Question 1

The ____________________ effect is a phenomenon that creates new deposits from lending.

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Question 2

The federal ____________________ rate is the amount of interest charged for short-term, interbank loans.

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Question 3

The ____________________ supply is defined as the liquid assets held by banks and individuals.

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Question 4

____________________ money is money that is deemed legal tender by a government.

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Question 5

Suppose the Fed requires all banks to hold a reserve of 4 percent on the first $45 million of customer deposits, and 10 percent on all deposits above that. If a bank has $100 million on deposit, what is the amount of the reserve requirement?

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Question 6

Resources a bank uses to create money through its business transactions are called ____________________ reserves.

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Question 7

What types of money and circumstances of liquidity are defined by the M2 element of the money supply?

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Question 8

Calculate the total amount of money "created" from a deposit of $5,000 as it moves through four cycles of deposit. Assume a reserve rate of 15 percent. (Round answer to nearest two decimal places.)

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Question 9

____________________ was a measure of the money supply in use from 1971 until 2006.

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Question 10

The measure of how quickly things may be converted to something of value is called ____________________.

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Question 11

____________________ money is based on some item of value, such as gold or precious stones.

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Question 12

You cannot take a Federal Reserve note to a bank and exchange it for gold or silver. Why not?

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Question 13

The ____________________ rate is the interest rate the Federal Reserve sets and charges for loans to member banks.

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Question 14

Calculate the total amount of money "created" from a deposit of $10,000 as it moves through four cycles of deposit. Assume a reserve rate of 12 percent. (Round answer to nearest two decimal places.)

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Question 15

Suppose the Fed requires all banks to hold a reserve of 5 percent on the first $60 million of customer deposits, and 12 percent on all deposits above that. If a bank has $125 million on deposit, what is the amount of the reserve requirement?

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Question 16

____________________ measures are tools used to estimate the size of the money supply.

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Question 17

Why does the Federal Reserve require banks to hold money in reserve?

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Question 18

What happens to the money supply if the Fed lowers reserve requirements? Why?

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Question 19

Barry earns a monthly income of $2,500. He receives a 12 percent raise. What is his monthly income now?

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Question 20

Suppose the total amount of currency (i.e., Federal Reserve notes and coins) in circulation today is $713 billion. If 95 percent of this amount consists of Federal Reserve notes, what amount of currency in circulation consists of coins?

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Quiz 4: Money and Interest