Question 1

If a bank's reserves are exactly equal to the required amount of reserves,then it has no excess reserves.

Accepted Answer

A) True 
 B)False

Question 2

Suppose the Fed purchases $5,000 in U.S.government securities from the Last National Bank and the Last National Bank's account at the Federal Reserve district bank increases by $5,000.Which of the following is a result of this transaction?

Accepted Answer

A) The Last National Bank's balance sheet shows a change in the composition of its assets. 
B) Both the Last National Bank's assets and its liabilities rise by $5,000. 
C) Both the Fed's assets and its liabilities fall by $5,000. 
D) Only the Fed's liabilities change,while its assets remain unchanged. 
E) This transaction decreases the money supply. 
A) The Last National Bank's balance sheet shows a change in the composition of its assets. 
B) Both the Last National Bank's assets and its liabilities rise by $5,000. 
C) Both the Fed's assets and its liabilities fall by $5,000. 
D) Only the Fed's liabilities change,while its assets remain unchanged. 
E) This transaction decreases the money supply.

Question 3

Which of the following is true of M1?

Accepted Answer

A) It is equal to M2. 
B) It consists of all near-monies. 
C) It consists of certificates of deposit. 
D) It is the broader definition of money. 
E) It is only a fraction of M2. 
A) It is equal to M2. 
B) It consists of all near-monies. 
C) It consists of certificates of deposit. 
D) It is the broader definition of money. 
E) It is only a fraction of M2.

Question 4

Banks act as financial intermediaries by:

Accepted Answer

A) bringing together car buyers and auto dealers. 
B) bringing together real estate brokers and home buyers. 
C) printing money for all to use. 
D) serving the credit needs of borrowers and the security needs of savers. 
E) selling shares of stock to investors. 
A) bringing together car buyers and auto dealers. 
B) bringing together real estate brokers and home buyers. 
C) printing money for all to use. 
D) serving the credit needs of borrowers and the security needs of savers. 
E) selling shares of stock to investors.

Question 5

A bank's net worth is:

Accepted Answer

A) equal to assets plus liabilities. 
B) sometimes called the owners' equity. 
C) equal to assets minus reserves. 
D) the same thing as net profits. 
E) the amount of interest charged by the bank for short-term loans. 
A) equal to assets plus liabilities. 
B) sometimes called the owners' equity. 
C) equal to assets minus reserves. 
D) the same thing as net profits. 
E) the amount of interest charged by the bank for short-term loans.

Question 6

Suppose a bank has $8,000 in checkable deposits and the required reserve ratio is 0.2.If actual reserves equal $3,000,then excess reserves equal:

Accepted Answer

A) $1,600. 
B) $1,400. 
C) $2,400. 
D) $5,000. 
E) zero. 
A) $1,600. 
B) $1,400. 
C) $2,400. 
D) $5,000. 
E) zero.

Question 7

Money expansion stops when new reserves introduced into the banking system have been converted into:

Accepted Answer

A) excess reserves. 
B) securities. 
C) deposits. 
D) required reserves. 
E) loans. 
A) excess reserves. 
B) securities. 
C) deposits. 
D) required reserves. 
E) loans.

Question 8

The table below shows the balance sheet of Countybank.Which of the following transactions is most likely to have just taken place at Countybank?
Table 14.2
?
COUNTYBANK
?
$\begin{array}{|l|l|l|l|}
\hline\text { Assets } && \text { Liabilities and Net Worth } \
\hline & & \
\hline \text { Cash } & \$ 1,000 & \text { Checkable deposits }&\$1,000\\hline
\end{array}$

Accepted Answer

A) A customer withdrew $1,000 from her checking account. 
B) A customer deposited a $1,000 check into her savings account. 
C) A customer deposited $1,000 into her checking account. 
D) The bank purchased a security with $1,000 cash. 
E) The bank borrowed $1,000 from the Federal Reserve. 
A) A customer withdrew $1,000 from her checking account. 
B) A customer deposited a $1,000 check into her savings account. 
C) A customer deposited $1,000 into her checking account. 
D) The bank purchased a security with $1,000 cash. 
E) The bank borrowed $1,000 from the Federal Reserve.

Question 9

Most of the Fed's liabilities are in the form of:

Accepted Answer

A) Federal Reserve notes. 
B) checkable deposits. 
C) U.S.Treasury deposits. 
D) loans to member banks. 
E) certificates of deposit. 
A) Federal Reserve notes. 
B) checkable deposits. 
C) U.S.Treasury deposits. 
D) loans to member banks. 
E) certificates of deposit.

Question 10

Banks differ from other types of businesses because banks:

Accepted Answer

A) earn profits. 
B) combine economic resources to produce services. 
C) can go out of business. 
D) can create money. 
E) are regulated by the government. 
A) earn profits. 
B) combine economic resources to produce services. 
C) can go out of business. 
D) can create money. 
E) are regulated by the government.

Question 11

In commercial banking operations,there is a trade-off between liquidity and profitability.

Accepted Answer

A) True 
 B)False

Question 12

When a check is cleared against Bank A after being deposited at Bank B,_____.

Accepted Answer

A) both Bank A's and Bank B's liabilities increase 
B) both Bank A's and Bank B's liabilities decrease 
C) Bank A's liabilities increase and Bank B's liabilities decrease 
D) Bank A's liabilities decrease and Bank B's liabilities increase 
E) there is an increase in the liabilities of the Federal Reserve 
A) both Bank A's and Bank B's liabilities increase 
B) both Bank A's and Bank B's liabilities decrease 
C) Bank A's liabilities increase and Bank B's liabilities decrease 
D) Bank A's liabilities decrease and Bank B's liabilities increase 
E) there is an increase in the liabilities of the Federal Reserve

Question 13

The Federal Reserve may increase the money supply by:

Accepted Answer

A) selling a bond to a member bank. 
B) selling a bond to a securities dealer. 
C) lending reserves to banks. 
D) increasing required reserve ratios. 
E) increasing the discount rate. 
A) selling a bond to a member bank. 
B) selling a bond to a securities dealer. 
C) lending reserves to banks. 
D) increasing required reserve ratios. 
E) increasing the discount rate.

Question 14

The Fed primarily uses the reserve requirement to control the money supply.

Accepted Answer

A) True 
 B)False

Question 15

If people choose to hold some of a newly received loan as cash instead of keeping it in a checking account,_____.

Accepted Answer

A) the money supply will not increase as much as it would had borrowers deposited all of the money 
B) the money supply will remain unchanged 
C) the money supply will decrease as much as it would had borrowers deposited all the money 
D) the banking system will collapse 
E) the economy will experience a recession 
A) the money supply will not increase as much as it would had borrowers deposited all of the money 
B) the money supply will remain unchanged 
C) the money supply will decrease as much as it would had borrowers deposited all the money 
D) the banking system will collapse 
E) the economy will experience a recession

Question 16

The table below shows the balance sheet of Eubank which holds no excess reserves.Assume that the required reserve ratio is 10%.If a student deposits $10,000 in cash into his checkable deposit account,Eubank will have _____ in excess reserves?
Table 14.1
?
EUBANK
?
$$\begin{array} { | l | r | r | r | } 
\hline \text { Assets } &  { \text { Liabilities and Net Worth } } & \
\hline & & & \
\hline \text { Deposits at the Fed } & \$ 40,000 & \text { Checkable deposits } & \$ 500,000 \
\hline \text { Cash } & \$ 10,000 & \text { Net Worth } & \$ 20,000 \
\hline \text { Loans } & \$ 300,000 & & \
\hline \text { Securities } & \$ 150,000 & & \
\hline \text { Fed Stock } & \$ 20,000 & & \
\hline
\end{array}$$

Accepted Answer

A) $10,000 
B) $1,000 
C) $9,000 
D) $60,000 
E) $6,000 
A) $10,000 
B) $1,000 
C) $9,000 
D) $60,000 
E) $6,000

Question 17

In the federal funds market,_____.

Accepted Answer

A) banks make loans to the Fed 
B) banks make short-term loans to other banks 
C) banks make long-term loans to other banks 
D) the Fed makes short-term loans to private borrowers 
E) the Fed makes long-term loans to commercial banks 
A) banks make loans to the Fed 
B) banks make short-term loans to other banks 
C) banks make long-term loans to other banks 
D) the Fed makes short-term loans to private borrowers 
E) the Fed makes long-term loans to commercial banks

Question 18

The actual money multiplier is smaller than the simple money multiplier because:

Accepted Answer

A) the actual multiplier affects M2 rather than M1. 
B) cash withdrawals reduce the amount banks can lend out. 
C) the actual multiplier affects the amount of excess reserves each bank holds. 
D) the size of the simple multiplier depends on the volume of deposits unlike the actual multiplier. 
E) the actual multiplier uses a different measure of reserve requirements. 
A) the actual multiplier affects M2 rather than M1. 
B) cash withdrawals reduce the amount banks can lend out. 
C) the actual multiplier affects the amount of excess reserves each bank holds. 
D) the size of the simple multiplier depends on the volume of deposits unlike the actual multiplier. 
E) the actual multiplier uses a different measure of reserve requirements.

Question 19

In the money and credit expansion process,the total change in checkable deposits is equal to the initial change in excess reserves _____.

Accepted Answer

A) multiplied by the required reserve ratio 
B) plus the change in required reserves 
C) divided by the reciprocal of the required reserve ratio 
D) multiplied by the reciprocal of the required reserve ratio 
E) divided by the change in required reserves 
A) multiplied by the required reserve ratio 
B) plus the change in required reserves 
C) divided by the reciprocal of the required reserve ratio 
D) multiplied by the reciprocal of the required reserve ratio 
E) divided by the change in required reserves

Question 20

Decreasing the required reserve ratio is an expansionary policy because it increases the amount of excess reserves in the banking system.

Accepted Answer

A) True 
 B)False

If a bank's reserves are exactly equal to the required amount of reserves,then it has no excess reserves.

Suppose the Fed purchases $5,000 in U.S.government securities from the Last National Bank and the Last National Bank's account at the Federal Reserve district bank increases by $5,000.Which of the following is a result of this transaction?

Which of the following is true of M1?

Banks act as financial intermediaries by:

A bank's net worth is:

Suppose a bank has $8,000 in checkable deposits and the required reserve ratio is 0.2.If actual reserves equal $3,000,then excess reserves equal:

Money expansion stops when new reserves introduced into the banking system have been converted into:

The table below shows the balance sheet of Countybank.Which of the following transactions is most likely to have just taken place at Countybank? Table 14.2 ? COUNTYBANK ? Assets Liabilities and Net Worth Cash \ 1,000 Checkable deposits \1 ,000

Most of the Fed's liabilities are in the form of:

Banks differ from other types of businesses because banks:

In commercial banking operations,there is a trade-off between liquidity and profitability.

When a check is cleared against Bank A after being deposited at Bank B,_____.

The Federal Reserve may increase the money supply by:

The Fed primarily uses the reserve requirement to control the money supply.

If people choose to hold some of a newly received loan as cash instead of keeping it in a checking account,_____.

In the federal funds market,_____.

The actual money multiplier is smaller than the simple money multiplier because:

In the money and credit expansion process,the total change in checkable deposits is equal to the initial change in excess reserves _____.

Decreasing the required reserve ratio is an expansionary policy because it increases the amount of excess reserves in the banking system.

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters

Exam 14: Banking and the Money Supply

If a bank's reserves are exactly equal to the required amount of reserves,then it has no excess reserves.

Suppose the Fed purchases $5,000 in U.S.government securities from the Last National Bank and the Last National Bank's account at the Federal Reserve district bank increases by $5,000.Which of the following is a result of this transaction?

Which of the following is true of M1?

Banks act as financial intermediaries by:

A bank's net worth is:

Suppose a bank has $8,000 in checkable deposits and the required reserve ratio is 0.2.If actual reserves equal $3,000,then excess reserves equal:

Money expansion stops when new reserves introduced into the banking system have been converted into:

The table below shows the balance sheet of Countybank.Which of the following transactions is most likely to have just taken place at Countybank? Table 14.2 ? COUNTYBANK ? Assets Liabilities and Net Worth Cash \ 1,000 Checkable deposits \1 ,000

Most of the Fed's liabilities are in the form of:

Banks differ from other types of businesses because banks:

In commercial banking operations,there is a trade-off between liquidity and profitability.

When a check is cleared against Bank A after being deposited at Bank B,_____.

The Federal Reserve may increase the money supply by:

The Fed primarily uses the reserve requirement to control the money supply.

If people choose to hold some of a newly received loan as cash instead of keeping it in a checking account,_____.

In the federal funds market,_____.

The actual money multiplier is smaller than the simple money multiplier because:

In the money and credit expansion process,the total change in checkable deposits is equal to the initial change in excess reserves _____.

Decreasing the required reserve ratio is an expansionary policy because it increases the amount of excess reserves in the banking system.

The Art and Science of Economic Analysis

Some Tools of Economic Analysis

Economic Decision Makers

Demand, Supply, and Markets

Introduction to Macroeconomics

Tracking the U S Economy

Unemployment and Inflation

Us Productivity and Growth

Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Monetary Theory and Policy

The Policy Debate: Active or Passive

International Trade

International Finance

Economic Development

Filters