Question 1

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. 
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.

Question 2

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

Question 3

Which of the following is the money multiplier?

Accepted Answer

A)  The required reserve ratio. 
B)  1/(1 - the required reserve ratio). 
C)  1/(required reserve ratio). 
D)  1/(1 - MP
C) . 
A)  The required reserve ratio. 
B)  1/(1 - the required reserve ratio). 
C)  1/(required reserve ratio). 
D)  1/(1 - MP
C) .

Question 4

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 5

Jeff Kaufman decides to bank with Paris First National Bank (PFN). He opens a checking account by depositing $1,000. According to the PFN balance sheet, after this initial $1,000 checkable deposit, there are $1,000 in:

Accepted Answer

A)  reserves and $1,000 in checkable deposits. 
B)  liabilities and $2,000 in checkable deposits. 
C)  checkable deposits and $0 in assets. 
D)  assets and $0 in liabilities. 
A)  reserves and $1,000 in checkable deposits. 
B)  liabilities and $2,000 in checkable deposits. 
C)  checkable deposits and $0 in assets. 
D)  assets and $0 in liabilities.

Question 6

If Tucker National Bank has $10,000 in excess reserves that it  cannot lend:

Accepted Answer

A)  the money multiplier increases. 
B)  the money multiplier decreases. 
C)  the money multiplier stays the same. 
D)  checkable deposits increase. 
A)  the money multiplier increases. 
B)  the money multiplier decreases. 
C)  the money multiplier stays the same. 
D)  checkable deposits increase.

Question 7

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. 
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.

Question 8

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

Accepted Answer

To increase the money supply the Fed sho

Question 9

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 10

Describe the three basic tools used by the Fed to change the money supply. Which of these tools is most relied on in practice? Least relied on? Why?

Accepted Answer

The Fed can use open market operations,

Question 11

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 12

Exhibit 15-4 Balance sheet of Tucker National Bank
 
In Exhibit 15-4, the bank could make:

Accepted Answer

A)  $1,000 in new loans. 
B)  $4,000 in new loans. 
C)  $16,000 in new loans. 
D)  $20,000 in new loans. 
A)  $1,000 in new loans. 
B)  $4,000 in new loans. 
C)  $16,000 in new loans. 
D)  $20,000 in new loans.

Question 13

If total deposits at Last Bank and Trust are $100 million, total loans are $70 million, and excess reserves are $20 million, then which of the following is the required reserve ratio?

Accepted Answer

A)  70 percent. 
B)  30 percent. 
C)  20 percent. 
D)  10 percent. 
A)  70 percent. 
B)  30 percent. 
C)  20 percent. 
D)  10 percent.

Question 14

The Fed's countercyclical policy during expansion and prosperity includes:

Accepted Answer

A)  raising the required reserve ratio, raising the discount rate, and selling government bonds on the open market. 
B)  raising the required reserve ratio, raising the discount rate, and buying government bonds on the open market. 
C)  raising the required reserve ratio, cutting the discount rate, and selling government bonds on the open market. 
D)  lowering the required reserve ratio, cutting the discount rate, and buying government bonds on the open market. 
A)  raising the required reserve ratio, raising the discount rate, and selling government bonds on the open market. 
B)  raising the required reserve ratio, raising the discount rate, and buying government bonds on the open market. 
C)  raising the required reserve ratio, cutting the discount rate, and selling government bonds on the open market. 
D)  lowering the required reserve ratio, cutting the discount rate, and buying government bonds on the open market.

Question 15

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 16

Which of the following will make the real-world money multiplier smaller than the theoretical formula?

Accepted Answer

A)  Banks actually hold fewer reserves than technically required by the Fed. 
B)  Banks actually make loans for more money than they have in excess reserves. 
C)  Banks may keep some excess reserves rather than loan it all out. 
D)  Consumers spend more than they have using credit cards. 
A)  Banks actually hold fewer reserves than technically required by the Fed. 
B)  Banks actually make loans for more money than they have in excess reserves. 
C)  Banks may keep some excess reserves rather than loan it all out. 
D)  Consumers spend more than they have using credit cards.

Question 17

If the Fed decides to engage in an open market operation to increase the money supply, what will it do?

Accepted Answer

A)  Sell Treasury bonds, bills, or notes on the bond market. 
B)  Buy Treasury bonds, bills, or notes on the bond market. 
C)  Increase the required reserve ratio. 
D)  Increase the fed funds rate. 
A)  Sell Treasury bonds, bills, or notes on the bond market. 
B)  Buy Treasury bonds, bills, or notes on the bond market. 
C)  Increase the required reserve ratio. 
D)  Increase the fed funds rate.

Question 18

A bank that has $10,000 in excess reserves can extend new loans up to a maximum of:

Accepted Answer

A)  $1,000. 
B)  $9,000. 
C)  $10,000. 
D)  $100,000. 
A)  $1,000. 
B)  $9,000. 
C)  $10,000. 
D)  $100,000.

Question 19

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. 
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.

Question 20

If there is a recession, 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 raising the discount rate. 
D)  decrease bank reserves by selling government securities. 
A)  increase bank reserves by raising the discount rate. 
B)  increase bank reserves by buying government securities. 
C)  decrease bank reserves by raising the discount rate. 
D)  decrease bank reserves by selling government securities.

Exam 25: Money Creation

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:

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?

Which of the following is the money multiplier?

Jeff Kaufman decides to bank with Paris First National Bank (PFN). He opens a checking account by depositing $1,000. According to the PFN balance sheet, after this initial $1,000 checkable deposit, there are $1,000 in:

If Tucker National Bank has $10,000 in excess reserves that it cannot lend:

If the fractional reserve system did not exist,

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

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

Describe the three basic tools used by the Fed to change the money supply. Which of these tools is most relied on in practice? Least relied on? Why?

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

Exhibit 15-4 Balance sheet of Tucker National Bank In Exhibit 15-4, the bank could make:

If total deposits at Last Bank and Trust are $100 million, total loans are $70 million, and excess reserves are $20 million, then which of the following is the required reserve ratio?

The Fed's countercyclical policy during expansion and prosperity includes:

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

Which of the following will make the real-world money multiplier smaller than the theoretical formula?

If the Fed decides to engage in an open market operation to increase the money supply, what will it do?

A bank that has $10,000 in excess reserves can extend new loans up to a maximum of:

When the Fed raises the discount rate, it:

If there is a recession, the Fed would most likely:

Introducing the Economic Way of Thinking

Production Possibilities Opportunity Cost and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand and Supply

Consumer Choice Theory

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets

Income Distribution Poverty and Discrimination

Antitrust and Regulation

Environmental Economics

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

Understanding Direct and Inverse Relationships between Variables

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