at the very end, you can do the following original deposit/ loan amt. x Multiplier ( 1/RR (reserve ratio)

Answer 6

The higher the reserve ratio; the smaller the money multiplier

Answer 7

resources a bank's owners have put into the institution; used to generate profit

Answer 8

Use of borrowed money to supplement existing funds for purpose of investment

Answer 9

Ratio of assets to bank capital

Answer 10

Government regulation specifying a minimum amount of bank capital

Answer 11

-purchase and sale of U.S government bonds by the Fed -to increase the money supply *the fed buys U.S government bonds -To reduce the money supply *The fed sells U.S government bonds -Easy to conducts -used more often

Answer 12

Fed lending to banks - to increase the money supply -discount window *at the discount rate -term auction facility *to the highest bidder

Answer 13

the discount rate -interest rate on the loans that the fed makes to banks -higher discount rate *reduce the money supply -smalle discount rate *increase the money supply

Answer 14

Influences the quantity of reserves -open-market operations -fed lending to banks Influences the reserve ratio -reserve requirements -paying interest on reserves

Answer 15

the discount rate -interst rate on the loans that the fed makes to banks -higher discount rate *reduce the money supply -smalle discount rate *increase the money supply

Answer 16

-The fed sets a quantity of funds it wants to Lend to banks -eligble banks bid to borrow those funds -loans go to the highest eligible bidders *acceptable collateral *pay the highest interest rate

Answer 17

-minimum amount of reserves that banks must hold against deposits * an increase in reserve requirement: decrease the money supply *a decrease in reserve requirement: increase the money supply - used rarely - disrupt business of banking -less effective in recent years *many banks hold excess reserves

Answer 18

-since October 2008 -the higher the interest rate on reserves *the more reserves banks will choose to hold -an increase in the interest rate on reserves *increase the reserves ratio *lower the money multiplier *lower the money supply

Answer 19

The Fed's control of the money supply is not precise; the fed does not control the amount of money that households choose to hold as deposits in banks and the amount that bankers choose to lend

Answer 20

-interst rate at which banks make overnight loans to one another *lender -has excess reserves *borrower -needs reserves -change in federal funds rate *changes other interest rates

Answer 21

-differs from the discount rate -affects other interest rates as well -is determined by supply and demand in the --market for loans among banks -targeted by the fed *change the federal funds rate *change the money supply

Answer 22

-the fed buys bonds *decrease in the federal funds rate *increase in money supply -the fed sells bonds *increase in the federal funds rate *decrease in money supply

Second Set Flashcards

(46 cards)