Question 1

Suppose you transfer $2,000 from your money market mutual fund account to your checking account. What is the immediate impact of this transfer on M1 and M2?

Accepted Answer

The answer of Suppose you transfer $2,000 from your money...

Question 2

The required reserves of a bank equal its ________ the required reserve ratio.

Accepted Answer

Required reserves are calculated by multiplying a bank's total deposits by the required reserve ratio set by the Federal Reserve.

Question 3

The major assets on a bank's balance sheet are its

Accepted Answer

Reserves, loans, and holdings of securities are the major assets on a bank's balance sheet. Reserves refer to the funds that banks hold in reserve accounts with the central bank. Loans and holdings of securities both generate income for the bank in the form of interest payments. Checking and savings account deposits are liabilities for the bank, not assets.

Question 4

Innovations, including new products and services, in financial markets and institutions have made the job of defining the money supply easier.

Accepted Answer

Innovations in financial markets and institutions have actually made defining the money supply more difficult, as traditional monetary aggregates like M1 and M2 may not fully capture the various ways in which people can store and transfer value in modern financial systems. However, there are ongoing efforts to refine and expand these measures to better reflect the changing nature of money.

Question 5

Scenario 25-2

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.

-Refer to Scenario 25-2. As a result of Kristy's deposit, Bank A's required reserves increase by

Accepted Answer

The required reserve ratio is 20%, so Bank A must hold 20% of Kristy's $10,000 deposit as reserves. Therefore, the required reserves increase by $10,000 * 0.20 = $2,000.

Question 6

Suppose you decide to borrow money from an online peer-to-peer lending site. On the T-account for the funder of the loan for this transaction, the funds from the investor would be classified as ________, and the loan made to you would be classified as ________.

Accepted Answer

The funds from the investor are a liability for the funder because they represent money the funder owes back to the investor. The loan made to the borrower is an asset for the funder because it represents money the borrower owes to the funder.

Question 7

A bank will consider a car loan to a customer ________ and a customer's checking account to be ________.

Accepted Answer

A car loan is considered an asset to the bank because it represents a stream of future cash flows from the borrower in the form of loan payments. A customer's checking account is also considered an asset to the bank because it represents funds that the bank can use to make investments or loans.

Question 8

Liquidity increases as we move from the M1 to the M2 definition of the money supply.

Accepted Answer

Liquidity decreases as we move from M1 to M2 because M1 includes cash and checking deposits which are more liquid, while M2 includes savings deposits, money market securities, and other time deposits which are less liquid than M1 components.

Question 9

Scenario 25-2

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.

-Refer to Scenario 25-2. As a result of Kristy's deposit, Bank A's reserves immediately increase by

Accepted Answer

When Kristy deposits $10,000 into her checking account, Bank A's reserves increase by the full amount of the deposit, which is $10,000.

Question 10

Most U.S. currency held outside the U.S. banking system is held by foreigners.

Accepted Answer

According to the Federal Reserve, approximately two-thirds of U.S. currency held abroad is held outside the U.S. banking system, primarily by foreign individuals and businesses.

Question 11

The largest liability on the balance sheet of most banks is its

Accepted Answer

Checking account and savings account deposits of its customers are the largest liability on the balance sheet of most banks. This is because banks typically use these deposits to fund their operations and make loans, which constitutes the majority of their assets.

Question 12

Suppose that you decide that you no longer want to hold currency, and deposit all of your currency holdings to your checking account. What is the immediate or initial impact of this transaction on M1 and M2?

Accepted Answer

The answer of Suppose that you decide that you no...

Question 13

A person's wealth is the same as his income.

Accepted Answer

A person's wealth is not the same as his income. Wealth is the total value of assets and financial resources that a person has accumulated over time, while income refers to the amount of money that a person earns through various sources such as wages, salaries, investments, etc.

Question 14

Suppose you withdraw $1,000 from your savings account and put it under your mattress. Briefly explain how this will affect M1 and M2.

Accepted Answer

The answer of Suppose you withdraw $1,000 from your savings...

Question 15

Bank reserves include

Accepted Answer

Bank reserves consist of the sum of vault cash and deposits with the Federal Reserve. Loans and customer checking accounts are not included in bank reserves. Securities holdings are not necessarily reserves, as they can be sold or pledged as collateral for loans.

Question 16

Banks can make additional loans when required reserves are

Accepted Answer

Banks are required to hold a certain amount of reserves based on the deposits they have. If the required reserves are less than the total reserves, it means they have excess reserves that can be used to make additional loans. If the required reserves are greater than total reserves, the bank would not be able to make additional loans as they do not have enough reserves.

Question 17

Scenario 25-2

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.

-Refer to Scenario 25-2. As a result of Kristy's deposit, Bank A can make a maximum loan of

Accepted Answer

The required reserve ratio is 20%, so Bank A must keep 20% of $10,000 as reserves, which is $2,000. Therefore, the maximum loan Bank A can make is $10,000 - $2,000 = $8,000.

Question 18

The amount of national income in an economy equals the money supply in an economy.

Accepted Answer

National income and money supply are two separate concepts. National income refers to the total value of goods and services produced in an economy, while money supply refers to the total amount of money in circulation within an economy. These two concepts are not directly related and do not necessarily equal each other.

Question 19

Suppose you withdraw $1,000 from your savings account and put it in your checking account. Briefly explain how this will affect M1 and M2.

Accepted Answer

The answer of Suppose you withdraw $1,000 from your savings...

Question 20

Scenario 25-2

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.

-Refer to Scenario 25-2. As a result of Kristy's deposit, Bank A's excess reserves increase by

Accepted Answer

The required reserve ratio is 20%, so Bank A must keep $2,000 (20% of $10,000) as required reserves. The remaining $8,000 is excess reserves.

Quiz 25: Money, Banks, and the Federal Reserve System

Suppose you transfer $2,000 from your money market mutual fund account to your checking account. What is the immediate impact of this transfer on M1 and M2?

The required reserves of a bank equal its ________ the required reserve ratio.

The major assets on a bank's balance sheet are its

Innovations, including new products and services, in financial markets and institutions have made the job of defining the money supply easier.

Scenario 25-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. -Refer to Scenario 25-2. As a result of Kristy's deposit, Bank A's required reserves increase by

Suppose you decide to borrow money from an online peer-to-peer lending site. On the T-account for the funder of the loan for this transaction, the funds from the investor would be classified as , and the loan made to you would be classified as .

A bank will consider a car loan to a customer and a customer's checking account to be .

Liquidity increases as we move from the M1 to the M2 definition of the money supply.

Scenario 25-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. -Refer to Scenario 25-2. As a result of Kristy's deposit, Bank A's reserves immediately increase by

Most U.S. currency held outside the U.S. banking system is held by foreigners.

The largest liability on the balance sheet of most banks is its

Suppose that you decide that you no longer want to hold currency, and deposit all of your currency holdings to your checking account. What is the immediate or initial impact of this transaction on M1 and M2?

A person's wealth is the same as his income.

Suppose you withdraw $1,000 from your savings account and put it under your mattress. Briefly explain how this will affect M1 and M2.

Bank reserves include

Banks can make additional loans when required reserves are

Scenario 25-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. -Refer to Scenario 25-2. As a result of Kristy's deposit, Bank A can make a maximum loan of

The amount of national income in an economy equals the money supply in an economy.

Suppose you withdraw $1,000 from your savings account and put it in your checking account. Briefly explain how this will affect M1 and M2.

Scenario 25-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. -Refer to Scenario 25-2. As a result of Kristy's deposit, Bank A's excess reserves increase by