Question 1

Reserve of banks appears on their balance sheet as liabilities.

Accepted Answer

A) True 
 B)False

Question 2

Assume that the Paris First National Bank currently has deposits of $20 million.If the current required reserve ratio is raised from 20 percent to 40 percent,then:

Accepted Answer

A)  Paris First National Bank does not have to comply with the Federal Reserve mandate. 
B)  required reserves will decrease from $16 million to $12 million. 
C)  excess reserves will automatically increase by $20 million. 
D)  Paris First National Bank must close out 4 million in loans. 
E)  Paris First National Bank must increase its required reserves from $4 million to $8 million. 
A)  Paris First National Bank does not have to comply with the Federal Reserve mandate. 
B)  required reserves will decrease from $16 million to $12 million. 
C)  excess reserves will automatically increase by $20 million. 
D)  Paris First National Bank must close out 4 million in loans. 
E)  Paris First National Bank must increase its required reserves from $4 million to $8 million.

Question 3

Suppose the required reserve ratio is 3 percent,and currency and reserves total $10 million.The maximum money supply that can be supported is:

Accepted Answer

A)  $13 million. 
B)  $30 million. 
C)  $97 million. 
D)  $333.3 million. 
A)  $13 million. 
B)  $30 million. 
C)  $97 million. 
D)  $333.3 million.

Question 4

The required reserve ratio is:

Accepted Answer

A)  the minimum amount of reserves the Fed requires a bank to hold. 
B)  the interest rate that the Fed charges banks who borrow from it. 
C)  the interest rate on loans made by banks to other banks. 
D)  the maximum percentage of the cost of a stock that can be borrowed from a bank, with the stock offered as collateral. 
E)  an appeal by the Fed to banks, asking for voluntary compliance with the Fed's wishes. 
A)  the minimum amount of reserves the Fed requires a bank to hold. 
B)  the interest rate that the Fed charges banks who borrow from it. 
C)  the interest rate on loans made by banks to other banks. 
D)  the maximum percentage of the cost of a stock that can be borrowed from a bank, with the stock offered as collateral. 
E)  an appeal by the Fed to banks, asking for voluntary compliance with the Fed's wishes.

Question 5

Which of the following is in charge of the buying and selling of government securities by the Fed?

Accepted Answer

A)  The president. 
B)  The Federal Open Market Committee. 
C)  The Congress. 
D)  None of the above. 
A)  The president. 
B)  The Federal Open Market Committee. 
C)  The Congress. 
D)  None of the above.

Question 6

If a bank receives a new deposit of $10,000,and the required reserve ratio is 25 percent,then the new money that can be created by the banking system,including the initial deposit,is:

Accepted Answer

A)  $25,000. 
B)  $2,500. 
C)  $4,000. 
D)  $40,000. 
E)  $10,000. 
A)  $25,000. 
B)  $2,500. 
C)  $4,000. 
D)  $40,000. 
E)  $10,000.

Question 7

Banks normally hold few excess reserves because this practice is:

Accepted Answer

A)  subject to an excess reserves tax. 
B)  not profitable. 
C)  against Fed policy. 
D)  illegal. 
A)  subject to an excess reserves tax. 
B)  not profitable. 
C)  against Fed policy. 
D)  illegal.

Question 8

If there is a recession,the Fed would most likely encourage banks to provide loans by:

Accepted Answer

A)  buying government securities. 
B)  raising the discount rate. 
C)  selling government securities. 
D)  raising the federal funds rate. 
A)  buying government securities. 
B)  raising the discount rate. 
C)  selling government securities. 
D)  raising the federal funds rate.

Question 9

In the banking system of the United States,banks that wish to borrow to make up reserve deficiencies must turn to the federal funds market.

Accepted Answer

A) True 
 B)False

Question 10

Banks create money when they make loans.

Accepted Answer

A) True 
 B)False

Question 11

The Fed can raise the discount rate when it wants to:

Accepted Answer

A)  decrease the money supply. 
B)  increase the money supply. 
C)  decrease the budget deficit. 
D)  increase the budget deficit. 
A)  decrease the money supply. 
B)  increase the money supply. 
C)  decrease the budget deficit. 
D)  increase the budget deficit.

Question 12

In a simplified banking system with a 20 percent required reserve ratio,a $1,000 open-market sale by the Fed would cause the money supply to:

Accepted Answer

A)  increase by $200. 
B)  decrease by $200. 
C)  decrease by $5,000. 
D)  increase by $5,000. 
A)  increase by $200. 
B)  decrease by $200. 
C)  decrease by $5,000. 
D)  increase by $5,000.

Question 13

In a simplified banking system,the money multiplier falls as the required reserve ratio rises.

Accepted Answer

A) True 
 B)False

Question 14

When the Federal Reserve System wants to increase the money supply,which of the following actions would the Fed choose?

Accepted Answer

A)  It purchases U.S. government securities. 
B)  It increases the discount rate. 
C)  It increases the required reserve ratio. 
D)  It sells bonds on the open market. 
A)  It purchases U.S. government securities. 
B)  It increases the discount rate. 
C)  It increases the required reserve ratio. 
D)  It sells bonds on the open market.

Question 15

Exhibit 19-6 Balance sheet of Tucker National Bank
  
-The required reserve ratio in Exhibit 19-6 is:

Accepted Answer

A)  10 percent. 
B)  20 percent. 
C)  80 percent. 
D)  100 percent. 
A)  10 percent. 
B)  20 percent. 
C)  80 percent. 
D)  100 percent.

Question 16

The market where banks borrow from other banks for short periods of time is the:

Accepted Answer

A)  discount market. 
B)  federal funds market. 
C)  inter-bank loan market. 
D)  national bank market. 
E)  liquidity market. 
A)  discount market. 
B)  federal funds market. 
C)  inter-bank loan market. 
D)  national bank market. 
E)  liquidity market.

Question 17

Exhibit 19-1 Balance sheet of First Iliad State Bank
  
-In Exhibit 19-1,if the required reserve ratio is lowered to 5 percent,First Iliad State will be able to make additional loans worth:

Accepted Answer

A)  $9,000,000. 
B)  $1,500,000. 
C)  $500,000. 
D)  $1,000,000. 
E)  $450,000. 
A)  $9,000,000. 
B)  $1,500,000. 
C)  $500,000. 
D)  $1,000,000. 
E)  $450,000.

Question 18

How can the Fed increase the money supply? How can the Fed decrease the money supply? Be specific.

Accepted Answer

To increase the money supply the Fed sho

Question 19

If a bank keeps some of its excess reserves,the money multiplier:

Accepted Answer

A)  increases. 
B)  stays the same. 
C)  goes to zero. 
D)  decreases. 
E)  increases, then decreases. 
A)  increases. 
B)  stays the same. 
C)  goes to zero. 
D)  decreases. 
E)  increases, then decreases.

Question 20

The quantity of reserves held by a bank in addition to the legally required amounts is known as:

Accepted Answer

A)  actual reserves. 
B)  excess reserves. 
C)  the required reserve ratio. 
D)  the money multiplier. 
E)  the monetary base. 
A)  actual reserves. 
B)  excess reserves. 
C)  the required reserve ratio. 
D)  the money multiplier. 
E)  the monetary base.

Exam 19: Money Creation

Reserve of banks appears on their balance sheet as liabilities.

Assume that the Paris First National Bank currently has deposits of $20 million.If the current required reserve ratio is raised from 20 percent to 40 percent,then:

Suppose the required reserve ratio is 3 percent,and currency and reserves total $10 million.The maximum money supply that can be supported is:

The required reserve ratio is:

Which of the following is in charge of the buying and selling of government securities by the Fed?

If a bank receives a new deposit of $10,000,and the required reserve ratio is 25 percent,then the new money that can be created by the banking system,including the initial deposit,is:

Banks normally hold few excess reserves because this practice is:

If there is a recession,the Fed would most likely encourage banks to provide loans by:

In the banking system of the United States,banks that wish to borrow to make up reserve deficiencies must turn to the federal funds market.

Banks create money when they make loans.

The Fed can raise the discount rate when it wants to:

In a simplified banking system with a 20 percent required reserve ratio,a $1,000 open-market sale by the Fed would cause the money supply to:

In a simplified banking system,the money multiplier falls as the required reserve ratio rises.

When the Federal Reserve System wants to increase the money supply,which of the following actions would the Fed choose?

Exhibit 19-6 Balance sheet of Tucker National Bank -The required reserve ratio in Exhibit 19-6 is:

The market where banks borrow from other banks for short periods of time is the:

Exhibit 19-1 Balance sheet of First Iliad State Bank -In Exhibit 19-1,if the required reserve ratio is lowered to 5 percent,First Iliad State will be able to make additional loans worth:

How can the Fed increase the money supply? How can the Fed decrease the money supply? Be specific.

If a bank keeps some of its excess reserves,the money multiplier:

The quantity of reserves held by a bank in addition to the legally required amounts is known as:

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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