Question 1

Which of the following is an interest-earning asset of banks?

Accepted Answer

A)  Required reserves. 
B)  Checkable deposits. 
C)  Excess reserves. 
D)  None of the above are interest-earning assets of banks. 
A)  Required reserves. 
B)  Checkable deposits. 
C)  Excess reserves. 
D)  None of the above are interest-earning assets of banks.

Question 2

A decrease in the required reserve ratio will increase banks' excess reserves and decrease the money multiplier.

Accepted Answer

A) True 
 B)False

Question 3

Excess reserves equal total reserves plus required reserves.

Accepted Answer

A) True 
 B)False

Question 4

If there is a recession, the Fed would most likely encourage banks to provide loans by:

Accepted Answer

A)  buying government securities. 
B)  raising the discount rate. 
C)  selling government securities. 
D)  raising the federal funds rate. 
A)  buying government securities. 
B)  raising the discount rate. 
C)  selling government securities. 
D)  raising the federal funds rate.

Question 5

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

Accepted Answer

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

Question 6

If your bank receives a checkable deposit of $20,000 cash, and the banking system makes loans totaling $60,000, the maximum possible, then the money multiplier must be:

Accepted Answer

A)  2. 
B)  2.5. 
C)  3. 
D)  3.5. 
E)  4. 
A)  2. 
B)  2.5. 
C)  3. 
D)  3.5. 
E)  4.

Question 7

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

Question 8

A lowering of the required reserve ratio might not expand the money supply if:

Accepted Answer

A)  tax rates are also lowered at the same time. 
B)  tax rates are increased at the same time. 
C)  borrowers are unwilling to borrow the new funds the banks have available for loans. 
D)  borrowers are willing to borrow the new funds the banks have available for loans.. 
E)  borrowers expand their borrowing because of the lower interest rates that banks offer. 
A)  tax rates are also lowered at the same time. 
B)  tax rates are increased at the same time. 
C)  borrowers are unwilling to borrow the new funds the banks have available for loans. 
D)  borrowers are willing to borrow the new funds the banks have available for loans.. 
E)  borrowers expand their borrowing because of the lower interest rates that banks offer.

Question 9

A bank's required reserves are either held as vault cash or:

Accepted Answer

A)  used to purchase Treasury bonds. 
B)  deposited with the Fed. 
C)  invested in the stock market. 
D)  loaned out to other commercial banks. 
A)  used to purchase Treasury bonds. 
B)  deposited with the Fed. 
C)  invested in the stock market. 
D)  loaned out to other commercial banks.

Question 10

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.

Question 11

Which of the following is a bank liability?

Accepted Answer

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

Question 12

The amount of assets that a bank must hold at all times is determined by the:

Accepted Answer

A)  banks' actual reserves. 
B)  required reserve ratio. 
C)  actual reserve requirement. 
D)  fractional reserve requirement. 
E)  excess reserve requirement. 
A)  banks' actual reserves. 
B)  required reserve ratio. 
C)  actual reserve requirement. 
D)  fractional reserve requirement. 
E)  excess reserve requirement.

Question 13

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

Accepted Answer

A)  increases. 
B)  stays the same. 
C)  goes to zero. 
D)  decreases. 
E)  increases, then decreases. 
A)  increases. 
B)  stays the same. 
C)  goes to zero. 
D)  decreases. 
E)  increases, then decreases.

Question 14

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:

Accepted Answer

A)  fall by $500. 
B)  fall by $400. 
C)  rise by $100. 
D)  rise by $500. 
A)  fall by $500. 
B)  fall by $400. 
C)  rise by $100. 
D)  rise by $500.

Question 15

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

Accepted Answer

A)  encourage banks to provide loans by buying government securities. 
B)  encourage banks to provide loans by raising the discount rate. 
C)  encourage banks to provide loans by selling government securities. 
D)  restrict bank lending by selling government securities. 
E)  restrict bank lending by lowering the federal funds rate. 
A)  encourage banks to provide loans by buying government securities. 
B)  encourage banks to provide loans by raising the discount rate. 
C)  encourage banks to provide loans by selling government securities. 
D)  restrict bank lending by selling government securities. 
E)  restrict bank lending by lowering the federal funds rate.

Question 16

If people refused to use banks to create checkable deposits, the banking system would:

Accepted Answer

A)  not be affected in the money creating process. 
B)  not have a way to loan out excess reserves. 
C)  be able to expand the money supply by more than the money multiplier indicates. 
D)  not be able to create new money. 
E)  not be able to find new borrowers. 
A)  not be affected in the money creating process. 
B)  not have a way to loan out excess reserves. 
C)  be able to expand the money supply by more than the money multiplier indicates. 
D)  not be able to create new money. 
E)  not be able to find new borrowers.

Question 17

Exhibit 19-5  Balance sheet of Tucker National Bank   Suppose Brad Jones deposits $20,000 into his checking account in the bank shown in Exhibit 19-5. The result would be that the bank must increase its required reserves to:

Accepted Answer

A)  $ 5,000. 
B)  $20,000. 
C)  $25,000. 
D)  $30,000. 
A)  $ 5,000. 
B)  $20,000. 
C)  $25,000. 
D)  $30,000.

Question 18

Raising the required reserve ratio causes the money multiplier to increase.

Accepted Answer

A) True 
 B)False

Question 19

If the required reserve ratio decreases, the:

Accepted Answer

A)  money multiplier increases. 
B)  money multiplier decreases. 
C)  amount of excess reserves the bank has decreases. 
D)  money multiplier stays the same. 
E)  amount of excess reserves stays the same. 
A)  money multiplier increases. 
B)  money multiplier decreases. 
C)  amount of excess reserves the bank has decreases. 
D)  money multiplier stays the same. 
E)  amount of excess reserves stays the same.

Question 20

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 the above. 
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 the above.

Exam 19: Money Creation

Which of the following is an interest-earning asset of banks?

A decrease in the required reserve ratio will increase banks' excess reserves and decrease the money multiplier.

Excess reserves equal total reserves plus required reserves.

If there is a recession, the Fed would most likely encourage banks to provide loans by:

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

If your bank receives a checkable deposit of $20,000 cash, and the banking system makes loans totaling $60,000, the maximum possible, then the money multiplier must be:

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

A lowering of the required reserve ratio might not expand the money supply if:

A bank's required reserves are either held as vault cash or:

The required reserve ratio is:

Which of the following is a bank liability?

The amount of assets that a bank must hold at all times is determined by the:

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

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:

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

If people refused to use banks to create checkable deposits, the banking system would:

Exhibit 19-5 Balance sheet of Tucker National Bank Suppose Brad Jones deposits $20,000 into his checking account in the bank shown in Exhibit 19-5. The result would be that the bank must increase its required reserves to:

Raising the required reserve ratio causes the money multiplier to increase.

If the required reserve ratio decreases, the:

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

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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