Question 1

When the Fed sells government securities, 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 the 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 the 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 2

Exhibit 15-5 Balance sheet of Tucker National Bank
  The required reserve ratio in Exhibit 15-5 is:

Accepted Answer

A) 10 percent. 
B) 15 percent. 
C) 20 percent. 
D) 25 percent. 
A) 10 percent. 
B) 15 percent. 
C) 20 percent. 
D) 25 percent.

Question 3

European banks began with which of the following?

Accepted Answer

A) Monarchs were the first bankers, lending out cash to help the poor learn a craft. 
B) Churches were the first bankers, lending out cash to help the poor learn a craft. 
C) Goldsmiths were the first bankers, and the paper receipts they issued for gold held on deposit became valued as money. 
D) Fishermen were the first bankers, and the paper receipts they issued for the fish they stored in the hulls of their ships became valued as money. 
A) Monarchs were the first bankers, lending out cash to help the poor learn a craft. 
B) Churches were the first bankers, lending out cash to help the poor learn a craft. 
C) Goldsmiths were the first bankers, and the paper receipts they issued for gold held on deposit became valued as money. 
D) Fishermen were the first bankers, and the paper receipts they issued for the fish they stored in the hulls of their ships became valued as money.

Question 4

Exhibit 15-1 Balance sheet of First Iliad State Bank
                
       
In Exhibit 15-1, if the required reserve ratio is raised to 18 percent, then First Iliad State will:

Accepted Answer

A) have to convert loans worth $800,000 to required reserves. 
B) have to convert loans worth $200,000 to required reserves. 
C) be able to make additional loans worth $800,000. 
D) be able to make additional loans worth $200,000. 
A) have to convert loans worth $800,000 to required reserves. 
B) have to convert loans worth $200,000 to required reserves. 
C) be able to make additional loans worth $800,000. 
D) be able to make additional loans worth $200,000.

Question 5

The cost to a member bank of borrowing from the Federal Reserve is called the:

Accepted Answer

A) reserve requirement. 
B) price of securities in the open market. 
C) discount rate. 
D) yield on government bonds. 
A) reserve requirement. 
B) price of securities in the open market. 
C) discount rate. 
D) yield on government bonds.

Question 6

Exhibit 15-5 Balance sheet of Tucker National Bank
  In Exhibit 15-5, the bank could:

Accepted Answer

A) extend new loans by $5,000. 
B) extend new loans by $20,000. 
C) call in $5,000 existing loans. 
D) call in $20,000 existing loans. 
A) extend new loans by $5,000. 
B) extend new loans by $20,000. 
C) call in $5,000 existing loans. 
D) call in $20,000 existing loans.

Question 7

Real-world accuracy of the money multiplier can be affected by:

Accepted Answer

A) the amount of loans provided by nonbanks. 
B) the way the public divides its holding of M1 between currency and certificates of deposit. 
C) the willingness of banks to loan excess reserves. 
D) all of these. 
A) the amount of loans provided by nonbanks. 
B) the way the public divides its holding of M1 between currency and certificates of deposit. 
C) the willingness of banks to loan excess reserves. 
D) all of these.

Question 8

The Fed can raise the discount rate when it wants to:

Accepted Answer

A) decrease the money supply. 
B) increase the money supply. 
C) decrease the budget deficit. 
D) increase the budget deficit. 
A) decrease the money supply. 
B) increase the money supply. 
C) decrease the budget deficit. 
D) increase the budget deficit.

Question 9

Decisions regarding purchases and sales of government securities by the Fed are made by the:

Accepted Answer

A) Federal Deposit Insurance Commission (FDI
C) . 
B) Discount Committee (D
C) . 
C) Federal Open Market Committee (FOM
C) . 
D) Federal Funds Committee (FF
C) . 
A) Federal Deposit Insurance Commission (FDI
C) . 
B) Discount Committee (D
C) . 
C) Federal Open Market Committee (FOM
C) . 
D) Federal Funds Committee (FF
C) .

Question 10

Best National Bank is subject to a 10 percent required reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of:

Accepted Answer

A) $100. 
B) $900. 
C) $1,000. 
D) $10,000. 
A) $100. 
B) $900. 
C) $1,000. 
D) $10,000.

Question 11

In a simplified system, a bank receiving a new deposit can extend new loans equal to the amount by which its excess reserves increase.

Accepted Answer

A) True 
 B)False

Question 12

If Matt Taylor gets his $800 loan from the Paris First National Bank in cash rather than in the form of a new checkable deposit, the:

Accepted Answer

A) Paris First National Bank will get $800 in new reserves. 
B) Paris First National Bank will not get $800 in new reserves. 
C) assets of the Paris First National Bank will increase by $800. 
D) assets of the Paris First National Bank will decease by $88. 
E) liabilities of the Paris First National Bank will increase by $800. 
A) Paris First National Bank will get $800 in new reserves. 
B) Paris First National Bank will not get $800 in new reserves. 
C) assets of the Paris First National Bank will increase by $800. 
D) assets of the Paris First National Bank will decease by $88. 
E) liabilities of the Paris First National Bank will increase by $800.

Question 13

Which of the following does not appear on the asset side of a bank's balance sheet?

Accepted Answer

A) Required reserves. 
B) Checkable deposits. 
C) Loans. 
D) Excess reserves. 
A) Required reserves. 
B) Checkable deposits. 
C) Loans. 
D) Excess reserves.

Question 14

When the required reserve ratio is 20 percent, the money multiplier is:

Accepted Answer

A) 0.2. 
B) 1.2. 
C) 2. 
D) 2.5. 
E) 5. 
A) 0.2. 
B) 1.2. 
C) 2. 
D) 2.5. 
E) 5.

Question 15

The interest rate in the federal funds market:

Accepted Answer

A) is determined by the imposition of price controls imposed by the Fed. 
B) rises when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves. 
C) will fall if the Fed sells bonds and, thereby, reduces the reserves available to banks. 
D) is an interest rate that is largely unaffected by the policies of the Fed. 
A) is determined by the imposition of price controls imposed by the Fed. 
B) rises when the quantity of funds demanded by banks seeking additional reserves exceeds the quantity supplied by banks with excess reserves. 
C) will fall if the Fed sells bonds and, thereby, reduces the reserves available to banks. 
D) is an interest rate that is largely unaffected by the policies of the Fed.

Question 16

If the fractional reserve system did not exist,

Accepted Answer

A) the banking system could not create money. 
B) there would be no effect on the ability of the banking system to create money. 
C) banks would loan out its required reserves. 
D) banks would be highly susceptible to bank runs. 
E) the banking system would realize the money multiplier. 
A) the banking system could not create money. 
B) there would be no effect on the ability of the banking system to create money. 
C) banks would loan out its required reserves. 
D) banks would be highly susceptible to bank runs. 
E) the banking system would realize the money multiplier.

Question 17

When the Fed raises the discount rate, 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 the 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 the 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 18

If banks cannot lend all of their excess reserves:

Accepted Answer

A) the money multiplier increases. 
B) the money multiplier decreases. 
C) the money multiplier stays the same. 
D) the amount of loans by the bank increases. 
E) checkable deposits decrease. 
A) the money multiplier increases. 
B) the money multiplier decreases. 
C) the money multiplier stays the same. 
D) the amount of loans by the bank increases. 
E) checkable deposits decrease.

Question 19

Suppose the Fed sells $100 million of U.S. securities to the 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. 
B) $500 million increase. 
C) $500 million decrease. 
D) $100 million increase. 
A) $100 million decrease. 
B) $500 million increase. 
C) $500 million decrease. 
D) $100 million increase.

Question 20

Exhibit 15-1 Balance sheet of First Iliad State Bank
                 
       
In Exhibit 15-1, if the required reserve ratio is lowered to 5 percent, First Iliad State will be able to make additional loans worth:

Accepted Answer

A) $9,000,000. 
B) $1,500,000. 
C) $500,000. 
D) $1,000,000. 
E) $450,000. 
A) $9,000,000. 
B) $1,500,000. 
C) $500,000. 
D) $1,000,000. 
E) $450,000.

Exam 15: Money Creation

When the Fed sells government securities, it:

Exhibit 15-5 Balance sheet of Tucker National Bank The required reserve ratio in Exhibit 15-5 is:

European banks began with which of the following?

Exhibit 15-1 Balance sheet of First Iliad State Bank In Exhibit 15-1, if the required reserve ratio is raised to 18 percent, then First Iliad State will:

The cost to a member bank of borrowing from the Federal Reserve is called the:

Exhibit 15-5 Balance sheet of Tucker National Bank In Exhibit 15-5, the bank could:

Real-world accuracy of the money multiplier can be affected by:

The Fed can raise the discount rate when it wants to:

Decisions regarding purchases and sales of government securities by the Fed are made by the:

Best National Bank is subject to a 10 percent required reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of:

In a simplified system, a bank receiving a new deposit can extend new loans equal to the amount by which its excess reserves increase.

If Matt Taylor gets his $800 loan from the Paris First National Bank in cash rather than in the form of a new checkable deposit, the:

Which of the following does not appear on the asset side of a bank's balance sheet?

When the required reserve ratio is 20 percent, the money multiplier is:

The interest rate in the federal funds market:

If the fractional reserve system did not exist,

When the Fed raises the discount rate, it:

If banks cannot lend all of their excess reserves:

Suppose the Fed sells $100 million of U.S. securities to the 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:

Exhibit 15-1 Balance sheet of First Iliad State Bank In Exhibit 15-1, if the required reserve ratio is lowered to 5 percent, First Iliad State will be able to make additional loans worth:

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