Question 1

A commercial bank's reserves consist of

Accepted Answer

A)  capital and U.S. Treasury securities. 
B)  vault cash and U.S. Treasury securities. 
C)  vault cash and deposits with the Federal Reserve. 
D)  deposits with the Federal Reserve and U.S. Treasury securities. 
A)  capital and U.S. Treasury securities. 
B)  vault cash and U.S. Treasury securities. 
C)  vault cash and deposits with the Federal Reserve. 
D)  deposits with the Federal Reserve and U.S. Treasury securities.

Question 2

Assume that the M1 multiplier is 3.0 and the monetary base is $200 billion. If M1 is currently equal to $600 billion and the Federal Reserve wishes to raise the level to $690 billion, the monetary base should be expanded by

Accepted Answer

A)  $60 billion. 
B)  $30 billion. 
C)  $20 billion. 
D)  $10 billion. 
A)  $60 billion. 
B)  $30 billion. 
C)  $20 billion. 
D)  $10 billion.

Question 3

Assume that excess reserves are $10 million, the required reserve ratio is 10 percent, and total reserves are $145 million. Demand deposits are

Accepted Answer

A)  $135 million. 
B)  $1.35 billion. 
C)  $1.35 million. 
D)  $1.45 billion. 
A)  $135 million. 
B)  $1.35 billion. 
C)  $1.35 million. 
D)  $1.45 billion.

Question 4

Assume that excess reserves are $35 million, demand deposits are $500 million, and total reserves are $135 million. The required reserve ratio is

Accepted Answer

A)  .07. 
B)  .2. 
C)  .25. 
D)  .27. 
A)  .07. 
B)  .2. 
C)  .25. 
D)  .27.

Question 5

When a bank pays a check drawn on a customer's account to another bank, the bank loses

Accepted Answer

A)  capital equal to the amount of the check. 
B)  capital equal to the required reserve ratio times the amount of the check. 
C)  reserves equal to the amount of the check. 
D)  reserves equal to the required reserve ratio times the amount of the check. 
A)  capital equal to the amount of the check. 
B)  capital equal to the required reserve ratio times the amount of the check. 
C)  reserves equal to the amount of the check. 
D)  reserves equal to the required reserve ratio times the amount of the check.

Question 6

Vault cash is part of a commercial bank's

Accepted Answer

A)  demand deposits. 
B)  capital. 
C)  reserves. 
D)  liabilities. 
A)  demand deposits. 
B)  capital. 
C)  reserves. 
D)  liabilities.

Question 7

Assume a required reserve ratio of .4. An increase in excess reserves of $60 can potentially lead to a demand deposit expansion of

Accepted Answer

A)  $50. 
B)  $100. 
C)  $125. 
D)  $150. 
A)  $50. 
B)  $100. 
C)  $125. 
D)  $150.

Question 8

An initial deficiency in reserves of $20 and a required reserve ratio of .5 lead to a maximum demand deposit contraction of

Accepted Answer

A)  $8. 
B)  $40. 
C)  $50. 
D)  $80. 
A)  $8. 
B)  $40. 
C)  $50. 
D)  $80.

Question 9

A bank creates money

Accepted Answer

A)  never since it only lends out money it owns. 
B)  when it makes loans. 
C)  when it prints bank notes. 
D)  when it pays out reserves. 
A)  never since it only lends out money it owns. 
B)  when it makes loans. 
C)  when it prints bank notes. 
D)  when it pays out reserves.

Question 10

Which of the following is classified as an asset for a commercial bank customer?

Accepted Answer

A)  A car loan 
B)  A commercial loan 
C)  Demand deposits 
D)  Deposits with the Federal Reserve 
A)  A car loan 
B)  A commercial loan 
C)  Demand deposits 
D)  Deposits with the Federal Reserve

Question 11

Assume that there are no excess reserves, no savings accounts, and no currency held by the public. If the demand deposit expansion multiplier is 4, the required reserve ratio must be

Accepted Answer

A)  also 4. 
B)  .2. 
C)  .25. 
D)  .5. 
A)  also 4. 
B)  .2. 
C)  .25. 
D)  .5.

Question 12

A bank with excess reserves

Accepted Answer

A)  cannot make new loans. 
B)  must make new loans. 
C)  may choose to make new loans equal to the amount of excess reserves. 
D)  can lend an amount equal to the amount of excess reserves multiplied by the inverse of the required reserve ratio. 
A)  cannot make new loans. 
B)  must make new loans. 
C)  may choose to make new loans equal to the amount of excess reserves. 
D)  can lend an amount equal to the amount of excess reserves multiplied by the inverse of the required reserve ratio.

Question 13

Assume an economy with a single bank, no excess reserves, no savings accounts, and no currency held by the public. With a required reserve ratio of .4, the demand deposit expansion multiplier is

Accepted Answer

A)  20. 
B)  10. 
C)  4. 
D)  2.5. 
A)  20. 
B)  10. 
C)  4. 
D)  2.5.

Question 14

A bank can safely lend an amount equal to its

Accepted Answer

A)  excess reserves. 
B)  required reserves. 
C)  vault cash. 
D)  total reserves. 
A)  excess reserves. 
B)  required reserves. 
C)  vault cash. 
D)  total reserves.

Question 15

Assume that excess reserves are $10 million, demand deposits are $500 million, and total reserves are $135 million. The required reserve ratio is

Accepted Answer

A)  .05. 
B)  .1. 
C)  .2. 
D)  .25. 
A)  .05. 
B)  .1. 
C)  .2. 
D)  .25.

Question 16

If the ratio of net worth to vault cash is .2, the prime rate is .05, and the required reserve ratio is .25, the demand deposit expansion multiplier is

Accepted Answer

A)  2. 
B)  4. 
C)  5. 
D)  .25. 
A)  2. 
B)  4. 
C)  5. 
D)  .25.

Question 17

Which of the following must decline if there is a reserve deficiency in the banking system?

Accepted Answer

A)  Demand deposits 
B)  Reserves 
C)  Net worth 
D)  The demand deposit multiplier 
A)  Demand deposits 
B)  Reserves 
C)  Net worth 
D)  The demand deposit multiplier

Question 18

If the required reserve ratio is .2 and reserves initially decline by $25, demand deposits can decline by

Accepted Answer

A)  $125. 
B)  $50. 
C)  $25. 
D)  $5. 
A)  $125. 
B)  $50. 
C)  $25. 
D)  $5.

Question 19

If the reserve requirement on checkable deposits is .25, the ratio of currency held by the public to demand deposits is .15, the ratio of time deposits to demand deposits is 3, the reserve requirement on time deposits is 0, and the ratio of excess reserves to demand deposits is 0, then the demand deposit multiplier is

Accepted Answer

A)  5. 
B)  4. 
C)  3.33. 
D)  2.5. 
A)  5. 
B)  4. 
C)  3.33. 
D)  2.5.

Question 20

The required reserve ratio is 10 percent, and the potential change in demand deposits is $100 million. What are original excess reserves?

Accepted Answer

A)  $10 million 
B)  $100 million 
C)  $1 million 
D)  $1 billion 
A)  $10 million 
B)  $100 million 
C)  $1 million 
D)  $1 billion

Exam 18: Bank Reserves and the Money Supply

A commercial bank's reserves consist of

Assume that the M1 multiplier is 3.0 and the monetary base is $200 billion. If M1 is currently equal to $600 billion and the Federal Reserve wishes to raise the level to $690 billion, the monetary base should be expanded by

Assume that excess reserves are $10 million, the required reserve ratio is 10 percent, and total reserves are $145 million. Demand deposits are

Assume that excess reserves are $35 million, demand deposits are $500 million, and total reserves are $135 million. The required reserve ratio is

When a bank pays a check drawn on a customer's account to another bank, the bank loses

Vault cash is part of a commercial bank's

Assume a required reserve ratio of .4. An increase in excess reserves of $60 can potentially lead to a demand deposit expansion of

An initial deficiency in reserves of $20 and a required reserve ratio of .5 lead to a maximum demand deposit contraction of

A bank creates money

Which of the following is classified as an asset for a commercial bank customer?

Assume that there are no excess reserves, no savings accounts, and no currency held by the public. If the demand deposit expansion multiplier is 4, the required reserve ratio must be

A bank with excess reserves

Assume an economy with a single bank, no excess reserves, no savings accounts, and no currency held by the public. With a required reserve ratio of .4, the demand deposit expansion multiplier is

A bank can safely lend an amount equal to its

Assume that excess reserves are $10 million, demand deposits are $500 million, and total reserves are $135 million. The required reserve ratio is

If the ratio of net worth to vault cash is .2, the prime rate is .05, and the required reserve ratio is .25, the demand deposit expansion multiplier is

Which of the following must decline if there is a reserve deficiency in the banking system?

If the required reserve ratio is .2 and reserves initially decline by $25, demand deposits can decline by

The required reserve ratio is 10 percent, and the potential change in demand deposits is $100 million. What are original excess reserves?

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

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