Question 1

The excess reserves ratio 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 2

If reserves in the banking system increase by $200,then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is

Accepted Answer

A)  0.04. 
B)  0.25. 
C)  0.40. 
D)  0.50. 
A)  0.04. 
B)  0.25. 
C)  0.40. 
D)  0.50.

Question 3

In the simple deposit expansion model,if the Fed extends a $100 discount loan to a bank that previously had no excess reserves,the bank can now increase its loans by

Accepted Answer

A)  $10. 
B)  $100. 
C)  $100 times the reciprocal of the required reserve ratio. 
D)  $100 times the required reserve ratio. 
A)  $10. 
B)  $100. 
C)  $100 times the reciprocal of the required reserve ratio. 
D)  $100 times the required reserve ratio.

Question 4

In the simple deposit expansion model,an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed

Accepted Answer

A)  sold $200 in government bonds. 
B)  sold $500 in government bonds. 
C)  purchased $200 in government bonds. 
D)  purchased $500 in government bonds. 
A)  sold $200 in government bonds. 
B)  sold $500 in government bonds. 
C)  purchased $200 in government bonds. 
D)  purchased $500 in government bonds.

Question 5

If the required reserve ratio is equal to 10 percent,a single bank can increase its loans up to a maximum amount equal to

Accepted Answer

A)  its excess reserves. 
B)  10 times its excess reserves. 
C)  10 percent of its excess reserves. 
D)  its total reserves. 
A)  its excess reserves. 
B)  10 times its excess reserves. 
C)  10 percent of its excess reserves. 
D)  its total reserves.

Question 6

The M2 money multiplier is

Accepted Answer

A)  negatively related to high-powered money. 
B)  positively related to the time deposit ratio. 
C)  positively related to the required reserve ratio. 
D)  positively related to the excess reserves ratio. 
A)  negatively related to high-powered money. 
B)  positively related to the time deposit ratio. 
C)  positively related to the required reserve ratio. 
D)  positively related to the excess reserves ratio.

Question 7

If the required reserve ratio is 15 percent,the simple deposit multiplier is

Accepted Answer

A)  15.0. 
B)  1.5. 
C)  6.67. 
D)  3.33. 
A)  15.0. 
B)  1.5. 
C)  6.67. 
D)  3.33.

Question 8

A simple deposit multiplier equal to one implies a required reserve ratio equal to

Accepted Answer

A)  100 percent. 
B)  50 percent. 
C)  25 percent. 
D)  0 percent. 
A)  100 percent. 
B)  50 percent. 
C)  25 percent. 
D)  0 percent.

Question 9

Since the Federal Reserve sets the required reserve ratio to less than one,one dollar of reserves can support ________ of checkable deposits.

Accepted Answer

A)  exactly one dollar 
B)  less than one dollar 
C)  more than one dollar 
D)  exactly twice the amount 
A)  exactly one dollar 
B)  less than one dollar 
C)  more than one dollar 
D)  exactly twice the amount

Question 10

Decisions by depositors to increase their holdings of ________,or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts.

Accepted Answer

A)  deposits; required reserves 
B)  deposits; excess reserves 
C)  currency; required reserves 
D)  currency; excess reserves 
A)  deposits; required reserves 
B)  deposits; excess reserves 
C)  currency; required reserves 
D)  currency; excess reserves

Question 11

During the bank panics of the Great Depression the excess reserve ratio

Accepted Answer

A)  increased sharply. 
B)  decreased sharply. 
C)  increased slightly. 
D)  decreased slightly. 
A)  increased sharply. 
B)  decreased sharply. 
C)  increased slightly. 
D)  decreased slightly.

Question 12

Total reserves are the sum of ________ and ________.

Accepted Answer

A)  excess reserves; borrowed reserves 
B)  required reserves; currency in circulation 
C)  vault cash; excess reserves 
D)  excess reserves; required reserves 
A)  excess reserves; borrowed reserves 
B)  required reserves; currency in circulation 
C)  vault cash; excess reserves 
D)  excess reserves; required reserves

Question 13

If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 10 percent,then the bank has actual reserves of

Accepted Answer

A)  $14,000. 
B)  $17,000. 
C)  $22,000. 
D)  $27,000. 
A)  $14,000. 
B)  $17,000. 
C)  $22,000. 
D)  $27,000.

Question 14

If reserves in the banking system increase by $100,then checkable deposits will increase by $400 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)  0.25. 
A)  0.01. 
B)  0.10. 
C)  0.20. 
D)  0.25.

Question 15

Which of the following are not assets on the Fed's balance sheet?

Accepted Answer

A)  Discount loans 
B)  U.S. Treasury deposits 
C)  Cash items in the process of collection 
D)  U.S. Treasury bills 
A)  Discount loans 
B)  U.S. Treasury deposits 
C)  Cash items in the process of collection 
D)  U.S. Treasury bills

Question 16

The monetary base increased by 20% during the contraction of 1929-1933,but the money supply fell by 25%.Explain why this occurred.How can the money supply fall when the base increases?

Accepted Answer

The banking crisis caused the public to

Question 17

If the Fed injects reserves into the banking system and they are held as excess reserves,then the money supply

Accepted Answer

A)  increases by only the initial increase in reserves. 
B)  increases by only one-half the initial increase in reserves. 
C)  increases by a multiple of the initial increase in reserves. 
D)  does not change. 
A)  increases by only the initial increase in reserves. 
B)  increases by only one-half the initial increase in reserves. 
C)  increases by a multiple of the initial increase in reserves. 
D)  does not change.

Question 18

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 19

When the Fed sells $100 worth of bonds to First National Bank,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 20

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 nine million dollars in excess reserves. Given this information,we can say First National Bank has ________ million dollars in required reserves.

Accepted Answer

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

Exam 14: The Money Supply Process

The excess reserves ratio is ________ related to expected deposit outflows,and is ________ related to the market interest rate.

If reserves in the banking system increase by $200,then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is

In the simple deposit expansion model,if the Fed extends a $100 discount loan to a bank that previously had no excess reserves,the bank can now increase its loans by

In the simple deposit expansion model,an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed

If the required reserve ratio is equal to 10 percent,a single bank can increase its loans up to a maximum amount equal to

The M2 money multiplier is

If the required reserve ratio is 15 percent,the simple deposit multiplier is

A simple deposit multiplier equal to one implies a required reserve ratio equal to

Since the Federal Reserve sets the required reserve ratio to less than one,one dollar of reserves can support ________ of checkable deposits.

Decisions by depositors to increase their holdings of ________,or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts.

During the bank panics of the Great Depression the excess reserve ratio

Total reserves are the sum of ________ and ________.

If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 10 percent,then the bank has actual reserves of

If reserves in the banking system increase by $100,then checkable deposits will increase by $400 in the simple model of deposit creation when the required reserve ratio is

Which of the following are not assets on the Fed's balance sheet?

The monetary base increased by 20% during the contraction of 1929-1933,but the money supply fell by 25%.Explain why this occurred.How can the money supply fall when the base increases?

If the Fed injects reserves into the banking system and they are held as excess reserves,then the money supply

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

When the Fed sells $100 worth of bonds to First National Bank,reserves in the banking system

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 excess reserves ratio is related to expected deposit outflows,and is related to the market interest rate.

Decisions by depositors to increase their holdings of ,or of banks to hold will result in a smaller expansion of deposits than the simple model predicts.

Total reserves are the sum of and .