Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy?

Accepted Answer

A)  Buy U.S. government securities. 
B)  Force the Treasury to reduce the national debt. 
C)  Raise the discount rate. 
D)  Increase the reserve requirements. 
A)  Buy U.S. government securities. 
B)  Force the Treasury to reduce the national debt. 
C)  Raise the discount rate. 
D)  Increase the reserve requirements.

Question 3

When the Fed raises the required reserve ratio,it:

Accepted Answer

A)  lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. 
B)  raises the cost of borrowing from the Fed, discouraging banks from making loans to the general public. 
C)  increases the amount of excess reserves that banks hold, encouraging them to make loans to he general public. 
D)  increases the amount of excess reserves that banks hold, discouraging them from making loans to the general public. 
E)  decreases the amount of excess reserves that banks hold, discouraging them from making loans to the general public. 
A)  lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public. 
B)  raises the cost of borrowing from the Fed, discouraging banks from making loans to the general public. 
C)  increases the amount of excess reserves that banks hold, encouraging them to make loans to he general public. 
D)  increases the amount of excess reserves that banks hold, discouraging them from making loans to the general public. 
E)  decreases the amount of excess reserves that banks hold, discouraging them from making loans to the general public.

Question 4

Which of the following actions by the Fed would increase the money supply?

Accepted Answer

A)  Reducing the required reserve ratio. 
B)  Selling government bonds in the open market. 
C)  Increasing the discount rate. 
D)  None of the above. 
A)  Reducing the required reserve ratio. 
B)  Selling government bonds in the open market. 
C)  Increasing the discount rate. 
D)  None of the above.

Question 5

Suppose the Fed bought $150 million of U.S.securities from security dealers.The reserve requirement is 20 percent,and there are no initial excess reserves.A few weeks later,if the public's holdings of currency are constant and the banks have loaned all excess reserves,the money supply will increase by:

Accepted Answer

A)  $150 million. 
B)  $300 million. 
C)  $600 million. 
D)  $750 million. 
A)  $150 million. 
B)  $300 million. 
C)  $600 million. 
D)  $750 million.

Question 6

When the discount rate rises,the cost:

Accepted Answer

A)  of loans to bankers, best customers goes up. 
B)  of loans between banks rises. 
C)  of international loans rises. 
D)  to savings and loans of borrowing money from the public falls. 
E)  to banks of borrowing from the Fed falls. 
A)  of loans to bankers, best customers goes up. 
B)  of loans between banks rises. 
C)  of international loans rises. 
D)  to savings and loans of borrowing money from the public falls. 
E)  to banks of borrowing from the Fed falls.

Question 7

An open-market purchase by the Federal Reserve injects excess reserves into the banking system and allows the money supply to expand.

Accepted Answer

A) True 
 B)False

Question 8

Exhibit 19-1 Balance sheet of First Iliad State Bank
  
-In Exhibit 19-1,if the required reserve ratio is lowered to 8 percent,then First Iliad State will:

Accepted Answer

A)  have to convert loans worth $800,000 to required reserves 
B)  have to convert loans worth $200,000 to required reserves. 
C)  be able to make additional loans worth $800,000. 
D)  be able to make additional loans worth $200,000. 
E)  not have to act. 
A)  have to convert loans worth $800,000 to required reserves 
B)  have to convert loans worth $200,000 to required reserves. 
C)  be able to make additional loans worth $800,000. 
D)  be able to make additional loans worth $200,000. 
E)  not have to act.

Question 9

Exhibit 19-2 Balance Sheet of Springfield National Bank
  
-In Exhibit 19-2,if Springfield National's customers write checks for $200 and the required reserve ratio is 20 percent,then its required reserves fall to:

Accepted Answer

A)  $0. 
B)  $40. 
C)  $160. 
D)  $460. 
E)  $260. 
A)  $0. 
B)  $40. 
C)  $160. 
D)  $460. 
E)  $260.

Question 10

In a commercial bank's T-account,reserves and outstanding loans are recorded as:

Accepted Answer

A)  debts. 
B)  profits. 
C)  assets. 
D)  liabilities. 
A)  debts. 
B)  profits. 
C)  assets. 
D)  liabilities.

Question 11

The federal funds market is the market in which:

Accepted Answer

A)  banks borrow from the Fed. 
B)  bank customers borrow from their banks 
C)  banks borrow from each other. 
D)  the federal government borrows from the Fed. 
E)  the federal government borrows from members of the general public. 
A)  banks borrow from the Fed. 
B)  bank customers borrow from their banks 
C)  banks borrow from each other. 
D)  the federal government borrows from the Fed. 
E)  the federal government borrows from members of the general public.

Question 12

Assume a simplified banking system subject to a 20 percent required reserve ratio.If there is an initial increase in excess reserves of $100,000,the money supply:

Accepted Answer

A)  increases $100,000. 
B)  increases $500,000. 
C)  increases $600,000. 
D)  decreases $500,000. 
A)  increases $100,000. 
B)  increases $500,000. 
C)  increases $600,000. 
D)  decreases $500,000.

Question 13

Exhibit 19-5 Balance sheet of Tucker National Bank
  
-Suppose Brad Jones deposits $20,000 into his checking account in the bank shown in Exhibit 19-5.The result would be that the bank must increase its required reserves to:

Accepted Answer

A)  $ 5,000. 
B)  $20,000. 
C)  $25,000. 
D)  $30,000. 
A)  $ 5,000. 
B)  $20,000. 
C)  $25,000. 
D)  $30,000.

Question 14

Suppose a bank has checkable deposits of $100,000 and the required reserve ratio is 20 percent.If the bank currently has $100,000 in reserves,it could expand the money supply by as much as:

Accepted Answer

A)  $100,000. 
B)  $400,000. 
C)  $0. 
D)  $20,000. 
E)  $80,000. 
A)  $100,000. 
B)  $400,000. 
C)  $0. 
D)  $20,000. 
E)  $80,000.

Question 15

When the Fed lowers the discount rate,it makes it:

Accepted Answer

A)  cheaper for banks to borrow from each other. 
B)  cheaper for banks to obtain additional reserves by borrowing from the Fed. 
C)  more difficult for banks to accept deposits. 
D)  more difficult for banks to extend loans. 
A)  cheaper for banks to borrow from each other. 
B)  cheaper for banks to obtain additional reserves by borrowing from the Fed. 
C)  more difficult for banks to accept deposits. 
D)  more difficult for banks to extend loans.

Question 16

When the Fed conducts open market operations,it buys and sells:

Accepted Answer

A)  stocks. 
B)  government securities. 
C)  foreign currency 
D)  gold. 
A)  stocks. 
B)  government securities. 
C)  foreign currency 
D)  gold.

Question 17

The Fed's countercyclical policy tools to eliminate a recession include lowering:

Accepted Answer

A)  the required reserve ratio, cutting the discount rate, and selling government bonds on the open market. 
B)  the required reserve ratio, raising the discount rate, and selling government bonds on the open market. 
C)  the required reserve ratio, raising the discount rate, and buying government bonds on the open market. 
D)  the discount rate, cutting the discount rate, and raising the margin requirement. 
E)  the reserve requirement, lowering the discount rate, and buying government bonds on the open market. 
A)  the required reserve ratio, cutting the discount rate, and selling government bonds on the open market. 
B)  the required reserve ratio, raising the discount rate, and selling government bonds on the open market. 
C)  the required reserve ratio, raising the discount rate, and buying government bonds on the open market. 
D)  the discount rate, cutting the discount rate, and raising the margin requirement. 
E)  the reserve requirement, lowering the discount rate, and buying government bonds on the open market.

Question 18

If loans are $300,000,checkable deposits are $600,000,and the required reserve ratio is 40 percent,then excess reserves are:

Accepted Answer

A)  $360,000. 
B)  $240,000. 
C)  $120,000. 
D)  $60,000. 
E)  $30,000. 
A)  $360,000. 
B)  $240,000. 
C)  $120,000. 
D)  $60,000. 
E)  $30,000.

Question 19

The required reserve ratio for a bank is set by:

Accepted Answer

A)  Congress. 
B)  the bank itself. 
C)  the Treasury Department. 
D)  the banking system. 
E)  the Federal Reserve. 
A)  Congress. 
B)  the bank itself. 
C)  the Treasury Department. 
D)  the banking system. 
E)  the Federal Reserve.

Question 20

Assume all banks in the system started have a 10 percent required reserve ratio and the Fed made a $20,000 open market purchase.The result would be a(n):

Accepted Answer

A)  $200,000 expansion of the money supply. 
B)  $20,000 expansion of the money supply. 
C)  $20,000 contraction of the money supply. 
D)  infinite contraction of the money supply. 
A)  $200,000 expansion of the money supply. 
B)  $20,000 expansion of the money supply. 
C)  $20,000 contraction of the money supply. 
D)  infinite contraction of the money supply.

Exam 19: Money Creation

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

Which of the following would be most appropriate if the Federal Reserve wanted to increase the money supply in order to stimulate the economy?

When the Fed raises the required reserve ratio,it:

Which of the following actions by the Fed would increase the money supply?

When the discount rate rises,the cost:

An open-market purchase by the Federal Reserve injects excess reserves into the banking system and allows the money supply to expand.

Exhibit 19-1 Balance sheet of First Iliad State Bank -In Exhibit 19-1,if the required reserve ratio is lowered to 8 percent,then First Iliad State will:

Exhibit 19-2 Balance Sheet of Springfield National Bank -In Exhibit 19-2,if Springfield National's customers write checks for $200 and the required reserve ratio is 20 percent,then its required reserves fall to:

In a commercial bank's T-account,reserves and outstanding loans are recorded as:

The federal funds market is the market in which:

Assume a simplified banking system subject to a 20 percent required reserve ratio.If there is an initial increase in excess reserves of $100,000,the money supply:

Exhibit 19-5 Balance sheet of Tucker National Bank -Suppose Brad Jones deposits $20,000 into his checking account in the bank shown in Exhibit 19-5.The result would be that the bank must increase its required reserves to:

Suppose a bank has checkable deposits of $100,000 and the required reserve ratio is 20 percent.If the bank currently has $100,000 in reserves,it could expand the money supply by as much as:

When the Fed lowers the discount rate,it makes it:

When the Fed conducts open market operations,it buys and sells:

The Fed's countercyclical policy tools to eliminate a recession include lowering:

If loans are $300,000,checkable deposits are $600,000,and the required reserve ratio is 40 percent,then excess reserves are:

The required reserve ratio for a bank is set by:

Assume all banks in the system started have a 10 percent required reserve ratio and the Fed made a $20,000 open market purchase.The result would be a(n):

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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