809031
Description
Flashcards by casedlynch, updated more than 1 year ago
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Created by casedlynch
almost 10 years ago
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| Question | Answer |
| The banking system in the United States is referred to as a fractional reserve bank system because | banks hold a fraction of deposits on reserve |
| Reserves are an asset to commercial banks but a liability to the Federal Reserve Banks because | these funds are cash belonging to commercial banks, but they are a claim the commercial banks have against the Federal Reserve Bank. |
| Excess reserves are equal to | actual reserves minus required reserves. |
| “Whenever currency is deposited into a commercial bank, cash goes out of circulation and, as a result, the supply of money is reduced.” Is this statement true or false? | False, M1 consists of currency and checkable deposits |
| Consider the following statement: “When a commercial bank makes loans, it creates money; when loans are repaid, money is destroyed.” This statement is | correct because lending increases the money supply, and the repayment reduces checkable deposits, lowering the money supply. |
| Suppose that Mountain Star Bank discovers that its reserves will temporarily fall slightly below those legally required. It can temporarily remedy this situation by | borrowing funds from other banks in the Federal funds market. |
| Assume Mountain Star Bank finds that its reserves will be substantially and permanently deficient. To remedy this situation, Mountain Star Bank can | reduce the amount of loans outstanding. |
| Suppose that Serendipity Bank has excess reserves of $12,000 and checkable deposits of $200,000. If the reserve ratio is 10 percent, what is the size of the bank's actual reserves? $ | 32,000 |
| Suppose that Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is 10 percent. The bank now sells $20,000 in securities to the Federal Reserve Bank in its district, receiving a $20,000 increase in reserves in return. | 20,000 |
| Compound interest | describes the interest an investment earns when interest is paid on the original amount invested plus all interest payments that have been previously made. |
| Assume I is the the interest rate, t is the amount of years (time), and X is the is investment amount. What is the present value formula? | X/ (1+i)^t |
| Suppose that you invest $100 today in a risk-free investment and let the 5 percent annual interest rate compound. Rounded to full dollars, what will be the value of your investment 5 years from now? | 128 |
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