Week 5 Flashcards
Individuals that lend funds to a bank by opening a checking account are called
depositors.
The government agency that oversees the banking system and is responsible for the conduct of monetary policy in the United States is
the Federal Reserve System.
Both ________ and ________ are Federal Reserve assets.
securities; loans to financial institutions
Excess reserves are equal to
vault cash plus deposits with Federal Reserve banks minus required reserves.
The amount of deposits that banks must hold in reserve is
required reserves.
Total Reserves minus vault cash equals
bank deposits with the Fed.
A decrease in ________ leads to an equal ________ in the monetary base in the short run.
float; decrease
High-powered money minus reserves equals
currency in circulation.
The monetary base declines when
the Fed sells securities.
When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system
increase by $100.
When the Federal Reserve purchases a government bond from a primary dealer, reserves in the banking system ________ and the monetary base ________, everything else held constant.
increase; increases
A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 20 percent. If the reserve requirement is lowered to 10 percent, the bank’s excess reserves will be
$1,000.
$9,000.
A bank has no excess reserves and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bank’s excess reserves will now be
-$5,000.
Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply.
depositors; banks
If the required reserve ratio is 10 percent, the simple deposit multiplier is
10.0
In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by
$100 times the reciprocal of the required reserve ratio.
A ________ in market interest rates relative to the discount rate will cause discount borrowing to_______.
rise; increase
An increase in the nonborrowed monetary base, everything else held constant, will cause
the money supply to rise.
In the model of the money supply process, the Federal Reserve’s role in influencing the money supply is represented by
the required reserve ratio, nonborrowed reserves, and borrowed reserves.
Since the Federal Reserve sets the required reserve ratio to less than one, one dollar of reserves can support ________ of checkable deposits.
more than one dollar
