Question 1

The interest rate that banks charge other banks for short-term loans is the:

Accepted Answer

A) discount rate. 
B) prime rate. 
C) treasury rate. 
D) federal funds rate. 
E) interbank rate. 
A) discount rate. 
B) prime rate. 
C) treasury rate. 
D) federal funds rate. 
E) interbank rate.

Question 2

Assume that Paris First National Bank is a thriving bank with deposits of $20 million. If the required reserve ratio is 20 percent and the bank is fully loaned out, the bank will keep what amount of required reserves?

Accepted Answer

A) $2 million. 
B) $4 million. 
C) $10 million. 
D) $16 million. 
E) $20 million. 
A) $2 million. 
B) $4 million. 
C) $10 million. 
D) $16 million. 
E) $20 million.

Question 3

The federal funds rate is:

Accepted Answer

A) the minimum amount of reserves the Fed requires a bank to hold. 
B) the interest rate that the Fed charges banks who borrow from it. 
C) the interest rate on loans made by banks to other banks 
D) the maximum percentage of the cost of a stock that can be borrowed from a bank, with the stock offered as collateral. 
E) an appeal by the Fed to banks, asking for voluntary compliance with the Fed's wishes. 
A) the minimum amount of reserves the Fed requires a bank to hold. 
B) the interest rate that the Fed charges banks who borrow from it. 
C) the interest rate on loans made by banks to other banks 
D) the maximum percentage of the cost of a stock that can be borrowed from a bank, with the stock offered as collateral. 
E) an appeal by the Fed to banks, asking for voluntary compliance with the Fed's wishes.

Question 4

Which of the following compose the reserves of a commercial bank?

Accepted Answer

A) checkable deposits and time deposits 
B) vault cash and deposits of the bank with the Federal Reserve 
C) U.S. securities and stock equity 
D) cash and U.S. securities 
A) checkable deposits and time deposits 
B) vault cash and deposits of the bank with the Federal Reserve 
C) U.S. securities and stock equity 
D) cash and U.S. securities

Question 5

When the Fed raises the required reserve ratio, it:

Accepted Answer

A) lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. 
B) raises the cost of borrowing from the Fed, discouraging banks from making loans to the general public. 
C) increases the amount of excess reserves that banks hold, encouraging them to make loans to he general public. 
D) increases the amount of excess reserves that banks hold, discouraging them from making loans to the general public. 
E) decreases the amount of excess reserves that banks hold, discouraging them from making loans to the general public. 
A) lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. 
B) raises the cost of borrowing from the Fed, discouraging banks from making loans to the general public. 
C) increases the amount of excess reserves that banks hold, encouraging them to make loans to he general public. 
D) increases the amount of excess reserves that banks hold, discouraging them from making loans to the general public. 
E) decreases the amount of excess reserves that banks hold, discouraging them from making loans to the general public.

Question 6

If the banking system's money multiplier is 4, then a $2,000 increase in checkable deposits when banks hold excess reserves will result in which of the following events?

Accepted Answer

A) The money supply will decrease 
B) The money supply will not change. 
C) The money supply will increase by exactly $8,000. 
D) The money supply will increase by more than $8,000. 
E) The money supply will increase by less than $8,000. 
A) The money supply will decrease 
B) The money supply will not change. 
C) The money supply will increase by exactly $8,000. 
D) The money supply will increase by more than $8,000. 
E) The money supply will increase by less than $8,000.

Question 7

Assume that the Paris First National Bank is a thriving bank with deposits of $20 million. If the required reserve ratio is 20 percent and the bank is fully loaned out, the bank will have outstanding loans totaling:

Accepted Answer

A) $2 million. 
B) $4 million. 
C) $10 million. 
D) $16 million. 
E) $20 million. 
A) $2 million. 
B) $4 million. 
C) $10 million. 
D) $16 million. 
E) $20 million.

Question 8

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

Accepted Answer

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

Question 9

When the Fed conducts open market operations, it buys and sells:

Accepted Answer

A) stocks. 
B) government securities. 
C) foreign currency 
D) gold. 
A) stocks. 
B) government securities. 
C) foreign currency 
D) gold.

Question 10

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

Accepted Answer

A) Reducing the required reserve ratio. 
B) Selling government bonds in the open market. 
C) Increasing the discount rate. 
D) None of these. 
A) Reducing the required reserve ratio. 
B) Selling government bonds in the open market. 
C) Increasing the discount rate. 
D) None of these.

Question 11

If banks are fully loaned up, have no excess reserves, and the required reserve ratio is raised, the amount that banks can lend is:

Accepted Answer

A) reduced and the money supply contracts. 
B) reduced and the money supply expands. 
C) reduced and there is no change in the money supply. 
D) increased and the money supply expands. 
E) increased and the money supply contracts. 
A) reduced and the money supply contracts. 
B) reduced and the money supply expands. 
C) reduced and there is no change in the money supply. 
D) increased and the money supply expands. 
E) increased and the money supply contracts.

Question 12

Assume the Fed purchases a government security from a private dealer and pays with a Fed check of $100,000. If this check is deposited by the dealer in a bank with a 10 percent required reserve ratio, the bank can extend new loans in the amount of:

Accepted Answer

A) $20,000. 
B) $90,000. 
C) $100,000. 
D) $120,000. 
A) $20,000. 
B) $90,000. 
C) $100,000. 
D) $120,000.

Question 13

Assume a simplified banking system subject to a 10 percent required reserve ratio. If there is an initial increase in excess reserves of $90,000 and all possible loans are made, the money supply:

Accepted Answer

A) increases $90,000. 
B) increases $900,000. 
C) increases $990,000. 
D) decreases $90,000. 
A) increases $90,000. 
B) increases $900,000. 
C) increases $990,000. 
D) decreases $90,000.

Question 14

The required reserves of a bank are determined by multiplying the bank's checkable deposits by the required reserve ratio.

Accepted Answer

A) True 
 B)False

Question 15

The required reserve ratio is the:

Accepted Answer

A) actual amount of reserves that banks must hold. 
B) excess amount of reserves that a bank must hold. 
C) minimum amount of reserves the Fed requires a bank to hold. 
D) total amount of reserves that banks hold at all times. 
E) maximum amount of reserves that banks can hold to remain liquid. 
A) actual amount of reserves that banks must hold. 
B) excess amount of reserves that a bank must hold. 
C) minimum amount of reserves the Fed requires a bank to hold. 
D) total amount of reserves that banks hold at all times. 
E) maximum amount of reserves that banks can hold to remain liquid.

Question 16

If the Fed decides to use an open market operation to reduce the money supply by $1 million, and if the money multiplier is 10, then what total amount of Treasury securities must the Fed initially sell?

Accepted Answer

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

Question 17

Which of the following directs the buying and selling of U.S. government securities?

Accepted Answer

A) Board of Governors. 
B) Federal Reserve Banks. 
C) Federal Open Market Committee. 
D) Federal Advisory Council. 
E) Member banks. 
A) Board of Governors. 
B) Federal Reserve Banks. 
C) Federal Open Market Committee. 
D) Federal Advisory Council. 
E) Member banks.

Question 18

Which of the following is the most frequently used tool the Fed uses to control the supply of money?

Accepted Answer

A) The discount rate. 
B) The reserve requirements. 
C) Open market operations. 
D) The 30-year home-mortgage interest rate. 
A) The discount rate. 
B) The reserve requirements. 
C) Open market operations. 
D) The 30-year home-mortgage interest rate.

Question 19

Which of the following appears on the asset side of a bank's balance sheet?

Accepted Answer

A) Required reserve deposits. 
B) Loans. 
C) Excess reserves. 
D) All of these. 
A) Required reserve deposits. 
B) Loans. 
C) Excess reserves. 
D) All of these.

Question 20

Assume a simplified banking system subject to a 20 percent required reserve ratio. If there is an initial increase in excess reserves of $100,000, the money supply:

Accepted Answer

A) increases $100,000. 
B) increases $500,000. 
C) increases $600,000. 
D) decreases $500,000. 
A) increases $100,000. 
B) increases $500,000. 
C) increases $600,000. 
D) decreases $500,000.

Exam 15: Money Creation

The interest rate that banks charge other banks for short-term loans is the:

Assume that Paris First National Bank is a thriving bank with deposits of $20 million. If the required reserve ratio is 20 percent and the bank is fully loaned out, the bank will keep what amount of required reserves?

The federal funds rate is:

Which of the following compose the reserves of a commercial bank?

When the Fed raises the required reserve ratio, it:

If the banking system's money multiplier is 4, then a $2,000 increase in checkable deposits when banks hold excess reserves will result in which of the following events?

Assume that the Paris First National Bank is a thriving bank with deposits of $20 million. If the required reserve ratio is 20 percent and the bank is fully loaned out, the bank will have outstanding loans totaling:

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

When the Fed conducts open market operations, it buys and sells:

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

If banks are fully loaned up, have no excess reserves, and the required reserve ratio is raised, the amount that banks can lend is:

Assume the Fed purchases a government security from a private dealer and pays with a Fed check of $100,000. If this check is deposited by the dealer in a bank with a 10 percent required reserve ratio, the bank can extend new loans in the amount of:

Assume a simplified banking system subject to a 10 percent required reserve ratio. If there is an initial increase in excess reserves of $90,000 and all possible loans are made, the money supply:

The required reserves of a bank are determined by multiplying the bank's checkable deposits by the required reserve ratio.

The required reserve ratio is the:

If the Fed decides to use an open market operation to reduce the money supply by $1 million, and if the money multiplier is 10, then what total amount of Treasury securities must the Fed initially sell?

Which of the following directs the buying and selling of U.S. government securities?

Which of the following is the most frequently used tool the Fed uses to control the supply of money?

Which of the following appears on the asset side of a bank's balance sheet?

Assume a simplified banking system subject to a 20 percent required reserve ratio. If there is an initial increase in excess reserves of $100,000, the money supply:

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