Question 1

Most of the Fed's assets are held in the form of loans to its member banks.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 15-3 Balance sheet of Tucker National Bank   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 the bank shown in Exhibit 15-3, the bank can extend new loans in the amount of:

Accepted Answer

A) $20,000. 
B) $80,000. 
C) $100,000. 
D) $120,000. 
A) $20,000. 
B) $80,000. 
C) $100,000. 
D) $120,000.

Question 3

If the Fed wishes to increase the money supply then it should:

Accepted Answer

A) increase the required reserve ratio. 
B) increase the discount rate. 
C) buy government securities on the open market. 
D) do any of these. 
A) increase the required reserve ratio. 
B) increase the discount rate. 
C) buy government securities on the open market. 
D) do any of these.

Question 4

When the Fed wishes to reduce the economy's money supply, it:

Accepted Answer

A) lowers the discount rate. 
B) lowers the required reserve ratio. 
C) reduces the margin requirement. 
D) sells some of its government securities. 
E) prints more money. 
A) lowers the discount rate. 
B) lowers the required reserve ratio. 
C) reduces the margin requirement. 
D) sells some of its government securities. 
E) prints more money.

Question 5

If loans are $69,000, excess reserves are $1,400, and checkable deposits are $80,000, then the required reserve ratio must be:

Accepted Answer

A) 1.75 percent. 
B) 12 percent. 
C) 13.75 percent. 
D) 17.5 percent. 
E) 0.12 percent. 
A) 1.75 percent. 
B) 12 percent. 
C) 13.75 percent. 
D) 17.5 percent. 
E) 0.12 percent.

Question 6

When the Fed buys federal government securities on the open market from commercial banks, then, over time, the:

Accepted Answer

A) assets of these banks fall. 
B) assets of the banks stay the same. 
C) assets of the banks rise. 
D) liabilities of the bank rise. 
E) liabilities of the bank fall. 
A) assets of these banks fall. 
B) assets of the banks stay the same. 
C) assets of the banks rise. 
D) liabilities of the bank rise. 
E) liabilities of the bank fall.

Question 7

The required reserves of a bank are:

Accepted Answer

A) held as deposits with the Federal Reserve System. 
B) equal to its loans. 
C) equal to its checkable deposits. 
D) none of these. 
A) held as deposits with the Federal Reserve System. 
B) equal to its loans. 
C) equal to its checkable deposits. 
D) none of these.

Question 8

Banks that wish to borrow required reserves can turn to the federal funds market.

Accepted Answer

A) True 
 B)False

Question 9

If the economy is inflationary, the Fed would most likely:

Accepted Answer

A) increase bank reserves by raising the discount rate. 
B) increase bank reserves by buying government securities 
C) decrease bank reserves by lowering the discount rate. 
D) decrease bank reserves by selling government securities. 
E) decrease bank reserves by lowering the legal reserve requirement. 
A) increase bank reserves by raising the discount rate. 
B) increase bank reserves by buying government securities 
C) decrease bank reserves by lowering the discount rate. 
D) decrease bank reserves by selling government securities. 
E) decrease bank reserves by lowering the legal reserve requirement.

Question 10

Economists estimate that the total lag for monetary policy is about:

Accepted Answer

A) 1-2 days. 
B) 2 weeks to 1 month. 
C) 3-12 months. 
D) 2-4 years. 
A) 1-2 days. 
B) 2 weeks to 1 month. 
C) 3-12 months. 
D) 2-4 years.

Question 11

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

Accepted Answer

A) Increasing the required reserve ratio. 
B) Selling government bonds in the open market. 
C) Increasing the discount rate. 
D) Reducing the required reserve ratio. 
A) Increasing the required reserve ratio. 
B) Selling government bonds in the open market. 
C) Increasing the discount rate. 
D) Reducing the required reserve ratio.

Question 12

Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is 10 percent. If it accepts a $1,000 deposit, then its required reserves balance will be:

Accepted Answer

A) $0. 
B) $90. 
C) $100. 
D) $900. 
E) $910 
A) $0. 
B) $90. 
C) $100. 
D) $900. 
E) $910

Question 13

The money multiplier equals:

Accepted Answer

A) 1 \ excess reserves. 
B) excess reserves \ loans. 
C) required reserve ratio \ excess reserves. 
D) 1 \ actual reserves. 
E) 1 \ required reserve ratio. 
A) 1 \ excess reserves. 
B) excess reserves \ loans. 
C) required reserve ratio \ excess reserves. 
D) 1 \ actual reserves. 
E) 1 \ required reserve ratio.

Question 14

Which of the following statements is true ?

Accepted Answer

A) The simple money multiplier equals the reciprocal of the required reserve ratio. 
B) Required reserves is the minimum balance that the Fed requires a bank to hold in vault cash or on deposit with the Fed. 
C) The discount rate is the interest rate charged banks for loans from the Fed. 
D) Excess reserves equal total reserves minus required reserves. 
E) All of these. 
A) The simple money multiplier equals the reciprocal of the required reserve ratio. 
B) Required reserves is the minimum balance that the Fed requires a bank to hold in vault cash or on deposit with the Fed. 
C) The discount rate is the interest rate charged banks for loans from the Fed. 
D) Excess reserves equal total reserves minus required reserves. 
E) All of these.

Question 15

The required reserve ratio is required reserves stated as a percentage of the money supply.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 15-5 Balance sheet of Tucker National Bank
  Suppose Connie Rich deposits $100,000 into her checking account in the bank shown in Exhibit 15-6. The result would be a:

Accepted Answer

A) zero change in required reserves. 
B) $10,000 increase in required reserves. 
C) $100,000 increase in required reserves. 
D) $20,000 increase in excess reserves. 
A) zero change in required reserves. 
B) $10,000 increase in required reserves. 
C) $100,000 increase in required reserves. 
D) $20,000 increase in excess reserves.

Question 17

A bank can lend out its excess reserves but not its required reserves.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not an interest-earning asset of commercial banks?

Accepted Answer

A) Required reserves. 
B) Checkable deposits. 
C) Customer savings accounts. 
D) All of the above are interest-earning assets of commercial banks. 
E) None of the above are interest-earning assets of commercial banks. 
A) Required reserves. 
B) Checkable deposits. 
C) Customer savings accounts. 
D) All of the above are interest-earning assets of commercial banks. 
E) None of the above are interest-earning assets of commercial banks.

Question 19

A bank faces a required reserve ratio of 5 percent. If the bank has $200 million of checkable deposits and $15 million of total reserves, then how large are the bank's excess reserves?

Accepted Answer

A) $0. 
B) $5 million. 
C) $10 million. 
D) $15 million. 
A) $0. 
B) $5 million. 
C) $10 million. 
D) $15 million.

Question 20

The required reserve ratio 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.

Exam 15: Money Creation

Most of the Fed's assets are held in the form of loans to its member banks.

Exhibit 15-3 Balance sheet of Tucker National Bank 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 the bank shown in Exhibit 15-3, the bank can extend new loans in the amount of:

If the Fed wishes to increase the money supply then it should:

When the Fed wishes to reduce the economy's money supply, it:

If loans are $69,000, excess reserves are $1,400, and checkable deposits are $80,000, then the required reserve ratio must be:

When the Fed buys federal government securities on the open market from commercial banks, then, over time, the:

The required reserves of a bank are:

Banks that wish to borrow required reserves can turn to the federal funds market.

If the economy is inflationary, the Fed would most likely:

Economists estimate that the total lag for monetary policy is about:

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

Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is 10 percent. If it accepts a $1,000 deposit, then its required reserves balance will be:

The money multiplier equals:

Which of the following statements is true ?

The required reserve ratio is required reserves stated as a percentage of the money supply.

Exhibit 15-5 Balance sheet of Tucker National Bank Suppose Connie Rich deposits $100,000 into her checking account in the bank shown in Exhibit 15-6. The result would be a:

A bank can lend out its excess reserves but not its required reserves.

Which of the following is not an interest-earning asset of commercial banks?

A bank faces a required reserve ratio of 5 percent. If the bank has $200 million of checkable deposits and $15 million of total reserves, then how large are the bank's excess reserves?

The required reserve ratio is:

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

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