Question 1

If the required reserve ratio is a uniform 25 percent on all deposits, the money multiplier will be:

Accepted Answer

A) 4.00. 
B) 2.50. 
C) 0.40. 
D) 0.25. 
A) 4.00. 
B) 2.50. 
C) 0.40. 
D) 0.25.

Question 2

If a single banks faces a required reserve ratio of 20 percent, has total reserves of $500,000, and checkable deposit liabilities of $400,000, what is the maximum amount of money this bank could create (add to the money supply)?

Accepted Answer

A) $420,000. 
B) $100,000. 
C) $80,000. 
D) $2,100,000. 
A) $420,000. 
B) $100,000. 
C) $80,000. 
D) $2,100,000.

Question 3

Suppose the Fed purchases $100 million of U.S. securities from security dealers. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a:

Accepted Answer

A) $100 million decrease in the money supply. 
B) $100 million increase in the money supply. 
C) $200 million increase in the money supply. 
D) $500 million increase in the money supply. 
A) $100 million decrease in the money supply. 
B) $100 million increase in the money supply. 
C) $200 million increase in the money supply. 
D) $500 million increase in the money supply.

Question 4

If the Fed buys $10 million dollars in government securities, and the required reserve ratio is 20 percent, the banking system is able to expand the money supply by:

Accepted Answer

A) $10 million. 
B) $8 million. 
C) $2 million. 
D) $40 million. 
E) $50 million. 
A) $10 million. 
B) $8 million. 
C) $2 million. 
D) $40 million. 
E) $50 million.

Question 5

Suppose the required reserve ratio is 3 percent, and currency and reserves total $10 million. The maximum money supply that can be supported is:

Accepted Answer

A) $13 million. 
B) $30 million. 
C) $97 million. 
D) $333.3 million. 
A) $13 million. 
B) $30 million. 
C) $97 million. 
D) $333.3 million.

Question 6

Which of the following is an appropriate monetary policy if the Fed wants to increase the money supply?

Accepted Answer

A) An increase in the required reserve ratio. 
B) An increase in the discount rate. 
C) Purchases of bonds in open market operations. 
D) Higher taxes on interest income. 
A) An increase in the required reserve ratio. 
B) An increase in the discount rate. 
C) Purchases of bonds in open market operations. 
D) Higher taxes on interest income.

Question 7

Excess reserves equal total reserves plus required reserves.

Accepted Answer

A) True 
 B)False

Question 8

If the required reserve ratio is 4 percent, then $100 of reserves can support up to $2,500 of checkable deposits.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is in charge of the buying and selling of government securities by the Fed?

Accepted Answer

A) The president. 
B) The Federal Open Market Committee. 
C) The Congress. 
D) None of these. 
A) The president. 
B) The Federal Open Market Committee. 
C) The Congress. 
D) None of these.

Question 10

Assume we have a simplified banking system in balance-sheet equilibrium. Also assume that all banks are subject to a uniform 10 percent reserve requirement and checkable deposits are the only form of money. A commercial bank receiving a new checkable deposit of $100 would be able to extend new loans in the amount of:

Accepted Answer

A) $10. 
B) $90. 
C) $100. 
D) $1,000. 
A) $10. 
B) $90. 
C) $100. 
D) $1,000.

Question 11

Which of the following would not appear on the asset side of a commercial bank balance sheet?

Accepted Answer

A) Reserves. 
B) Checkable deposits. 
C) Loans. 
D) Securities. 
A) Reserves. 
B) Checkable deposits. 
C) Loans. 
D) Securities.

Question 12

Which of the following is an interest-earning asset of banks?

Accepted Answer

A) Required reserves. 
B) Checkable deposits. 
C) Excess reserves. 
D) None of these are interest-earning assets of banks. 
A) Required reserves. 
B) Checkable deposits. 
C) Excess reserves. 
D) None of these are interest-earning assets of banks.

Question 13

Exhibit 15-2 Balance Sheet of Springfield National Bank   In Exhibit 15-2, if Springfield National's customers write checks for $200 and the required reserve ratio is 20 percent, then its required reserves fall to:

Accepted Answer

A) $0. 
B) $40. 
C) $160. 
D) $460. 
E) $260. 
A) $0. 
B) $40. 
C) $160. 
D) $460. 
E) $260.

Question 14

Which of the following policy actions by the Fed would cause the money supply to increase?

Accepted Answer

A) An open market sale of government securities. 
B) An increase in required reserve ratios. 
C) An increase in the discount rate. 
D) An open-market purchase of government securities. 
A) An open market sale of government securities. 
B) An increase in required reserve ratios. 
C) An increase in the discount rate. 
D) An open-market purchase of government securities.

Question 15

Banks normally hold few excess reserves because this practice is:

Accepted Answer

A) subject to an excess reserves tax. 
B) not profitable. 
C) against Fed policy. 
D) illegal. 
A) subject to an excess reserves tax. 
B) not profitable. 
C) against Fed policy. 
D) illegal.

Question 16

Assume we have a simplified banking system in balance-sheet equilibrium. Also assume that all banks are subject to a uniform 10 percent reserve requirement and demand deposits are the only form of money. A commercial bank receiving a new demand deposit of $100 would be able to extend new loans in the amount of:

Accepted Answer

A) $10. 
B) $90. 
C) $100. 
D) $1,000. 
A) $10. 
B) $90. 
C) $100. 
D) $1,000.

Question 17

Exhibit 15-7 Lower Walloon National Bank   In Exhibit 15-7, if the required reserve ratio is increased to 25 percent, the Lower Walloon National bank needs to keep:

Accepted Answer

A) $2,000 on reserve at all times. 
B) $2,500 on reserve at all times. 
C) $10,000 on reserve at all times. 
D) $0 on reserve at all times. 
E) legal and excess reserves equal to each other at all times. 
A) $2,000 on reserve at all times. 
B) $2,500 on reserve at all times. 
C) $10,000 on reserve at all times. 
D) $0 on reserve at all times. 
E) legal and excess reserves equal to each other at all times.

Question 18

The percentage of checkable deposits that banks and other financial intermediaries are required to keep in cash reserves is known as:

Accepted Answer

A) the fractional reserve requirement. 
B) the excess reserve requirement. 
C) the required reserve ratio. 
D) the discount rate. 
E) M1. 
A) the fractional reserve requirement. 
B) the excess reserve requirement. 
C) the required reserve ratio. 
D) the discount rate. 
E) M1.

Question 19

A lowering of the required reserve ratio might not expand the money supply if:

Accepted Answer

A) tax rates are also lowered at the same time. 
B) tax rates are increased at the same time. 
C) borrowers are unwilling to borrow the new funds the banks have available for loans. 
D) borrowers are willing to borrow the new funds the banks have available for loans.. 
E) borrowers expand their borrowing because of the lower interest rates that banks offer. 
A) tax rates are also lowered at the same time. 
B) tax rates are increased at the same time. 
C) borrowers are unwilling to borrow the new funds the banks have available for loans. 
D) borrowers are willing to borrow the new funds the banks have available for loans.. 
E) borrowers expand their borrowing because of the lower interest rates that banks offer.

Question 20

The market in which banks make loans of reserves for terms of over one year is called the federal funds market.

Accepted Answer

A) True 
 B)False

Exam 15: Money Creation

If the required reserve ratio is a uniform 25 percent on all deposits, the money multiplier will be:

If a single banks faces a required reserve ratio of 20 percent, has total reserves of $500,000, and checkable deposit liabilities of $400,000, what is the maximum amount of money this bank could create (add to the money supply)?

Suppose the Fed purchases $100 million of U.S. securities from security dealers. If the reserve requirement is 20 percent, the currency holdings of the public are unchanged, and banks have zero excess reserves both before and after the transaction, the total impact on the money supply will be a:

If the Fed buys $10 million dollars in government securities, and the required reserve ratio is 20 percent, the banking system is able to expand the money supply by:

Suppose the required reserve ratio is 3 percent, and currency and reserves total $10 million. The maximum money supply that can be supported is:

Which of the following is an appropriate monetary policy if the Fed wants to increase the money supply?

Excess reserves equal total reserves plus required reserves.

If the required reserve ratio is 4 percent, then $100 of reserves can support up to $2,500 of checkable deposits.

Which of the following is in charge of the buying and selling of government securities by the Fed?

Which of the following would not appear on the asset side of a commercial bank balance sheet?

Which of the following is an interest-earning asset of banks?

Exhibit 15-2 Balance Sheet of Springfield National Bank In Exhibit 15-2, if Springfield National's customers write checks for $200 and the required reserve ratio is 20 percent, then its required reserves fall to:

Which of the following policy actions by the Fed would cause the money supply to increase?

Banks normally hold few excess reserves because this practice is:

Exhibit 15-7 Lower Walloon National Bank In Exhibit 15-7, if the required reserve ratio is increased to 25 percent, the Lower Walloon National bank needs to keep:

The percentage of checkable deposits that banks and other financial intermediaries are required to keep in cash reserves is known as:

A lowering of the required reserve ratio might not expand the money supply if:

The market in which banks make loans of reserves for terms of over one year is called the federal funds market.

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Filters