11 Questions
What is the impact of an open market purchase on bank reserves?
It increases bank reserves
What is the role of the Fed as the lender of last resort?
The Fed is ready to lend reserves to depository institutions that are short of reserves
What limits the quantity of deposits that banks can create?
All of the above
What is included in the monetary base?
Federal Reserve notes and coins
What is the formula for the money multiplier?
(1 + C/D) / (R/D)
If the currency drain ratio (C/D) is 0.4 and the desired reserve ratio (R/D) is 0.2, what is the money multiplier?
3.5
In the given example, how much does the bank keep as reserves when deposits increase by $80,000? (C/D = 0.5, R/D = 0.1)
$10,000
What is the main difference between M1 and M2 in the United States?
M1 includes currency and checking deposits, while M2 includes time and saving deposits.
Why are some saving deposits in M2 not considered money?
Because they are not instantly convertible into a means of payment.
Which of the following is a component of both M1 and M2?
Currency
What is the significance of the items in M1?
They are highly liquid assets that can be instantly converted into means of payment.
Test your knowledge about the concept of money, unit of account, and store of value. Learn about the functions and features of money in the United States.
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