Exam 15: Money Creation

Best National Bank operates with a 20 percent required reserve ratio. One day a depositor withdraws $500 from his or her checking account at this bank. As a result, the bank's excess reserves:

Which of the following appears on the liability side of the Fed's balance sheet?

Reserves of member banks appear on the Fed's balance sheet as liabilities.

If a bank keeps some of its excess reserves, the money multiplier:

As discussed in the text, a bank can extend new loans equal to the amount by which its excess reserves increase.

Assume that the Paris First National Bank currently has deposits of $20 million. If the current required reserve ratio is raised from 20 percent to 40 percent, then:

The total lag for fiscal policy tends to be shorter than the total lag for monetary policy.

When reserve requirements are increased, the:

A decrease in the required reserve ratio will:

If the Federal Reserve wants to increase the availability of money and credit, it can:

A bank creates money when it:

Banks create money when they make loans.

During a period of inflation, the Fed is likely to:

If the Fed sells $10 million in bonds to a bank, and the required reserve ratio is 20 percent, then the banking system can:

In a system in which all banks have a uniform reserve requirement, the money multiplier is equal to 1 divided by the required reserve ratio.

Best National Bank is subject to a 20 percent required reserve ratio. If this bank received a new checkable deposit of $1,000, it could make new loans of:

In a simplified banking system, the money multiplier falls as the required reserve ratio decreases.

The interest rate which the Fed charges banks that borrow reserves from it is the:

When the Fed lowers the discount rate, it:

How can the Fed increase the money supply? How can the Fed decrease the money supply? Be specific.