Question 1

The relationship between borrowed reserves,the nonborrowed monetary base,and the monetary base is

Accepted Answer

A)  MB = MBn - BR. 
B)  BR = MBn - MB. 
C)  BR = MB - MBn. 
D)  MB = BR - MBn. 
A)  MB = MBn - BR. 
B)  BR = MBn - MB. 
C)  BR = MB - MBn. 
D)  MB = BR - MBn.

Question 2

The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds.If the proceeds are kept in ________,the open market purchase has no effect on reserves; if the proceeds are kept as ________,reserves increase by the amount of the open market purchase.

Accepted Answer

A)  deposits; deposits 
B)  deposits; currency 
C)  currency; deposits 
D)  currency; currency 
A)  deposits; deposits 
B)  deposits; currency 
C)  currency; deposits 
D)  currency; currency

Question 3

An increase in Treasury deposits at the Fed causes

Accepted Answer

A)  the monetary base to increase. 
B)  the monetary base to decrease. 
C)  Fed assets to increase but has no effect on the monetary base. 
D)  Fed assets to decrease but has no effect on the monetary base. 
A)  the monetary base to increase. 
B)  the monetary base to decrease. 
C)  Fed assets to increase but has no effect on the monetary base. 
D)  Fed assets to decrease but has no effect on the monetary base.

Question 4

In the simple model of multiple deposit creation in which banks do not hold excess reserves,the increase in checkable deposits equals the product of the change in reserves and the

Accepted Answer

A)  reciprocal of the excess reserve ratio. 
B)  simple deposit expansion multiplier. 
C)  reciprocal of the simple deposit multiplier. 
D)  discount rate. 
A)  reciprocal of the excess reserve ratio. 
B)  simple deposit expansion multiplier. 
C)  reciprocal of the simple deposit multiplier. 
D)  discount rate.

Question 5

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

Accepted Answer

A)  0.01. 
B)  0.10. 
C)  0.20. 
D)  1.00. 
A)  0.01. 
B)  0.10. 
C)  0.20. 
D)  1.00.

Question 6

If the required reserve ratio is 20 percent,the simple deposit multiplier is

Accepted Answer

A)  5.0. 
B)  2.5. 
C)  4.0. 
D)  10.0. 
A)  5.0. 
B)  2.5. 
C)  4.0. 
D)  10.0.

Question 7

Recognizing the distinction between borrowed reserves and the nonborrowed monetary base,the money supply model is specified as

Accepted Answer

A)  M = m × (MBn - BR). 
B)  M = m × (MBn + BR). 
C)  M = m + (MBn - BR). 
D)  M = m - (MBn + BR). 
A)  M = m × (MBn - BR). 
B)  M = m × (MBn + BR). 
C)  M = m + (MBn - BR). 
D)  M = m - (MBn + BR).

Question 8

The volume of loans that the Fed makes to banks is affected by the Fed's setting of the interest rate on these loans,called the

Accepted Answer

A)  federal funds rate. 
B)  prime rate. 
C)  discount rate. 
D)  interbank rate. 
A)  federal funds rate. 
B)  prime rate. 
C)  discount rate. 
D)  interbank rate.

Question 9

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

Accepted Answer

A)  one 
B)  two 
C)  eight 
D)  ten 
A)  one 
B)  two 
C)  eight 
D)  ten

Question 10

The money supply is ________ related to expected deposit outflows,and is ________ related to the market interest rate.

Accepted Answer

A)  negatively; negatively 
B)  negatively; positively 
C)  positively; negatively 
D)  positively; positively 
A)  negatively; negatively 
B)  negatively; positively 
C)  positively; negatively 
D)  positively; positively

Question 11

Assuming initially that rr = 15%,c = 40%,and e = 5%,a decrease in e to 0% causes the M1 money multiplier to ________,everything else held constant.

Accepted Answer

A)  increase from 2.33 to 2.55 
B)  decrease from 2.55 to 2.33 
C)  increase from 1.67 to 1.82 
D)  decrease from 1.82 to 1.67 
A)  increase from 2.33 to 2.55 
B)  decrease from 2.55 to 2.33 
C)  increase from 1.67 to 1.82 
D)  decrease from 1.82 to 1.67

Question 12

The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits,excess reserves,and currency is

Accepted Answer

A)  MB = (rr ×
D)  + ER + C. 
B)  MB = (rr +
D)  + ER + C. 
C)  $ \mathrm{MB}=\frac{\mathrm{rr}}{\mathrm{D}}+\mathrm{ER}+\mathrm{C} $. 
D)  MB = (rr × 
D)  - ER - C. 
A)  MB = (rr ×
D)  + ER + C. 
B)  MB = (rr +
D)  + ER + C. 
C)  $ \mathrm{MB}=\frac{\mathrm{rr}}{\mathrm{D}}+\mathrm{ER}+\mathrm{C} $. 
D)  MB = (rr × 
D)  - ER - C.

Question 13

A bank has excess reserves of $4,000 and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be

Accepted Answer

A)  -$5,000. 
B)  -$1,000. 
C)  $1,000. 
D)  $5,000. 
A)  -$5,000. 
B)  -$1,000. 
C)  $1,000. 
D)  $5,000.

Question 14

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

Accepted Answer

The simple model ignores the role banks

Question 15

In the simple deposit expansion model,if the required reserve ratio is 20 percent and the Fed increases reserves by $100,checkable deposits can potentially expand by

Accepted Answer

A)  $100. 
B)  $250. 
C)  $500. 
D)  $1,000. 
A)  $100. 
B)  $250. 
C)  $500. 
D)  $1,000.

Question 16

An increase in the monetary base that goes into currency is ________,while an increase that goes into deposits is ________.

Accepted Answer

A)  multiplied; multiplied 
B)  not multiplied; multiplied 
C)  multiplied; not multiplied 
D)  not multiplied; not multiplied 
A)  multiplied; multiplied 
B)  not multiplied; multiplied 
C)  multiplied; not multiplied 
D)  not multiplied; not multiplied

Question 17

Models describing the determination of the money supply and the Fed's role in this process normally focus on ________ rather than ________,since Fed actions have a more predictable effect on the former.

Accepted Answer

A)  reserves; the monetary base 
B)  reserves; high-powered money 
C)  the monetary base; high-powered money 
D)  the monetary base; reserves 
A)  reserves; the monetary base 
B)  reserves; high-powered money 
C)  the monetary base; high-powered money 
D)  the monetary base; reserves

Question 18

In the simple deposit expansion model,a decline in checkable deposits of $500 when the required reserve ratio is equal to 20 percent implies that the Fed

Accepted Answer

A)  sold $250 in government bonds. 
B)  sold $100 in government bonds. 
C)  sold $50 in government bonds. 
D)  purchased $100 in government bonds. 
A)  sold $250 in government bonds. 
B)  sold $100 in government bonds. 
C)  sold $50 in government bonds. 
D)  purchased $100 in government bonds.

Question 19

The monetary base 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 20

In the simple deposit expansion model,if the banking system has excess reserves of $75,and the required reserve ratio is 20%,the potential expansion of checkable deposits is

Accepted Answer

A)  $75. 
B)  $750. 
C)  $37.50. 
D)  $375. 
A)  $75. 
B)  $750. 
C)  $37.50. 
D)  $375.

Exam 14: The Money Supply Process

The relationship between borrowed reserves,the nonborrowed monetary base,and the monetary base is

An increase in Treasury deposits at the Fed causes

In the simple model of multiple deposit creation in which banks do not hold excess reserves,the increase in checkable deposits equals the product of the change in reserves and the

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

If the required reserve ratio is 20 percent,the simple deposit multiplier is

Recognizing the distinction between borrowed reserves and the nonborrowed monetary base,the money supply model is specified as

The volume of loans that the Fed makes to banks is affected by the Fed's setting of the interest rate on these loans,called the

The money supply is ________ related to expected deposit outflows,and is ________ related to the market interest rate.

Assuming initially that rr = 15%,c = 40%,and e = 5%,a decrease in e to 0% causes the M1 money multiplier to ________,everything else held constant.

The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits,excess reserves,and currency is

A bank has excess reserves of $4,000 and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be

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

In the simple deposit expansion model,if the required reserve ratio is 20 percent and the Fed increases reserves by $100,checkable deposits can potentially expand by

An increase in the monetary base that goes into currency is ________,while an increase that goes into deposits is ________.

Models describing the determination of the money supply and the Fed's role in this process normally focus on ________ rather than ________,since Fed actions have a more predictable effect on the former.

In the simple deposit expansion model,a decline in checkable deposits of $500 when the required reserve ratio is equal to 20 percent implies that the Fed

The monetary base minus currency in circulation equals

In the simple deposit expansion model,if the banking system has excess reserves of $75,and the required reserve ratio is 20%,the potential expansion of checkable deposits is

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding 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

Financial Crises

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

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

The ISLM Model

Filters

The money supply is related to expected deposit outflows,and is related to the market interest rate.

An increase in the monetary base that goes into currency is ,while an increase that goes into deposits is .

Models describing the determination of the money supply and the Fed's role in this process normally focus on rather than ,since Fed actions have a more predictable effect on the former.