Question 1

If the required reserve ratio is decreased from .2 to .1 the demand deposit expansion multiplier

Accepted Answer

A)  increases from 5 to 10. 
B)  increases from 4 to 4.5. 
C)  decreases from 5 to 2.5. 
D)  decreases from 2 to 1. 
A)  increases from 5 to 10. 
B)  increases from 4 to 4.5. 
C)  decreases from 5 to 2.5. 
D)  decreases from 2 to 1. D

Question 2

If the required reserve ratio is .25, demand deposits are $400 million, and total reserves are $150 million, then excess reserves are

Accepted Answer

A)  $25 million. 
B)  $50 million. 
C)  $75 million. 
D)  $125 million. 
A)  $25 million. 
B)  $50 million. 
C)  $75 million. 
D)  $125 million. B

Question 3

A commercial bank's ability to lend is determined by its

Accepted Answer

A)  required reserves. 
B)  excess reserves. 
C)  total reserves. 
D)  capital. 
A)  required reserves. 
B)  excess reserves. 
C)  total reserves. 
D)  capital. B

Question 4

Deposits with the Federal Reserve Bank are part of a commercial bank's

Accepted Answer

A)  capital. 
B)  reserves. 
C)  loans. 
D)  liabilities. 
A)  capital. 
B)  reserves. 
C)  loans. 
D)  liabilities.

Question 5

If there is a(n)__________ in reserves, the potential change in demand deposits is __________.

Accepted Answer

A)  deficiency; 0 
B)  deficiency; positive 
C)  deficiency; negative 
D)  excess; negative 
A)  deficiency; 0 
B)  deficiency; positive 
C)  deficiency; negative 
D)  excess; negative

Question 6

A bank can safely lend only an amount equal to its excess reserves because

Accepted Answer

A)  all of its reserves are now required reserves. 
B)  borrowers will spend the proceeds of their loans, and the bank will lose all of its excess reserves. 
C)  the excess reserves will fall to zero when the bank makes the loans. 
D)  This is not true since a bank can safely lend an amount equal to its total reserves. 
A)  all of its reserves are now required reserves. 
B)  borrowers will spend the proceeds of their loans, and the bank will lose all of its excess reserves. 
C)  the excess reserves will fall to zero when the bank makes the loans. 
D)  This is not true since a bank can safely lend an amount equal to its total reserves.

Question 7

Which of the following is classified as a liability for a commercial bank?

Accepted Answer

A)  Reserves 
B)  Commercial loans 
C)  Demand deposits 
D)  Deposits with the Federal Reserve 
A)  Reserves 
B)  Commercial loans 
C)  Demand deposits 
D)  Deposits with the Federal Reserve

Question 8

If the required reserve ratio is .10, demand deposits are $200 million, and total reserves are $40 million, then excess reserves are

Accepted Answer

A)  $20 million. 
B)  $40 million. 
C)  $400 million. 
D)  $2,000 million. 
A)  $20 million. 
B)  $40 million. 
C)  $400 million. 
D)  $2,000 million.

Question 9

Assume a required reserve ratio of .25 and a discount rate of .05. If excess reserves rise by $20, demand deposits can expand by a maximum of

Accepted Answer

A)  $20. 
B)  $25. 
C)  $80. 
D)  $100. 
A)  $20. 
B)  $25. 
C)  $80. 
D)  $100.

Question 10

Assume that the ratio of excess reserves to demand deposits is 0, and the ratio of currency to demand deposits is .2. If the reserve requirement on demand deposits is .3 and there is no reserve requirement on savings accounts, the M1 multiplier is

Accepted Answer

A)  5.5. 
B)  4. 
C)  2.5. 
D)  2.4. 
A)  5.5. 
B)  4. 
C)  2.5. 
D)  2.4.

Question 11

If the required reserve ratio was 1, the demand deposit expansion multiplier would be

Accepted Answer

A)  0. 
B)  1. 
C)  1.2. 
D)  5. 
A)  0. 
B)  1. 
C)  1.2. 
D)  5.

Question 12

A bank's excess reserves can be calculated as

Accepted Answer

A)  total reserves times the reserve ratio. 
B)  demand deposits times the reserve ratio. 
C)  total reserves minus required reserves. 
D)  demand deposits minus total reserves. 
A)  total reserves times the reserve ratio. 
B)  demand deposits times the reserve ratio. 
C)  total reserves minus required reserves. 
D)  demand deposits minus total reserves.

Question 13

If the required reserve ratio is increased from .1 to .2, the demand deposit expansion multiplier

Accepted Answer

A)  increases from 10 to 5. 
B)  increases from 4 to 4.5. 
C)  decreases from 5 to 2.5. 
D)  decreases from 10 to 5. 
A)  increases from 10 to 5. 
B)  increases from 4 to 4.5. 
C)  decreases from 5 to 2.5. 
D)  decreases from 10 to 5.

Question 14

When banks make new loans, the effect on reserves is the same as

Accepted Answer

A)  holding excess reserves. 
B)  expanding capital. 
C)  purchasing securities. 
D)  acquiring deposits. 
A)  holding excess reserves. 
B)  expanding capital. 
C)  purchasing securities. 
D)  acquiring deposits.

Question 15

The largest component of the money supply (M1)is

Accepted Answer

A)  time deposits. 
B)  large CDs. 
C)  demand deposits. 
D)  coin and currency. 
A)  time deposits. 
B)  large CDs. 
C)  demand deposits. 
D)  coin and currency.

Question 16

If original excess reserves are $10 million, and if the potential change in demand deposits is $153 million, then the demand deposit expansion multiplier is

Accepted Answer

A)  1.53. 
B)  0.65. 
C)  10.0. 
D)  0.07. 
A)  1.53. 
B)  0.65. 
C)  10.0. 
D)  0.07.

Question 17

The change in demand deposits varies directly with

Accepted Answer

A)  the currency ratio. 
B)  the reserve ratio on demand deposits. 
C)  the monetary base. 
D)  the reserve ratio on time deposits. 
A)  the currency ratio. 
B)  the reserve ratio on demand deposits. 
C)  the monetary base. 
D)  the reserve ratio on time deposits.

Question 18

The demand deposit multiplier __________ as the required reserve ratio __________.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  does not change; increases 
D)  does not change; decreases 
A)  increases; increases 
B)  increases; decreases 
C)  does not change; increases 
D)  does not change; decreases

Question 19

The Federal Reserve's ability to control the amount of demand deposits in the system depends on its ability to

Accepted Answer

A)  clear checks. 
B)  charter national banks. 
C)  print currency. 
D)  regulate bank reserves. 
A)  clear checks. 
B)  charter national banks. 
C)  print currency. 
D)  regulate bank reserves.

Question 20

If the required reserve ratio is .5, the deposit contraction multiplier is

Accepted Answer

A)  .5. 
B)  2. 
C)  2.5. 
D)  5. 
A)  .5. 
B)  2. 
C)  2.5. 
D)  5.

Exam 18: Bank Reserves and the Money Supply

If the required reserve ratio is decreased from .2 to .1 the demand deposit expansion multiplier

If the required reserve ratio is .25, demand deposits are $400 million, and total reserves are $150 million, then excess reserves are

A commercial bank's ability to lend is determined by its

Deposits with the Federal Reserve Bank are part of a commercial bank's

If there is a(n)__________ in reserves, the potential change in demand deposits is __________.

A bank can safely lend only an amount equal to its excess reserves because

Which of the following is classified as a liability for a commercial bank?

If the required reserve ratio is .10, demand deposits are $200 million, and total reserves are $40 million, then excess reserves are

Assume a required reserve ratio of .25 and a discount rate of .05. If excess reserves rise by $20, demand deposits can expand by a maximum of

Assume that the ratio of excess reserves to demand deposits is 0, and the ratio of currency to demand deposits is .2. If the reserve requirement on demand deposits is .3 and there is no reserve requirement on savings accounts, the M1 multiplier is

If the required reserve ratio was 1, the demand deposit expansion multiplier would be

A bank's excess reserves can be calculated as

If the required reserve ratio is increased from .1 to .2, the demand deposit expansion multiplier

When banks make new loans, the effect on reserves is the same as

The largest component of the money supply (M1)is

If original excess reserves are $10 million, and if the potential change in demand deposits is $153 million, then the demand deposit expansion multiplier is

The change in demand deposits varies directly with

The demand deposit multiplier __________ as the required reserve ratio __________.

The Federal Reserve's ability to control the amount of demand deposits in the system depends on its ability to

If the required reserve ratio is .5, the deposit contraction multiplier is

Introducing Money, Banking, and Financial Markets

The Role of Money in the Macroeconomy

Financial Instruments, Markets, and Institutions

Interest Rate Measurement and Behavior

The Term and Risk Structure of Interest Rates

The Structure and Performance of Securities Markets

The Pricing of Risky Financial Assets

Money and Capital Markets

Demystifying Derivatives

Understanding Foreign Exchange

The Nature of Financial Intermediation

Depository Financial Institutions

Nondepository Financial Institutions

Understanding Financial Contracts

The Regulation of Markets and Institutions

Financial System Design

Who's in Charge Here?

The Instruments of Central Bankin

Understanding Movements in Bank Reserves

Monetary Policy Strategy

The Classical Foundations

The Keynesian Framework

The ISLM World

Money and Economic Stability in the ISLM World

An Aggregate Supply and Demand Perspective on Money and Economic Stability

Rational Expectations: Theory and Policy Implications

Empirical Evidence on the Effectiveness of Monetary Policy

Tying It All Together

Filters

If there is a(n) in reserves, the potential change in demand deposits is .

The demand deposit multiplier as the required reserve ratio .