Question 1

Which of the following correctly is the money multiplier?

Accepted Answer

A)  The required reserve ratio. 
B)  1/(1 - the required reserve ratio). 
C)  1/(required reserve ratio). 
D)  1/(1 - MP
C) . 
A)  The required reserve ratio. 
B)  1/(1 - the required reserve ratio). 
C)  1/(required reserve ratio). 
D)  1/(1 - MP
C) . C

Question 2

Jeff Kaufman decides to bank with Paris First National Bank (PFN).He opens a checking account by depositing $1,000.According to the PFN balance sheet,after this initial $1,000 checkable deposit,there are $1,000 in:

Accepted Answer

A)  reserves and $1,000 in checkable deposits. 
B)  liabilities and $2,000 in checkable deposits. 
C)  checkable deposits and $0 in assets. 
D)  assets and $0 in liabilities. 
E)  reserves and $0 in liabilities. 
A)  reserves and $1,000 in checkable deposits. 
B)  liabilities and $2,000 in checkable deposits. 
C)  checkable deposits and $0 in assets. 
D)  assets and $0 in liabilities. 
E)  reserves and $0 in liabilities. A

Question 3

Exhibit 19-3 Balance sheet of Tucker National Bank
  
-Assume all banks in the system started with balance sheets as shown in Exhibit 19-3 and the Fed made a $100,000 open market purchase.The result would be a(n):

Accepted Answer

A)  $500,000 expansion of the money supply. 
B)  $100,000 expansion of the money supply. 
C)  $20,000 contraction of the money supply. 
D)  infinite contraction of the money supply. 
E)  infinite expansion of the money supply. 
A)  $500,000 expansion of the money supply. 
B)  $100,000 expansion of the money supply. 
C)  $20,000 contraction of the money supply. 
D)  infinite contraction of the money supply. 
E)  infinite expansion of the money supply. A

Question 4

If your bank faces a 20 percent required reserve ratio and receives a checkable deposit of $4,000,it can make additional loans worth a maximum of:

Accepted Answer

A)  $800. 
B)  $3,200. 
C)  $4,000. 
D)  $16,000. 
E)  $20,000. 
A)  $800. 
B)  $3,200. 
C)  $4,000. 
D)  $16,000. 
E)  $20,000.

Question 5

The required reserves of a bank are:

Accepted Answer

A)  held as deposits with the Federal Reserve System. 
B)  equal to its loans. 
C)  equal to its checkable deposits. 
D)  none of the above. 
A)  held as deposits with the Federal Reserve System. 
B)  equal to its loans. 
C)  equal to its checkable deposits. 
D)  none of the above.

Question 6

Which of the following directs the buying and selling of U.S.government securities?

Accepted Answer

A)  Board of Governors. 
B)  Federal Reserve Banks. 
C)  Federal Open Market Committee. 
D)  Federal Advisory Council. 
E)  Member banks. 
A)  Board of Governors. 
B)  Federal Reserve Banks. 
C)  Federal Open Market Committee. 
D)  Federal Advisory Council. 
E)  Member banks.

Question 7

The buying and selling of government securities by the Fed is known as:

Accepted Answer

A)  open market operations. 
B)  federal bond operations. 
C)  treasury bond operations. 
D)  open bonds operations. 
E)  discount rate operations. 
A)  open market operations. 
B)  federal bond operations. 
C)  treasury bond operations. 
D)  open bonds operations. 
E)  discount rate operations.

Question 8

Suppose a securities dealer sells a $10,000 Treasury bond to the Fed and deposits the money in its bank account.If the required reserve ratio is 10 percent,and if banks loan out all of their excess reserves,then what is the maximum increases in the money supply after the multiplier effect has fully operated?

Accepted Answer

A)  $1,000. 
B)  $10,000. 
C)  $90,000. 
D)  $1,000,000. 
A)  $1,000. 
B)  $10,000. 
C)  $90,000. 
D)  $1,000,000.

Question 9

Most of the Fed's assets are held in the form of loans to its member banks.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following events would reduce the size of the "real-world" money multiplier?

Accepted Answer

A)  Banks hold more excess reserves. 
B)  Households hold less currency. 
C)  The Fed increases the discount rate. 
D)  The Fed reduces the required reserve ratio. 
A)  Banks hold more excess reserves. 
B)  Households hold less currency. 
C)  The Fed increases the discount rate. 
D)  The Fed reduces the required reserve ratio.

Question 11

An increase in the discount rate by the Federal Reserve causes the money stock to expand.

Accepted Answer

A) True 
 B)False

Question 12

If there is a recession,the Fed would most likely:

Accepted Answer

A)  encourage banks to provide loans by lowering the discount rate. 
B)  encourage banks to provide loans by raising the discount rate. 
C)  restrict bank lending by lowering the discount rate. 
D)  restrict bank lending by raising the discount rate. 
E)  restrict bank lending by lowering the federal funds rate. 
A)  encourage banks to provide loans by lowering the discount rate. 
B)  encourage banks to provide loans by raising the discount rate. 
C)  restrict bank lending by lowering the discount rate. 
D)  restrict bank lending by raising the discount rate. 
E)  restrict bank lending by lowering the federal funds rate.

Question 13

In a system in which all banks have a uniform reserve requirement,the money multiplier is equal to 1 divided by the prime rate.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is an appropriate monetary policy if the Fed wants to increase the money supply?

Accepted Answer

A)  An increase in the required reserve ratio. 
B)  An increase in the discount rate. 
C)  Purchases of bonds in open market operations. 
D)  Higher taxes on interest income. 
A)  An increase in the required reserve ratio. 
B)  An increase in the discount rate. 
C)  Purchases of bonds in open market operations. 
D)  Higher taxes on interest income.

Question 15

In a simplified system,a bank receiving a new deposit can extend new loans equal to the amount by which its excess reserves increase.

Accepted Answer

A) True 
 B)False

Question 16

The amount of assets that a bank must hold at all times is determined by the:

Accepted Answer

A)  banks' actual reserves. 
B)  required reserve ratio. 
C)  actual reserve requirement. 
D)  fractional reserve requirement. 
E)  excess reserve requirement. 
A)  banks' actual reserves. 
B)  required reserve ratio. 
C)  actual reserve requirement. 
D)  fractional reserve requirement. 
E)  excess reserve requirement.

Question 17

If there is a recession,the Fed would most likely:

Accepted Answer

A)  increase bank reserves by raising the discount rate. 
B)  increase bank reserves by buying government securities. 
C)  decrease bank reserves by raising the discount rate. 
D)  decrease bank reserves by selling government securities. 
E)  decrease bank reserves by lowering the legal reserve requirement. 
A)  increase bank reserves by raising the discount rate. 
B)  increase bank reserves by buying government securities. 
C)  decrease bank reserves by raising the discount rate. 
D)  decrease bank reserves by selling government securities. 
E)  decrease bank reserves by lowering the legal reserve requirement.

Question 18

An increase in the required reserve ratio by the Federal Reserve would:

Accepted Answer

A)  cause M1 to contract. 
B)  cause M1 to expand. 
C)  have no effect on M1 or M2. 
D)  affect only M2, not M1. 
A)  cause M1 to contract. 
B)  cause M1 to expand. 
C)  have no effect on M1 or M2. 
D)  affect only M2, not M1.

Question 19

Which of the following would be classified as a liability for a bank?

Accepted Answer

A)  Required reserves. 
B)  Excess reserves. 
C)  Loans. 
D)  Checkable deposits. 
A)  Required reserves. 
B)  Excess reserves. 
C)  Loans. 
D)  Checkable deposits.

Question 20

If Matt Taylor gets his $800 loan from the Paris First National Bank in cash rather than in the form of a new checkable deposit,the:

Accepted Answer

A)  Paris First National Bank will get $800 in new reserves. 
B)  Paris First National Bank will not get $800 in new reserves. 
C)  assets of the Paris First National Bank will increase by $800. 
D)  assets of the Paris First National Bank will decease by $88. 
E)  liabilities of the Paris First National Bank will increase by $800. 
A)  Paris First National Bank will get $800 in new reserves. 
B)  Paris First National Bank will not get $800 in new reserves. 
C)  assets of the Paris First National Bank will increase by $800. 
D)  assets of the Paris First National Bank will decease by $88. 
E)  liabilities of the Paris First National Bank will increase by $800.

Exam 19: Money Creation

Which of the following correctly is the money multiplier?

Jeff Kaufman decides to bank with Paris First National Bank (PFN).He opens a checking account by depositing $1,000.According to the PFN balance sheet,after this initial $1,000 checkable deposit,there are $1,000 in:

Exhibit 19-3 Balance sheet of Tucker National Bank -Assume all banks in the system started with balance sheets as shown in Exhibit 19-3 and the Fed made a $100,000 open market purchase.The result would be a(n):

If your bank faces a 20 percent required reserve ratio and receives a checkable deposit of $4,000,it can make additional loans worth a maximum of:

The required reserves of a bank are:

Which of the following directs the buying and selling of U.S.government securities?

The buying and selling of government securities by the Fed is known as:

Most of the Fed's assets are held in the form of loans to its member banks.

Which of the following events would reduce the size of the "real-world" money multiplier?

An increase in the discount rate by the Federal Reserve causes the money stock to expand.

If there is a recession,the Fed would most likely:

In a system in which all banks have a uniform reserve requirement,the money multiplier is equal to 1 divided by the prime rate.

Which of the following is an appropriate monetary policy if the Fed wants to increase the money supply?

In a simplified system,a bank receiving a new deposit can extend new loans equal to the amount by which its excess reserves increase.

The amount of assets that a bank must hold at all times is determined by the:

If there is a recession,the Fed would most likely:

An increase in the required reserve ratio by the Federal Reserve would:

Which of the following would be classified as a liability for a bank?

If Matt Taylor gets his $800 loan from the Paris First National Bank in cash rather than in the form of a new checkable deposit,the:

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Monetary Policy

A: Appendix: Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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