money creation

Question 1

how are deposits created

Answer 1

net creation of deposits does not happen. Banks make it out of thin air

Question 2

despoitory institutions can hold ________

Answer 2

reserves

Question 3

despoist insurance

Answer 3

if you put money into bank you will get it back

Question 4

Bank vs NBFI

which has deposit insruance

Answer 4

bank

Question 5

example of despository institutions (banks)

Answer 5

-commerical banks
-saving and loan institutions
-credit unions

Question 6

Nonbank financial institutions (NBFIs) example

Answer 6

-ETFs or hedgefunds
-pensions funds
-insurnace companies

Question 7

bamk assets

Answer 7

vault cash (untouchable) and reserves

Question 8

NBFI assets

Answer 8

cash and deposits

-cash bevause counterparty is a bank not the Fed

Question 9

desoits are

Answer 9

something you have to pay

Question 10

difference in liabilities between bank and NFBI

Answer 10

bank = despoist
NFBI= bank loans

Question 11

what is another link between HH and firms

Answer 11

banks

Question 12

what do HH not interact with

Answer 12

Fed

Question 13

dollars in banking system

Answer 13

-vault cash
-reserves

Question 14

dollars in real economy

Answer 14

-currency
-despoits

Question 15

vault cash is needed for

Answer 15

cash withdrawl

Question 16

reserves is needed for

Answer 16

electronic like venmo

Question 17

only ______ and ________ can be used to buy goods and services

Answer 17

currency and depoists

Question 18

why would firms accept electronic IOUs from banks as a means of paymnet but not IOUs from NBFIs

Answer 18

because it is insured. If counterparty is FDIC insured you only have to worry about govnt

Question 19

suppose your fiend owes you $100. Why migt you value this claim as less than $100

Answer 19

in a month yo umight value it less because of credit risk and he might not be able to follow through on promise

Question 20

suppose your fiend owes you $100. Do you expect firms to accept this IOU as a means of payment from you?

Answer 20

no, problem is it is not insured and they don’t know who Fred is

Question 21

suppose now that all of a sudden Fred’s IOU is insured by the FDIC. How would you feel about this development

Answer 21

you would feel positively because now counterparty has chnaged, If fred does not pay you govnt can still pay you

Question 22

suppose now that all of a sudden Fred’s IOU is insured by the FDIC and that everyone knows about it. Would you expect firms to accept Fred’s IOU as a means of payment now

Answer 22

yes because they don’t have ti trust Fred because counterparty is FIDC

Question 23

suppose now that all of a sudden Fred’s IOU is insured by the FDIC and Fred issues you another $100 IOU. What did he just do

Answer 23

he made money

Question 24

who has power to create money in a fiat system

Answer 24

anyone whos liabilities are accepted as a means of payment

Question 25

deposit insurance protects

Answer 25

us from banks and banks from us

Question 26

watch bank of england video in 3D

Answer 26

ok

Question 27

why does bank issue loans

Answer 27

because you are willing to pay more at a later time

Question 28

what happens each time the bank makes a loan

Answer 28

they create money

Question 29

since bank despots are bank liabilities, banks cannot and do not take and/or accept despouts. Instead they issue _____

Answer 29

deposits

Question 30

is there any sort of limit to bank’s ability to create deposits

Answer 30

reserve requiremnets

Question 31

idea behind reserve requirements

Answer 31

hold % of demand depoits as vaukt cash

Question 32

what do you need to make loans

Answer 32

demand

Question 33

how did Fed use to change interest rates

Answer 33

by changing reserves

Question 34

since 1972 the us govnt has had a monopoly on production/issuance of coins and since 1935 has had a monopoly in production and issuance of notes.

True/false: the US govnt has a monoply on issuance of all money

Answer 34

false

Question 35

the nominal market value of a financial asset such as a stock or bond is

Answer 35

given by the proce at which it can be sold in a financial market

Question 36

do loans create depoists or do deposits create loans

Answer 36

loans create deposits (ie banks create deposits by making loans