Question 1

If you know the required reserve ratio, then you know how much each bank is holding in reserves.

Accepted Answer

A) True 
 B)False

Question 2

Table 14.2
  
-Refer to Table 14.2 for the balance sheet of Countybank. Which of the following transactions is most likely to have just taken place at Countybank?

Accepted Answer

A)  A customer withdrew $1,000 from her checking account. 
B)  A customer deposited a $1,000 check into her savings account. 
C)  A customer deposited $1,000 into her checking account. 
D)  The bank purchased a security worth $1,000. 
E)  The bank borrowed $1,000 from the Federal Reserve. 
A)  A customer withdrew $1,000 from her checking account. 
B)  A customer deposited a $1,000 check into her savings account. 
C)  A customer deposited $1,000 into her checking account. 
D)  The bank purchased a security worth $1,000. 
E)  The bank borrowed $1,000 from the Federal Reserve.

Question 3

To obtain a charter, or the right to operate, a national bank must apply to the _____

Accepted Answer

A)  Federal Reserve. 
B)  Department of the Treasury. 
C)  U.S. Comptroller of the Currency. 
D)  state banking authority. 
E)  Office of Domestic Finance. 
A)  Federal Reserve. 
B)  Department of the Treasury. 
C)  U.S. Comptroller of the Currency. 
D)  state banking authority. 
E)  Office of Domestic Finance.

Question 4

The actual money multiplier is smaller than the simple money multiplier because _____

Accepted Answer

A)  the actual multiplier affects M2 rather than M1. 
B)  cash withdrawals reduce the amount banks can lend out. 
C)  the actual multiplier affects the amount of excess reserves each bank holds. 
D)  the size of the simple multiplier depends on the volume of deposits unlike the actual multiplier. 
E)  the actual multiplier uses a different measure of reserve requirements. 
A)  the actual multiplier affects M2 rather than M1. 
B)  cash withdrawals reduce the amount banks can lend out. 
C)  the actual multiplier affects the amount of excess reserves each bank holds. 
D)  the size of the simple multiplier depends on the volume of deposits unlike the actual multiplier. 
E)  the actual multiplier uses a different measure of reserve requirements.

Question 5

To prevent shortages of cash during a crisis, the Fed _____

Accepted Answer

A)  saves up cash in bank vaults around the country and the world. 
B)  reduces liquidity in the economy so that more cash can be saved. 
C)  sells U.S. government securities to commercial banks. 
D)  demands interest payments on reserves held at the Fed. 
E)  increases the discount rate. 
A)  saves up cash in bank vaults around the country and the world. 
B)  reduces liquidity in the economy so that more cash can be saved. 
C)  sells U.S. government securities to commercial banks. 
D)  demands interest payments on reserves held at the Fed. 
E)  increases the discount rate.

Question 6

Savings deposits and time deposits are not included in M1 because these are not held by the nonbanking public.

Accepted Answer

A) True 
 B)False

Question 7

Money expansion stops when new reserves introduced into the banking system have been converted into _____

Accepted Answer

A)  excess reserves. 
B)  securities. 
C)  deposits. 
D)  required reserves. 
E)  loans. 
A)  excess reserves. 
B)  securities. 
C)  deposits. 
D)  required reserves. 
E)  loans.

Question 8

Which of the following is not true of Federal Reserve notes?

Accepted Answer

A)  They are fiat money. 
B)  They are a liability of the Fed. 
C)  They are redeemable for other Federal Reserve notes. 
D)  They are redeemable for gold. 
E)  They are counted as currency in the money supply. 
A)  They are fiat money. 
B)  They are a liability of the Fed. 
C)  They are redeemable for other Federal Reserve notes. 
D)  They are redeemable for gold. 
E)  They are counted as currency in the money supply.

Question 9

During the 2008 crisis, the Fed demanded interest payments on reserves held at the Fed.

Accepted Answer

A) True 
 B)False

Question 10

To maximize its profit, a bank will _____

Accepted Answer

A)  minimize the number transactions it engages in. 
B)  maximize required reserves. 
C)  minimize excess reserves. 
D)  maximize excess reserves. 
E)  minimize required reserves. 
A)  minimize the number transactions it engages in. 
B)  maximize required reserves. 
C)  minimize excess reserves. 
D)  maximize excess reserves. 
E)  minimize required reserves.

Question 11

If the required reserve ratio is 5 percent, the simple money multiplier must be equal to _____

Accepted Answer

A)  5. 
B)  10. 
C)  20. 
D)  40. 
E)  50. 
A)  5. 
B)  10. 
C)  20. 
D)  40. 
E)  50.

Question 12

Banks earn a profit on the difference between _____

Accepted Answer

A)  the interest charged from depositors and the interest offered to borrowers. 
B)  the interest charged on loans and the interest paid on deposits. 
C)  the deposit and loan balances. 
D)  outstanding loans and interests. 
E)  dividends and interests. 
A)  the interest charged from depositors and the interest offered to borrowers. 
B)  the interest charged on loans and the interest paid on deposits. 
C)  the deposit and loan balances. 
D)  outstanding loans and interests. 
E)  dividends and interests.

Question 13

If the simple money multiplier is 10, the required reserve ratio must be equal to _____

Accepted Answer

A)  5 percent. 
B)  0 percent. 
C)  10 percent. 
D)  50 percent. 
E)  20 percent. 
A)  5 percent. 
B)  0 percent. 
C)  10 percent. 
D)  50 percent. 
E)  20 percent.

Question 14

To increase the money supply, the Fed might:

Accepted Answer

A)  increase the discount rate. 
B)  buy bonds in the open market. 
C)  increase the reserve requirement and sell bonds in the open market. 
D)  increase the discount rate and lower the reserve requirement. 
E)  sell government securities and increase the discount rate. 
A)  increase the discount rate. 
B)  buy bonds in the open market. 
C)  increase the reserve requirement and sell bonds in the open market. 
D)  increase the discount rate and lower the reserve requirement. 
E)  sell government securities and increase the discount rate.

Question 15

Banks in need of reserves can borrow from the Fed or in the federal funds market.

Accepted Answer

A) True 
 B)False

Question 16

The economy is more efficient because _____

Accepted Answer

A)  banks 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 savers. 
E)  banks increase the transaction costs of channeling savings to creditworthy borrowers. 
A)  banks 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 savers. 
E)  banks increase the transaction costs of channeling savings to creditworthy borrowers.

Question 17

Which of the following would likely increase the money supply?

Accepted Answer

A)  the purchase of government securities by one bank from another bank 
B)  an increase in the required reserve ratio 
C)  an increase in the reserves of a commercial bank 
D)  an increase in the discount rate 
E)  the sale of government securities by a bank to the Fed 
A)  the purchase of government securities by one bank from another bank 
B)  an increase in the required reserve ratio 
C)  an increase in the reserves of a commercial bank 
D)  an increase in the discount rate 
E)  the sale of government securities by a bank to the Fed

Question 18

When a check is cleared against Bank A after being deposited at Bank B, _____

Accepted Answer

A)  both Bank A's and Bank B's liabilities increase. 
B)  both Bank A's and Bank B's liabilities decrease. 
C)  Bank A's liabilities increase and Bank B's liabilities decrease. 
D)  Bank A's liabilities decrease and Bank B's liabilities increase. 
E)  there is an increase in the liabilities of the Federal Reserve. 
A)  both Bank A's and Bank B's liabilities increase. 
B)  both Bank A's and Bank B's liabilities decrease. 
C)  Bank A's liabilities increase and Bank B's liabilities decrease. 
D)  Bank A's liabilities decrease and Bank B's liabilities increase. 
E)  there is an increase in the liabilities of the Federal Reserve.

Question 19

Table 14.1
 Table $14.1$
EUBANK
$\begin{array}{|l|r|l|r|}
\hline \text { Assets } & & \text { Liabilities and Net Worth } & \
\hline & & & \
\hline \text { Deposits at the Fed } & \$ 40,000 & \text { Checkable Deposits } & \$ 500,000 \
\hline \text { Cash } & \$ 10,000 & \text { Net Worth } & \$ 20,000 \
\hline \text { Loans } & \$ 300,000 & & \
\hline \text { Securities } & \$ 150,000 & & \
\hline \text { Fed Stock } & \$ 20,000 & & \
\hline
\end{array}$
-Refer to Table 14.1 for the balance sheet of Eubank, which holds no excess reserves. Assume that the required reserve ratio is 10%. If a student deposits $10,000 in cash into his checkable deposit account, Eubank will have _____ in excess reserves.

Accepted Answer

A)  $10,000 
B)  $1,000 
C)  $9,000 
D)  $60,000 
E)  $6,000 
A)  $10,000 
B)  $1,000 
C)  $9,000 
D)  $60,000 
E)  $6,000

Question 20

When the Fed buys U.S. government securities from a member bank, _____

Accepted Answer

A)  there is a decrease in the bank's assets. 
B)  there is an increase in the discount rate. 
C)  there is a decrease in the bank's liabilities. 
D)  there is an increase in the federal funds rate. 
E)  the bank's total assets and liabilities increase. 
A)  there is a decrease in the bank's assets. 
B)  there is an increase in the discount rate. 
C)  there is a decrease in the bank's liabilities. 
D)  there is an increase in the federal funds rate. 
E)  the bank's total assets and liabilities increase.

If you know the required reserve ratio, then you know how much each bank is holding in reserves.

Table 14.2 -Refer to Table 14.2 for the balance sheet of Countybank. Which of the following transactions is most likely to have just taken place at Countybank?

To obtain a charter, or the right to operate, a national bank must apply to the _____

The actual money multiplier is smaller than the simple money multiplier because _____

To prevent shortages of cash during a crisis, the Fed _____

Savings deposits and time deposits are not included in M1 because these are not held by the nonbanking public.

Money expansion stops when new reserves introduced into the banking system have been converted into _____

Which of the following is not true of Federal Reserve notes?

During the 2008 crisis, the Fed demanded interest payments on reserves held at the Fed.

To maximize its profit, a bank will _____

If the required reserve ratio is 5 percent, the simple money multiplier must be equal to _____

Banks earn a profit on the difference between _____

If the simple money multiplier is 10, the required reserve ratio must be equal to _____

To increase the money supply, the Fed might:

Banks in need of reserves can borrow from the Fed or in the federal funds market.

The economy is more efficient because _____

Which of the following would likely increase the money supply?

When a check is cleared against Bank A after being deposited at Bank B, _____

When the Fed buys U.S. government securities from a member bank, _____

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

Exam 14: Banking and the Money Supply.

If you know the required reserve ratio, then you know how much each bank is holding in reserves.

Table 14.2 -Refer to Table 14.2 for the balance sheet of Countybank. Which of the following transactions is most likely to have just taken place at Countybank?

To obtain a charter, or the right to operate, a national bank must apply to the _____

The actual money multiplier is smaller than the simple money multiplier because _____

To prevent shortages of cash during a crisis, the Fed _____

Savings deposits and time deposits are not included in M1 because these are not held by the nonbanking public.

Money expansion stops when new reserves introduced into the banking system have been converted into _____

Which of the following is not true of Federal Reserve notes?

During the 2008 crisis, the Fed demanded interest payments on reserves held at the Fed.

To maximize its profit, a bank will _____

If the required reserve ratio is 5 percent, the simple money multiplier must be equal to _____

Banks earn a profit on the difference between _____

If the simple money multiplier is 10, the required reserve ratio must be equal to _____

To increase the money supply, the Fed might:

Banks in need of reserves can borrow from the Fed or in the federal funds market.

The economy is more efficient because _____

Which of the following would likely increase the money supply?

When a check is cleared against Bank A after being deposited at Bank B, _____

When the Fed buys U.S. government securities from a member bank, _____

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