Question 1

Savings deposits and time deposits are not included in M1 because these are not held by the nonbanking public.

Accepted Answer

A) True 
 B)False

Question 2

Banks earn a profit on the difference between:

Accepted Answer

A) the interest charged from depositors and the interest offered to borrowers. 
B) the interest charged on loans and the interest paid on deposits. 
C) the deposit and loan balances. 
D) liabilities and deposits. 
E) dividends and interest. 
A) the interest charged from depositors and the interest offered to borrowers. 
B) the interest charged on loans and the interest paid on deposits. 
C) the deposit and loan balances. 
D) liabilities and deposits. 
E) dividends and interest.

Question 3

The liquidity of an asset indicates:

Accepted Answer

A) its buying power. 
B) the ease with which it can be converted into cash without a significant loss of value. 
C) the ease with which it can be converted into another asset. 
D) how likely people are to trade it internationally. 
E) its intrinsic value. 
A) its buying power. 
B) the ease with which it can be converted into cash without a significant loss of value. 
C) the ease with which it can be converted into another asset. 
D) how likely people are to trade it internationally. 
E) its intrinsic value.

Question 4

If banks choose not to lend out their excess reserves,the money supply will not expand.

Accepted Answer

A) True 
 B)False

Question 5

If the Fed wishes to reduce the money supply,it can sell U.S.government securities to member banks.

Accepted Answer

A) True 
 B)False

Question 6

Suppose a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2.If the bank wishes to hold no excess reserves,its actual reserves will be:

Accepted Answer

A) $4,000. 
B) $1,200. 
C) $3,000. 
D) less than $1,000. 
E) $4,800. 
A) $4,000. 
B) $1,200. 
C) $3,000. 
D) less than $1,000. 
E) $4,800.

Question 7

If an increase of $10 million in excess reserves increases checkable deposits in the banking system by a maximum of $200 million,the required reserve ratio is:

Accepted Answer

A) 0. 
B) 5 percent. 
C) 10 percent. 
D) 20 percent. 
E) 2 percent. 
A) 0. 
B) 5 percent. 
C) 10 percent. 
D) 20 percent. 
E) 2 percent.

Question 8

Banks want to minimize their holdings of excess reserves because:

Accepted Answer

A) they will be penalized by the Federal Reserve System if excess reserves are too high. 
B) required reserves are also minimized when banks minimize their holdings of excess reserves. 
C) the money multiplier becomes too large if the excess reserves are high. 
D) they want to borrow more on the federal funds market. 
E) excess reserves earn no interest. 
A) they will be penalized by the Federal Reserve System if excess reserves are too high. 
B) required reserves are also minimized when banks minimize their holdings of excess reserves. 
C) the money multiplier becomes too large if the excess reserves are high. 
D) they want to borrow more on the federal funds market. 
E) excess reserves earn no interest.

Question 9

If the required reserve ratio is 10 percent and the Fed buys a $5,000 security from a depository institution,the money supply:

Accepted Answer

A) increases by $15,000. 
B) increases by $5,000. 
C) decreases by $5,000. 
D) increases by $50,000. 
E) decreases by $50,000. 
A) increases by $15,000. 
B) increases by $5,000. 
C) decreases by $5,000. 
D) increases by $50,000. 
E) decreases by $50,000.

Question 10

If each bank in the United States had to keep 100 percent of checkable deposits as reserves,each $1 the Fed injected into new reserves could increase the money supply by:

Accepted Answer

A) $1. 
B) $2. 
C) $100. 
D) $5. 
E) a penny. 
A) $1. 
B) $2. 
C) $100. 
D) $5. 
E) a penny.

Question 11

Suppose the Fed sells $10 million in government securities to a commercial bank.If the required reserve ratio is 0.2,what is the maximum amount by which checkable deposits in the banking system can change?

Accepted Answer

A) +$10,000,000 
B) −$10,000,000 
C) +$50,000,000 
D) −$50,000,000 
E) +$20,000,000 
A) +$10,000,000 
B) −$10,000,000 
C) +$50,000,000 
D) −$50,000,000 
E) +$20,000,000

Question 12

Which of the following measures did the Fed take during the financial crisis of 2008?

Accepted Answer

A) The Fed lowered the discount rate and paid interest on reserves held at the Fed. 
B) The Fed increased the reserve requirement ratio. 
C) The Fed sold all government securities. 
D) The Fed decreased its spending. 
E) The Fed increased the discount rate. 
A) The Fed lowered the discount rate and paid interest on reserves held at the Fed. 
B) The Fed increased the reserve requirement ratio. 
C) The Fed sold all government securities. 
D) The Fed decreased its spending. 
E) The Fed increased the discount rate.

Question 13

If a bank receives $2,500 of reserves by selling a government bond to the Fed,its ability to make loans increases by $2,500.

Accepted Answer

A) True 
 B)False

Question 14

If the required reserve ratio is 0.2,and the Fed buys $3,000 of U.S.government securities,the maximum amount by which the money supply can increase is:

Accepted Answer

A) $200. 
B) $2,000. 
C) $600. 
D) $15,000. 
E) $1,500. 
A) $200. 
B) $2,000. 
C) $600. 
D) $15,000. 
E) $1,500.

Question 15

To maximize its profit,a bank will:

Accepted Answer

A) minimize the number transactions it engages in. 
B) maximize required reserves. 
C) minimize excess reserves. 
D) maximize excess reserves. 
E) minimize required reserves. 
A) minimize the number transactions it engages in. 
B) maximize required reserves. 
C) minimize excess reserves. 
D) maximize excess reserves. 
E) minimize required reserves.

Question 16

Many people prefer debit cards to checks because:

Accepted Answer

A) checkbooks are not required and direct payments are made. 
B) checks are unsafe for use. 
C) debit cards delay money payments. 
D) using checks is time consuming. 
E) debit cards help account holders get a loan from the card issuer. 
A) checkbooks are not required and direct payments are made. 
B) checks are unsafe for use. 
C) debit cards delay money payments. 
D) using checks is time consuming. 
E) debit cards help account holders get a loan from the card issuer.

Question 17

The primary tool the Fed uses to control the money supply today is:

Accepted Answer

A) the discount rate. 
B) the required reserve ratio. 
C) the discount window. 
D) chartering. 
E) open market operations. 
A) the discount rate. 
B) the required reserve ratio. 
C) the discount window. 
D) chartering. 
E) open market operations.

Question 18

The higher the required reserve ratio,_____.

Accepted Answer

A) the larger the money multiplier 
B) the smaller the money multiplier 
C) the more the excess reserves after each round of the money-creation process 
D) the more the money that can be lent in each round of the money-creation process 
E) the lower the demand for cash by the non-banking public 
A) the larger the money multiplier 
B) the smaller the money multiplier 
C) the more the excess reserves after each round of the money-creation process 
D) the more the money that can be lent in each round of the money-creation process 
E) the lower the demand for cash by the non-banking public

Question 19

By holding highly liquid assets to guard against sudden large withdrawals,banks:

Accepted Answer

A) sacrifice safety. 
B) sacrifice profitability. 
C) increase profitability. 
D) diversify their portfolio. 
E) earn more interest than they could on business loans. 
A) sacrifice safety. 
B) sacrifice profitability. 
C) increase profitability. 
D) diversify their portfolio. 
E) earn more interest than they could on business loans.

Question 20

​A higher discount rate generally decreases excess reserves.

Accepted Answer

A) True 
 B)False

Savings deposits and time deposits are not included in M1 because these are not held by the nonbanking public.

Banks earn a profit on the difference between:

The liquidity of an asset indicates:

If banks choose not to lend out their excess reserves,the money supply will not expand.

If the Fed wishes to reduce the money supply,it can sell U.S.government securities to member banks.

Suppose a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2.If the bank wishes to hold no excess reserves,its actual reserves will be:

If an increase of $10 million in excess reserves increases checkable deposits in the banking system by a maximum of $200 million,the required reserve ratio is:

Banks want to minimize their holdings of excess reserves because:

If the required reserve ratio is 10 percent and the Fed buys a $5,000 security from a depository institution,the money supply:

If each bank in the United States had to keep 100 percent of checkable deposits as reserves,each $1 the Fed injected into new reserves could increase the money supply by:

Suppose the Fed sells $10 million in government securities to a commercial bank.If the required reserve ratio is 0.2,what is the maximum amount by which checkable deposits in the banking system can change?

Which of the following measures did the Fed take during the financial crisis of 2008?

If a bank receives $2,500 of reserves by selling a government bond to the Fed,its ability to make loans increases by $2,500.

If the required reserve ratio is 0.2,and the Fed buys $3,000 of U.S.government securities,the maximum amount by which the money supply can increase is:

To maximize its profit,a bank will:

Many people prefer debit cards to checks because:

The primary tool the Fed uses to control the money supply today is:

The higher the required reserve ratio,_____.

By holding highly liquid assets to guard against sudden large withdrawals,banks:

A higher discount rate generally decreases excess reserves.

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

Savings deposits and time deposits are not included in M1 because these are not held by the nonbanking public.

Banks earn a profit on the difference between:

The liquidity of an asset indicates:

If banks choose not to lend out their excess reserves,the money supply will not expand.

If the Fed wishes to reduce the money supply,it can sell U.S.government securities to member banks.

Suppose a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2.If the bank wishes to hold no excess reserves,its actual reserves will be:

If an increase of $10 million in excess reserves increases checkable deposits in the banking system by a maximum of $200 million,the required reserve ratio is:

Banks want to minimize their holdings of excess reserves because:

If the required reserve ratio is 10 percent and the Fed buys a $5,000 security from a depository institution,the money supply:

If each bank in the United States had to keep 100 percent of checkable deposits as reserves,each $1 the Fed injected into new reserves could increase the money supply by:

Suppose the Fed sells $10 million in government securities to a commercial bank.If the required reserve ratio is 0.2,what is the maximum amount by which checkable deposits in the banking system can change?

Which of the following measures did the Fed take during the financial crisis of 2008?

If a bank receives $2,500 of reserves by selling a government bond to the Fed,its ability to make loans increases by $2,500.

If the required reserve ratio is 0.2,and the Fed buys $3,000 of U.S.government securities,the maximum amount by which the money supply can increase is:

To maximize its profit,a bank will:

Many people prefer debit cards to checks because:

The primary tool the Fed uses to control the money supply today is:

The higher the required reserve ratio,_____.

By holding highly liquid assets to guard against sudden large withdrawals,banks:

​A higher discount rate generally decreases excess reserves.

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

A higher discount rate generally decreases excess reserves.