Question 1

If the required reserve ratio in the banking system is 10% and the Fed buys $1,000 in U.S. bonds, what will happen to supply?

Accepted Answer

A)  It will increase by as much as $5,000. 
B)  It will decrease by as much as $5,000. 
C)  It will increase by as much as $10,000. 
D)  It will decrease by as much as $10,000. 
E)  It will remain unchanged. 
A)  It will increase by as much as $5,000. 
B)  It will decrease by as much as $5,000. 
C)  It will increase by as much as $10,000. 
D)  It will decrease by as much as $10,000. 
E)  It will remain unchanged. C

Question 2

If a bank has $950,000 million in liabilities and $50,000 in net worth, its assets must equal _____

Accepted Answer

A)  $50,000. 
B)  $1,050,000. 
C)  $50,000,000. 
D)  $1,000,000. 
E)  $950,000. 
A)  $50,000. 
B)  $1,050,000. 
C)  $50,000,000. 
D)  $1,000,000. 
E)  $950,000. D

Question 3

The money expansion process continues until there are no more _____

Accepted Answer

A)  required reserves in the banking system. 
B)  demand deposits in the banking system. 
C)  excess reserves in the banking system that banks are willing to lend. 
D)  liabilities in the banking system. 
E)  assets in the banking system. 
A)  required reserves in the banking system. 
B)  demand deposits in the banking system. 
C)  excess reserves in the banking system that banks are willing to lend. 
D)  liabilities in the banking system. 
E)  assets in the banking system. C

Question 4

A bank's net worth is _____

Accepted Answer

A)  equal to assets plus liabilities. 
B)  sometimes called the owners' equity. 
C)  equal to assets minus reserves. 
D)  the same thing as net profits. 
E)  the amount of interest charged by the bank for short-term loans. 
A)  equal to assets plus liabilities. 
B)  sometimes called the owners' equity. 
C)  equal to assets minus reserves. 
D)  the same thing as net profits. 
E)  the amount of interest charged by the bank for short-term loans.

Question 5

Suppose the United Bank of Glassen has loaned $250 to Mr. Joseph Langdon for his business. Mr. Langdon repays the loan with a check written against his own bank, Rexan Bank. Which of the following is likely to happen as a result of this transaction?

Accepted Answer

A)  The reserves at the United Bank of Glassen will fall. 
B)  The reserves at Rexan Bank will increase. 
C)  Checkable deposits at Rexan Bank will increase. 
D)  Rexan Bank will make more loans than before. 
E)  The reserves and checkable deposits of Rexan Bank will decrease. 
A)  The reserves at the United Bank of Glassen will fall. 
B)  The reserves at Rexan Bank will increase. 
C)  Checkable deposits at Rexan Bank will increase. 
D)  Rexan Bank will make more loans than before. 
E)  The reserves and checkable deposits of Rexan Bank will decrease.

Question 6

M1 includes currency held in bank vaults.

Accepted Answer

A) True 
 B)False

Question 7

If r is the required reserve ratio, which of the following is the simple money multiplier?

Accepted Answer

A)  r 
B)  $1 / ( 1 - r )$ 
C)  $1 - r$ 
D)  1/r 
E)  2r 
A)  r 
B)  $1 / ( 1 - r )$ 
C)  $1 - r$ 
D)  1/r 
E)  2r

Question 8

The immediate effect of a bank's purchase of U.S. government securities from the Fed is a(n) _____

Accepted Answer

A)  decrease in the bank's assets. 
B)  increase in the bank's reserve requirements. 
C)  decrease in the Fed's assets. 
D)  increase in the Fed's assets. 
E)  decrease in the discount rate. 
A)  decrease in the bank's assets. 
B)  increase in the bank's reserve requirements. 
C)  decrease in the Fed's assets. 
D)  increase in the Fed's assets. 
E)  decrease in the discount rate.

Question 9

Which of the following is correct?

Accepted Answer

A)  Savers develop expertise in evaluating creditworthiness. 
B)  Borrowers develop expertise in structuring loans. 
C)  Borrowers develop expertise in enforcing loan contracts. 
D)  Banks reduce the transaction costs of channeling savings to creditworthy borrowers. 
E)  Banks increase the transaction costs of channeling savings to creditworthy borrowers. 
A)  Savers develop expertise in evaluating creditworthiness. 
B)  Borrowers develop expertise in structuring loans. 
C)  Borrowers develop expertise in enforcing loan contracts. 
D)  Banks reduce the transaction costs of channeling savings to creditworthy borrowers. 
E)  Banks increase the transaction costs of channeling savings to creditworthy borrowers.

Question 10

Banks have more expertise than individual households in making loans because banks _____

Accepted Answer

A)  lend smaller amounts of money. 
B)  are regulated by the government. 
C)  also pay interest to savers. 
D)  are subject to severe penalties if they make bad loans. 
E)  make many more loans than individual households do. 
A)  lend smaller amounts of money. 
B)  are regulated by the government. 
C)  also pay interest to savers. 
D)  are subject to severe penalties if they make bad loans. 
E)  make many more loans than individual households do.

Question 11

The Fed's purchase of U.S. government securities constitutes a(n) _____

Accepted Answer

A)  contractionary policy, because it lowers the amount of total reserves in the banking system. 
B)  contractionary policy, because it lowers the amount of excess reserves in the banking system. 
C)  expansionary policy, because it raises the amount of total reserves in the banking system. 
D)  expansionary policy, because it lowers the amount of total reserves in the banking system. 
E)  expansionary policy, because it raises the amount of required reserves in the banking system. 
A)  contractionary policy, because it lowers the amount of total reserves in the banking system. 
B)  contractionary policy, because it lowers the amount of excess reserves in the banking system. 
C)  expansionary policy, because it raises the amount of total reserves in the banking system. 
D)  expansionary policy, because it lowers the amount of total reserves in the banking system. 
E)  expansionary policy, because it raises the amount of required reserves in the banking system.

Question 12

Many people prefer debit cards to checks because _____

Accepted Answer

A)  checkbooks are not required and direct payments are made. 
B)  checks are unsafe for use. 
C)  debit cards delay money payments. 
D)  using checks is time consuming. 
E)  debit cards help account holders get a loan from the card issuer. 
A)  checkbooks are not required and direct payments are made. 
B)  checks are unsafe for use. 
C)  debit cards delay money payments. 
D)  using checks is time consuming. 
E)  debit cards help account holders get a loan from the card issuer.

Question 13

From a bank's point of view, its deposits are liabilities.

Accepted Answer

A) True 
 B)False

Question 14

A situation in which one side of the market has more reliable information than the other side is called _____

Accepted Answer

A)  asymmetric information. 
B)  moral hazard. 
C)  adverse selection. 
D)  free-riding. 
E)  liquidity. 
A)  asymmetric information. 
B)  moral hazard. 
C)  adverse selection. 
D)  free-riding. 
E)  liquidity.

Question 15

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits, then its _____

Accepted Answer

A)  required reserves are $500,000. 
B)  required reserves are $20,000. 
C)  assets are $500,000. 
D)  liabilities are $500,000. 
E)  net worth is $500,000. 
A)  required reserves are $500,000. 
B)  required reserves are $20,000. 
C)  assets are $500,000. 
D)  liabilities are $500,000. 
E)  net worth is $500,000.

Question 16

What are monetary aggregates?

Accepted Answer

A)  money held by the nonbank public 
B)  money held by banking institutions 
C)  measures of individual wealth defined by the Federal Reserve 
D)  measures of the money supply defined by the Treasury 
E)  measures of the money supply defined by the Federal Reserve 
A)  money held by the nonbank public 
B)  money held by banking institutions 
C)  measures of individual wealth defined by the Federal Reserve 
D)  measures of the money supply defined by the Treasury 
E)  measures of the money supply defined by the Federal Reserve

Question 17

To increase the money supply, the New York Fed is directed to carry out _____

Accepted Answer

A)  an open-market purchase. 
B)  an open-market sale. 
C)  discretionary lending. 
D)  quantitative tightening. 
E)  quantitative easing. 
A)  an open-market purchase. 
B)  an open-market sale. 
C)  discretionary lending. 
D)  quantitative tightening. 
E)  quantitative easing.

Question 18

If a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2, then the bank can lend:

Accepted Answer

A)  exactly $4,000. 
B)  about $16,000. 
C)  no more than $4,800. 
D)  about $13,000. 
E)  exactly $1,000. 
A)  exactly $4,000. 
B)  about $16,000. 
C)  no more than $4,800. 
D)  about $13,000. 
E)  exactly $1,000.

Question 19

Banks act as financial intermediaries by _____

Accepted Answer

A)  bringing together car buyers and auto dealers. 
B)  bringing together real estate brokers and home buyers. 
C)  printing money for all to use. 
D)  attracting deposits from savers to lend to borrowers. 
E)  selling shares of stock to investors. 
A)  bringing together car buyers and auto dealers. 
B)  bringing together real estate brokers and home buyers. 
C)  printing money for all to use. 
D)  attracting deposits from savers to lend to borrowers. 
E)  selling shares of stock to investors.

Question 20

A bank can legally hold reserves as _____

Accepted Answer

A)  gold and coins. 
B)  gold and checks. 
C)  cash in its vault and non-interest-bearing reserve deposits at the Fed. 
D)  gold and non-interest-bearing reserve deposits at the Fed. 
E)  U.S. government securities and coins. 
A)  gold and coins. 
B)  gold and checks. 
C)  cash in its vault and non-interest-bearing reserve deposits at the Fed. 
D)  gold and non-interest-bearing reserve deposits at the Fed. 
E)  U.S. government securities and coins.

If the required reserve ratio in the banking system is 10% and the Fed buys $1,000 in U.S. bonds, what will happen to supply?

If a bank has $950,000 million in liabilities and $50,000 in net worth, its assets must equal _____

The money expansion process continues until there are no more _____

A bank's net worth is _____

Suppose the United Bank of Glassen has loaned $250 to Mr. Joseph Langdon for his business. Mr. Langdon repays the loan with a check written against his own bank, Rexan Bank. Which of the following is likely to happen as a result of this transaction?

M1 includes currency held in bank vaults.

If r is the required reserve ratio, which of the following is the simple money multiplier?

The immediate effect of a bank's purchase of U.S. government securities from the Fed is a(n) _____

Which of the following is correct?

Banks have more expertise than individual households in making loans because banks _____

The Fed's purchase of U.S. government securities constitutes a(n) _____

Many people prefer debit cards to checks because _____

From a bank's point of view, its deposits are liabilities.

A situation in which one side of the market has more reliable information than the other side is called _____

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits, then its _____

What are monetary aggregates?

To increase the money supply, the New York Fed is directed to carry out _____

If a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2, then the bank can lend:

Banks act as financial intermediaries by _____

A bank can legally hold reserves as _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Fiscal Policy.

Federal Budgets and Public Policy.

Money and the Financial System.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

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Exam 14: Banking and the Money Supply.

If the required reserve ratio in the banking system is 10% and the Fed buys $1,000 in U.S. bonds, what will happen to supply?

If a bank has $950,000 million in liabilities and $50,000 in net worth, its assets must equal _____

The money expansion process continues until there are no more _____

A bank's net worth is _____

Suppose the United Bank of Glassen has loaned $250 to Mr. Joseph Langdon for his business. Mr. Langdon repays the loan with a check written against his own bank, Rexan Bank. Which of the following is likely to happen as a result of this transaction?

M1 includes currency held in bank vaults.

If r is the required reserve ratio, which of the following is the simple money multiplier?

The immediate effect of a bank's purchase of U.S. government securities from the Fed is a(n) _____

Which of the following is correct?

Banks have more expertise than individual households in making loans because banks _____

The Fed's purchase of U.S. government securities constitutes a(n) _____

Many people prefer debit cards to checks because _____

From a bank's point of view, its deposits are liabilities.

A situation in which one side of the market has more reliable information than the other side is called _____

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits, then its _____

What are monetary aggregates?

To increase the money supply, the New York Fed is directed to carry out _____

If a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2, then the bank can lend:

Banks act as financial intermediaries by _____

A bank can legally hold reserves as _____

The Art and Science of Economic Analysis.

Economic Tools and Economic Systems.

Economic Decision Makers.

Demand, Supply, and Markets.

Introduction to Macroeconomics.

Tracking the U. S. Economy.

Unemployment and Inflation.

Productivity and Growth.

Aggregate Demand.

Aggregate Supply.

Fiscal Policy.

Federal Budgets and Public Policy.

Money and the Financial System.

Monetary Theory and Policy.

Macro Policy Debate: Active or Passive?

International Trade.

International Finance.

Economic Development.

Filters