FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 10: The Money Supply and the Federal Reserve System

Show Answer

Share

---

All types

Filters

Study Flashcards

Question 31

Essay

Review LaterAdd Note

Review Later

Assume the following balance sheet for the Federal Reserve and the commercial banks with a required reserve ratio of 10%. Suppose the Fed wishes to expand the money supply by reducing the ratio to 5%. Draw a new balance sheet for the commercial banks and explain the changes. All figures are in billions of dollars

Correct Answer

verified

With a new required reserve ratio of 5% ...

View Answer

Show Answer

Question 32

Essay

Review LaterAdd Note

Review Later

Fill in the following table by indicating whether the proposed Federal Reserve action will increase or decrease the money supply. If the action is not a federal reserve power then write not applicable

Correct Answer

verified

11ec9a24_e13f_d5c7_...

View Answer

Show Answer

Question 33

Essay

Review LaterAdd Note

List the functions of the Federal Reserve.

Explain what a vertical money supply curve suggests about the relationship between the money supply and the interest rate.

If Bob makes a deposit of $1000 into his checking account at his bank, explain what happens to the value of M1.

Define excess reserves.

What is meant by the characterization of Federal Reserve Banks as "banker's banks?"

How effective would Federal Reserve policy be on the interest rate in its conduct of open market operations if the money supply were nearly perfectly elastic?

Assume the Fed sets the supply of money independent of the interest rate. Draw a graph of the supply of money with the interest rate on the vertical axis and the supply of money on the horizontal axis.

Why are loans considered to be assets to banks while they are considered liabilities for the rest of the general public?

Explain what will happen to the size of both M1 and M2 in each of the following situations: (a) Jane, a millionaire, withdraws $500,000 from her money market account to buy a famous painting. (b) Paul transfers $10,000 from his NOW account to his savings account. (c) Sarah takes $5,000 out of her checking account to buy IBM stock.

Explain why a full scaale bank run on even the most healthiest bank in the country could hasten its collapse.

Write out in equation form the four components of M2.

Explain why even a large withdrawal of money from a commercial bank would not affect the money supply.

When banks foreclose on homeowners who are either unable or unwilling to pay back their loans in a timely fashion they often take these homes and put them up for sale in an attempt to get back part of the principal that was loaned out in the first place. Does this have the same effect on the money supply as when a bank calls back a loan from a borrower before it matures? Why or why not?

In terms of a bank's or a company's balance sheet what is meant by the statement that "the books always balance?"

What are the assets of commercial banks and why are they classified as assets?

What is transactions money (M1)? Identify the components of transactions money.

Explain how the Federal Reserve clears interbank payments.

If the required reserve ratio is 20% and a bank has $1 million in demand deposits, how much reserves must the bank keep with the Federal Reserve Bank?