Question 1

Everything else held constant,an increase in the required reserve ratio on checkable deposits will cause

Accepted Answer

A) the money supply to rise. 
B) the money supply to remain constant. 
C) the money supply to fall. 
D) checkable deposits to rise. 
A) the money supply to rise. 
B) the money supply to remain constant. 
C) the money supply to fall. 
D) checkable deposits to rise.

Question 2

The Fed does not tightly control the monetary base because it does NOT completely control

Accepted Answer

A) open market purchases. 
B) open market sales. 
C) borrowed reserves. 
D) the discount rate. 
A) open market purchases. 
B) open market sales. 
C) borrowed reserves. 
D) the discount rate.

Question 3

If reserves in the banking system increase by $100,then checkable deposits will increase by $2,000 in the simple model of deposit creation when the required reserve ratio is

Accepted Answer

A) 0.01. 
B) 0.05. 
C) 0.10. 
D) 0.20. 
A) 0.01. 
B) 0.05. 
C) 0.10. 
D) 0.20.

Question 4

Everything else held constant,an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.

Accepted Answer

A) decrease;increase 
B) increase;increase 
C) decrease;decrease 
D) increase;decrease 
A) decrease;increase 
B) increase;increase 
C) decrease;decrease 
D) increase;decrease

Question 5

Purchases and sales of government securities by the Federal Reserve are called

Accepted Answer

A) discount loans. 
B) federal fund transfers. 
C) open market operations. 
D) swap transactions. 
A) discount loans. 
B) federal fund transfers. 
C) open market operations. 
D) swap transactions.

Question 6

In the model of the money supply process for M2,the relationship between checkable deposits and the M2 money supply is represented by

Accepted Answer

A)  $ \mathrm{D}=\frac{1}{1+\mathrm{c}+\mathrm{t}+\mathrm{mm}} \times \mathrm{M} 2 $. 
B)  $ \mathrm{D}=(1+\mathrm{c}+\mathrm{t}+\mathrm{mm}) \times \mathrm{M} 2 $. 
C)  $ \mathrm{M} 2=\frac{1}{\mathrm{rr}+\mathrm{c}+\mathrm{t}+\mathrm{mm}} \times \mathrm{D} $. 
D)  $ \mathrm{M} 2=\frac{\mathrm{rr}+\mathrm{c}+\mathrm{t}+\mathrm{mm}}{\mathrm{D}} $. 
A)  $ \mathrm{D}=\frac{1}{1+\mathrm{c}+\mathrm{t}+\mathrm{mm}} \times \mathrm{M} 2 $. 
B)  $ \mathrm{D}=(1+\mathrm{c}+\mathrm{t}+\mathrm{mm}) \times \mathrm{M} 2 $. 
C)  $ \mathrm{M} 2=\frac{1}{\mathrm{rr}+\mathrm{c}+\mathrm{t}+\mathrm{mm}} \times \mathrm{D} $. 
D)  $ \mathrm{M} 2=\frac{\mathrm{rr}+\mathrm{c}+\mathrm{t}+\mathrm{mm}}{\mathrm{D}} $.

Question 7

High-powered money minus currency in circulation equals

Accepted Answer

A) reserves. 
B) the borrowed base. 
C) the nonborrowed base. 
D) discount loans. 
A) reserves. 
B) the borrowed base. 
C) the nonborrowed base. 
D) discount loans.

Question 8

In the model of the money supply process,the depositor's role in influencing the money supply is represented by

Accepted Answer

A) the currency holdings. 
B) the currency holdings and excess reserve. 
C) the currency holdings and borrowed reserve. 
D) the market interest rate. 
A) the currency holdings. 
B) the currency holdings and excess reserve. 
C) the currency holdings and borrowed reserve. 
D) the market interest rate.

Question 9

Of the three players in the money supply process,most observers agree that the most important player is

Accepted Answer

A) the United States Treasury. 
B) the Federal Reserve System. 
C) the FDIC. 
D) the Office of Thrift Supervision. 
A) the United States Treasury. 
B) the Federal Reserve System. 
C) the FDIC. 
D) the Office of Thrift Supervision.

Question 10

When the Treasury acquires gold or SDRs,it issues certificates to the ________,which are a claim on the gold or SDRs,and in turn is credited with deposit balances at the ________.

Accepted Answer

A) Federal Reserve System;Fed 
B) Federal Reserve System;IMF 
C) International Monetary Fund;Fed 
D) International Monetary Fund;IMF 
A) Federal Reserve System;Fed 
B) Federal Reserve System;IMF 
C) International Monetary Fund;Fed 
D) International Monetary Fund;IMF

Question 11

Suppose that from a new checkable deposit,First National Bank holds two million dollars in vault cash,eight million dollars on deposit with the Federal Reserve,and one million dollars in required reserves.Given this information,we can say First National Bank faces a required reserve ratio of ________ percent.

Accepted Answer

A) ten 
B) twenty 
C) eighty 
D) ninety 
A) ten 
B) twenty 
C) eighty 
D) ninety

Question 12

Everything else held constant,if the sum of the required reserve ratio and the excess reserve ratio is less than one,an increase in the currency-deposit ratio causes the M1 money multiplier to ________ and the money supply to ________.

Accepted Answer

A) decrease;increase 
B) increase;decrease 
C) decrease;decrease 
D) increase;increase 
A) decrease;increase 
B) increase;decrease 
C) decrease;decrease 
D) increase;increase

Question 13

When the Fed buys $100 worth of bonds from a primary dealer,reserves in the banking system

Accepted Answer

A) increase by $100. 
B) increase by more than $100. 
C) decrease by $100. 
D) decrease by more than $100. 
A) increase by $100. 
B) increase by more than $100. 
C) decrease by $100. 
D) decrease by more than $100.

Question 14

In the model of the money supply process,the bank's role in influencing the money supply process is represented by

Accepted Answer

A) the excess reserve. 
B) both the excess reserve and the market interest rate. 
C) the currency ratio. 
D) only borrowed reserves. 
A) the excess reserve. 
B) both the excess reserve and the market interest rate. 
C) the currency ratio. 
D) only borrowed reserves.

Question 15

If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 15 percent,then the bank has actual reserves of

Accepted Answer

A) $17,000. 
B) $19,000. 
C) $24,000. 
D) $29,000. 
A) $17,000. 
B) $19,000. 
C) $24,000. 
D) $29,000.

Question 16

If the required reserve ratio is one-third,currency in circulation is $300 billion,and checkable deposits are $900 billion,then the currency-deposit ratio is

Accepted Answer

A) 0.25. 
B) 0.33. 
C) 0.67. 
D) 0.375. 
A) 0.25. 
B) 0.33. 
C) 0.67. 
D) 0.375.

Question 17

Explain why the simple deposit multiplier overstates the true deposit multiplier.

Accepted Answer

The simple model ignores the role banks

Question 18

If a bank has excess reserves of $15,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has total reserves of

Accepted Answer

A) $11,000. 
B) $21,000. 
C) $31,000. 
D) $41,000. 
A) $11,000. 
B) $21,000. 
C) $31,000. 
D) $41,000.

Question 19

If the required reserve ratio is one-third,currency in circulation is $300 billion,checkable deposits are $900 billion,and there is no excess reserve,then the M1 money multiplier is

Accepted Answer

A) 2.5. 
B) 2.8. 
C) 2.0. 
D) 0.67. 
A) 2.5. 
B) 2.8. 
C) 2.0. 
D) 0.67.

Question 20

Everything else held constant,an increase in the currency ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

Accepted Answer

A) an increase;an increase 
B) an increase;a decrease 
C) a decrease;an increase 
D) a decrease;a decrease 
A) an increase;an increase 
B) an increase;a decrease 
C) a decrease;an increase 
D) a decrease;a decrease

Exam 14: The Money Supply Process

Everything else held constant,an increase in the required reserve ratio on checkable deposits will cause

The Fed does not tightly control the monetary base because it does NOT completely control

If reserves in the banking system increase by $100,then checkable deposits will increase by $2,000 in the simple model of deposit creation when the required reserve ratio is

Everything else held constant,an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.

Purchases and sales of government securities by the Federal Reserve are called

In the model of the money supply process for M2,the relationship between checkable deposits and the M2 money supply is represented by

High-powered money minus currency in circulation equals

In the model of the money supply process,the depositor's role in influencing the money supply is represented by

Of the three players in the money supply process,most observers agree that the most important player is

When the Treasury acquires gold or SDRs,it issues certificates to the ________,which are a claim on the gold or SDRs,and in turn is credited with deposit balances at the ________.

Everything else held constant,if the sum of the required reserve ratio and the excess reserve ratio is less than one,an increase in the currency-deposit ratio causes the M1 money multiplier to ________ and the money supply to ________.

When the Fed buys $100 worth of bonds from a primary dealer,reserves in the banking system

In the model of the money supply process,the bank's role in influencing the money supply process is represented by

If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 15 percent,then the bank has actual reserves of

If the required reserve ratio is one-third,currency in circulation is $300 billion,and checkable deposits are $900 billion,then the currency-deposit ratio is

Explain why the simple deposit multiplier overstates the true deposit multiplier.

If a bank has excess reserves of $15,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has total reserves of

If the required reserve ratio is one-third,currency in circulation is $300 billion,checkable deposits are $900 billion,and there is no excess reserve,then the M1 money multiplier is

Everything else held constant,an increase in the currency ratio will mean ________ in the M2 money multiplier and ________ in the M2 money supply.

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Central Banks and the Federal Reserve System

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Web 1:financial Crises in Emerging Market Economies

Web 2:the Islm Model

Web 3:nonbank Finance

Web 4:financial Derivatives

Web 5:conflicts of Interest in the Financial Services Industry

Filters

Everything else held constant,an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to and the money supply to .

When the Treasury acquires gold or SDRs,it issues certificates to the ,which are a claim on the gold or SDRs,and in turn is credited with deposit balances at the .

Everything else held constant,if the sum of the required reserve ratio and the excess reserve ratio is less than one,an increase in the currency-deposit ratio causes the M1 money multiplier to and the money supply to .

Everything else held constant,an increase in the currency ratio will mean in the M2 money multiplier and in the M2 money supply.