Week 2 - What Is Money?pt 2

Question 1

Bank deposits

Answer 1

An IOU from 1 sector of economy to another

Question 2

CB Reserves

Answer 2

An IOU from CB to commercial bank

Question 3

Currency

Answer 3

IOU from CB to consumers

Question 4

Deposits

Answer 4

Assets of consumers liabilities of commercial banks

Question 5

Reserves (A+L)

Answer 5

Assets Assets of Commercial banks and liabilities of CB

Question 6

Base money

Answer 6

Notes coins and CB reserves

Question 7

Broad money

Answer 7

Notes coin and deposit accounts

Question 8

Deposits facts

Answer 8

• Medium of exchange
• store of value

Question 9

Reserve ratio/requirement

Answer 9

Commercial banks must maintain level of reserve at CB corresponding to a specified proportion of deposits

Question 10

Incorrect claims about RRs

Answer 10

• They act as a tool of monetary policy
• A rise in RR will reduce commercial banks’ funds available for lending
  -if RR is reduced commercial banks lend out more money

Question 11

Commercial banks create new money

Answer 11

Creating deposits corresponding to any loan they make

Question 12

Money multiplier theory problems

Answer 12

• RR is not exogenous
  R is not fixed
  CBs set interest rate on R not restrict supply

Question 13

Repayment of loans…

Answer 13

DESTROYS MOENY

Question 14

Limits on a commercial banks ability to create money

Answer 14

Monetary policy, commercial banks’ profit motive, actions of consumers and regulations

Question 15

Importance of base money

Answer 15

Affecting base money is how the CB implements monetary policy

Question 16

Use of broad money

Answer 16

Useful concept because it measures amount of money held by those responsible for spending decisions