Question 1

If the reserve requirement is 12 percent and banks desire to hold no excess reserves, when a bank receives a new deposit of $1,000,

Accepted Answer

A) it must increase its required reserves by more than $150. 
B) its total reserves initially increase by $120. 
C) it will be able to make new loans up to a maximum of $880. 
D) None of the above is correct. 
A) it must increase its required reserves by more than $150. 
B) its total reserves initially increase by $120. 
C) it will be able to make new loans up to a maximum of $880. 
D) None of the above is correct.

Question 2

If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is not included in either M1 or M2?

Accepted Answer

A) U.S. Treasury bills 
B) small time deposits 
C) demand deposits 
D) money market mutual funds 
A) U.S. Treasury bills 
B) small time deposits 
C) demand deposits 
D) money market mutual funds

Question 4

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Accepted Answer

A) and wealth increase by $200. 
B) and wealth decrease by $200. 
C) increase by $200 while wealth does not change. 
D) decrease by $200 while wealth decreases by $200. 
A) and wealth increase by $200. 
B) and wealth decrease by $200. 
C) increase by $200 while wealth does not change. 
D) decrease by $200 while wealth decreases by $200.

Question 5

Draw a simple T-account for First National Bank which has $5,000 of deposits, a required reserve ratio of 10 percent, and excess reserves of $300. Make sure your balance sheet balances.

Accepted Answer

The answer of Draw a simple T-account for First National...

Question 6

M1 includes savings deposits.

Accepted Answer

A) True 
 B)False

Question 7

If the Federal Open Market Committee decides to decrease the money supply, it will

Accepted Answer

A) sell government bonds. 
B) purchase corporate bonds. 
C) purchase government bonds. 
D) reduce interest rates. 
A) sell government bonds. 
B) purchase corporate bonds. 
C) purchase government bonds. 
D) reduce interest rates.

Question 8

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?

Accepted Answer

A) $270 billion 
B) $5,400 billion 
C) $6,000 billion 
D) $5,100 billion 
A) $270 billion 
B) $5,400 billion 
C) $6,000 billion 
D) $5,100 billion

Question 9

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Accepted Answer

A) those assets are government bonds and the Fed's reason for selling them is to increase the money supply. 
B) those assets are government bonds and the Fed's reason for selling them is to decrease the money supply. 
C) those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply. 
D) those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply. 
A) those assets are government bonds and the Fed's reason for selling them is to increase the money supply. 
B) those assets are government bonds and the Fed's reason for selling them is to decrease the money supply. 
C) those assets are items that are included in M2 and the Fed's reason for selling them is to increase the money supply. 
D) those assets are items that are included in M2 and the Fed's reason for selling them is to decrease the money supply.

Question 10

Table 29-7.  
-Refer to Table 29-7. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?

Accepted Answer

A) 1.1 
B) 12.3 
C) 8.1 
D) 9.1 
A) 1.1 
B) 12.3 
C) 8.1 
D) 9.1

Question 11

If an economy uses silver as money, then that economy's money

Accepted Answer

A) serves as a store of value but not as a medium of exchange. 
B) serves as a medium of exchange but not as a unit of account. 
C) is commodity money. 
D) has no intrinsic value. 
A) serves as a store of value but not as a medium of exchange. 
B) serves as a medium of exchange but not as a unit of account. 
C) is commodity money. 
D) has no intrinsic value.

Question 12

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves

Accepted Answer

A) increase by $20 million and the money supply eventually increases by $400 million. 
B) decrease by $20 million and the money supply eventually decreases by $400 million. 
C) increase by $20 million and the money supply eventually increases by $100 million. 
D) decrease by $20 million and the money supply eventually decreases by $100 million. 
A) increase by $20 million and the money supply eventually increases by $400 million. 
B) decrease by $20 million and the money supply eventually decreases by $400 million. 
C) increase by $20 million and the money supply eventually increases by $100 million. 
D) decrease by $20 million and the money supply eventually decreases by $100 million.

Question 13

People can write checks against

Accepted Answer

A) demand deposits and money market mutual funds 
B) demand deposits but not money market mutual funds 
C) money market mutual funds but not demand deposits 
D) neither demand deposits nor money market mutual funds 
A) demand deposits and money market mutual funds 
B) demand deposits but not money market mutual funds 
C) money market mutual funds but not demand deposits 
D) neither demand deposits nor money market mutual funds

Question 14

An increase in the reserve requirement increases reserves and decreases the money supply.

Accepted Answer

A) True 
 B)False

Question 15

When the Fed makes open-market purchases bank

Accepted Answer

A) withdrawals and lending increase. 
B) withdrawals increase and lending decreases. 
C) deposits and lending increase. 
D) deposits increase and lending decreases. 
A) withdrawals and lending increase. 
B) withdrawals increase and lending decreases. 
C) deposits and lending increase. 
D) deposits increase and lending decreases.

Question 16

Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $625. Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits. If, at a point in time, reserves for all banks amount to $500, then at that same point in time, loans for all banks amount to $2,625.

Accepted Answer

A) True 
 B)False

Question 17

Table 29-9
Metropolis National Bank is currently holding 2% of its deposits as excess reserves.  
-Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assuming that all banks have the same required reserve ratio, and then none want to hold excess reserves what is the value of the money multiplier?

Accepted Answer

A) 8.25 
B) 10 
C) 12 
D) 20 
A) 8.25 
B) 10 
C) 12 
D) 20

Question 18

Trace the effects on the money supply when the Fed decreases the discount rate.

Accepted Answer

The discount rate represents the cost of

Question 19

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

Accepted Answer

A) 10/400. 
B) 25/400. 
C) 35/400. 
D) 15/400. 
A) 10/400. 
B) 25/400. 
C) 35/400. 
D) 15/400.

Question 20

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Accepted Answer

A) they fall $220 million 
B) they fall $200 million 
C) they rise $200 million 
D) they rise $220 million 
A) they fall $220 million 
B) they fall $200 million 
C) they rise $200 million 
D) they rise $220 million

Exam 29: The Monetary System

If the reserve requirement is 12 percent and banks desire to hold no excess reserves, when a bank receives a new deposit of $1,000,

If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply.

Which of the following is not included in either M1 or M2?

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Draw a simple T-account for First National Bank which has $5,000 of deposits, a required reserve ratio of 10 percent, and excess reserves of $300. Make sure your balance sheet balances.

M1 includes savings deposits.

If the Federal Open Market Committee decides to decrease the money supply, it will

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

Table 29-7. -Refer to Table 29-7. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?

If an economy uses silver as money, then that economy's money

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves

People can write checks against

An increase in the reserve requirement increases reserves and decreases the money supply.

When the Fed makes open-market purchases bank

Trace the effects on the money supply when the Fed decreases the discount rate.

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: the Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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