Money and Banking Exam 2 Study Guide Ch. 14

The three players in the money supply process include

banks, depositors, and the central bank

Both _____ and ______ are Federal Reserve assets

securities; loans to financial institutions

The monetary liabilities of the Federal Reserve include

currency in circulation and reserves

When the Federal Reserve purchases a government bond from a bank, reserves in the banking system _____ and the monetary base ______

increases; increases

If a member of the nonbank public purchases a government bond from the Federal Reserve in exchange for currency, the monetary base will ____, but reserves will _____

fall; remain unchanged

When a member of the nonbank public withdraws currency from her bank account,

bank reserves fall, but the monetary base remains unchanged

The money supply is ____ related to the nonborrowed monetary base, and ____ related to the level of borrowed reserves

positively; positively

Everything else held constant, an increase in currency holdings will cause

the money supply to fall

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is ____ billion

$1200

MS = C + D

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the currency ratio is ____

0.50

c = Currency/Deposits

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the excess reserves-checkable deposit ratio is ____

.001

e= excess reserves/deposits

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is ____

2.5

m = 1+c/c+r+e

**If M1 money multiplier is 2.5, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is

$480

MB = C + R

R= (RR + ER)

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

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, the bank can now increase its loans by

$100

(these are $$ not from deposit)

Everything else held constant, an increase in the required reserve ratio on checkable deposit will cause

the money supply to fall

Everything else held constant, an increase in the currency-checkable deposit ratio will mean

a decrease in the money supply

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

In the model of the money supply process, the depositor's role in influencing the money supply is represented by

the currency holdings

In the model of the money supply process, the bank's role in influencing the money supply process is represented by

The excess reserve and borrowed reserve