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Money and Money Supply

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Questions and Answers

What is the primary function of money in the economy?

To facilitate barter

To measure the value of goods and services

To store value

To act as a medium of exchange (correct)

Which of the following is NOT a measure of the money supply?

M4 (correct)

What is the most liquid measure of the money supply?

Savings Accounts

M1 (correct)

What is the term for the amount of money in circulation?

Money Supply Signup and view all the answers

Who oversees the Federal Reserve?

The 7-member Board of Governors Signup and view all the answers

What is the term for the ability to convert an asset into cash quickly and without loss of value?

Liquidity Signup and view all the answers

What is the main function of the 12 Federal Reserve District Banks scattered throughout the United States?

To hold reserves for Depository Institutions Signup and view all the answers

What is the term for the minimum amount of funds that depository institutions must hold in the form of vault cash or deposits with the Fed?

Required Reserves Signup and view all the answers

What is the result of a bank lending out excess reserves, and the borrower re-depositing the funds into the bank?

The bank can lend out more excess reserves Signup and view all the answers

What is the formula to calculate the Required Reserves (RR)?

RR = rrr * TD Signup and view all the answers

What is the term for the number that, when multiplied by a change in reserves in the banking system, yields the resulting change in the money supply?

Money Multiplier Signup and view all the answers

What happens to the money multiplier when the Required Reserve Ratio (rrr) increases?

The money multiplier decreases Signup and view all the answers