Question 1

If the Fed wanted to use all three of its major monetary control tools to decrease the money supply,it would:

Accepted Answer

A)  buy bonds, reduce the discount rate, and reduce reserve requirements. 
B)  sell bonds, reduce the discount rate, and reduce reserve requirements. 
C)  sell bonds, increase the discount rate, and increase reserve requirements. 
D)  buy bonds, increase the discount rate, and increase reserve requirements. 
A)  buy bonds, reduce the discount rate, and reduce reserve requirements. 
B)  sell bonds, reduce the discount rate, and reduce reserve requirements. 
C)  sell bonds, increase the discount rate, and increase reserve requirements. 
D)  buy bonds, increase the discount rate, and increase reserve requirements.

Question 2

As discussed in the text,a bank can extend new loans equal to the amount by which its excess reserves increase.

Accepted Answer

A) True 
 B)False

Question 3

The amount of checkable deposits in an economy cannot exceed the amount of currency that the government has issued.

Accepted Answer

A) True 
 B)False

Question 4

Excess reserves equal total reserves plus required reserves.

Accepted Answer

A) True 
 B)False

Question 5

A decrease in the required reserve ratio will increase banks' excess reserves and decrease the money multiplier.

Accepted Answer

A) True 
 B)False

Question 6

If loans are $69,000,excess reserves are $1,400,and checkable deposits are $80,000,then the required reserve ratio must be:

Accepted Answer

A)  1.75 percent. 
B)  12 percent. 
C)  13.75 percent. 
D)  17.5 percent. 
E)  0.12 percent. 
A)  1.75 percent. 
B)  12 percent. 
C)  13.75 percent. 
D)  17.5 percent. 
E)  0.12 percent.

Question 7

If your bank receives a checkable deposit of $20,000 cash,and the banking system makes loans totaling $60,000,the maximum possible,then the money multiplier must be:

Accepted Answer

A)  2. 
B)  2.5. 
C)  3. 
D)  3.5. 
E)  4. 
A)  2. 
B)  2.5. 
C)  3. 
D)  3.5. 
E)  4.

Question 8

Which of the following would cause the money supply in the United States to decrease?

Accepted Answer

A)  an increase in reserve requirements 
B)  a decrease in the discount rate 
C)  a purchase of U.S. government bonds by the Federal Reserve 
D)  an increase in the world supply of gold 
A)  an increase in reserve requirements 
B)  a decrease in the discount rate 
C)  a purchase of U.S. government bonds by the Federal Reserve 
D)  an increase in the world supply of gold

Question 9

Exhibit 19-4 Balance sheet of Tucker National Bank
  
-Suppose Connie Rich deposits $500 in the bank in Exhibit 19-4.The result would be that the bank must increase its required reserves to:

Accepted Answer

A)  $4,100. 
B)  $4,500. 
C)  $5,100. 
D)  $5,500. 
A)  $4,100. 
B)  $4,500. 
C)  $5,100. 
D)  $5,500.

Question 10

When a recession hits,we would expect the government to run a budget deficit by raising the level of its spending or by cutting taxes,or perhaps both.The Fed would be expected to:

Accepted Answer

A)  reduce the required reserve ratio, increase the discount rate, and buy securities on the open market. 
B)  reduce the required reserve ratio, reduce the discount rate, and sell securities on the open market. 
C)  reduce the required reserve ratio, reduce the discount rate, and buy securities on the open market. 
D)  increase the required reserve ratio, reduce the discount rate, and sell securities on the open market. 
E)  increase the required reserve ratio, increase the discount rate, and sell securities on the open market. 
A)  reduce the required reserve ratio, increase the discount rate, and buy securities on the open market. 
B)  reduce the required reserve ratio, reduce the discount rate, and sell securities on the open market. 
C)  reduce the required reserve ratio, reduce the discount rate, and buy securities on the open market. 
D)  increase the required reserve ratio, reduce the discount rate, and sell securities on the open market. 
E)  increase the required reserve ratio, increase the discount rate, and sell securities on the open market.

Question 11

Which of the following is a bank liability?

Accepted Answer

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

Question 12

Because the banking system operates using fractional reserves,

Accepted Answer

A)  the money multiplier is greater than one. 
B)  excess reserves are equal to zero. 
C)  required reserves are equal to 100 percent. 
D)  banks can loan out only their required reserves. 
E)  the money multiplier must be equal to zero. 
A)  the money multiplier is greater than one. 
B)  excess reserves are equal to zero. 
C)  required reserves are equal to 100 percent. 
D)  banks can loan out only their required reserves. 
E)  the money multiplier must be equal to zero.

Question 13

When the Fed lowers 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 the 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 the 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 14

Exhibit 19-7 Lower Walloon National Bank
  
-In Exhibit 19-7,if the required reserve ratio is 20 percent for all banks,and every bank in the banking system loans out all of its excess reserves.Then a $10,000 deposit from Mr.Brown in checkable deposits could create for the entire banking system:

Accepted Answer

A)  $8,000 worth of new money. 
B)  $2,000 worth of new money. 
C)  $10,000 worth of new money. 
D)  $40,000 worth of new money. 
E)  no new money. 
A)  $8,000 worth of new money. 
B)  $2,000 worth of new money. 
C)  $10,000 worth of new money. 
D)  $40,000 worth of new money. 
E)  no new money.

Question 15

If your bank faces a 20 percent required reserve ratio and receives a cash deposit of $4,000 into a checkable deposit account,the maximum total amount of money possible after the banking system makes all loans is:

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 16

Which of the following is an interest-earning asset of banks?

Accepted Answer

A)  Required reserves. 
B)  Checkable deposits. 
C)  Excess reserves. 
D)  None of the above are interest-earning assets of banks. 
A)  Required reserves. 
B)  Checkable deposits. 
C)  Excess reserves. 
D)  None of the above are interest-earning assets of banks.

Question 17

Suppose Wilma accepts a loan of $10,000 and deposits the money in her checking account.If the required reserve ratio is 20 percent,and if banks loan out all of their reserves,then what is the maximum increase in the money supply after the multiplier effect has fully operated?

Accepted Answer

A)  $2,000. 
B)  $20,000. 
C)  $50,000. 
D)  $45,000. 
E)  $255,000. 
A)  $2,000. 
B)  $20,000. 
C)  $50,000. 
D)  $45,000. 
E)  $255,000.

Question 18

If a bank receives a new checkable deposit of $10,000,and the required reserve ratio is 20 percent,then the bank can lend out:

Accepted Answer

A)  $2,000. 
B)  $10,000. 
C)  $40,000. 
D)  $8,000. 
E)  $0. 
A)  $2,000. 
B)  $10,000. 
C)  $40,000. 
D)  $8,000. 
E)  $0.

Question 19

Which of the following would appear on the asset side of a commercial bank balance sheet?

Accepted Answer

A)  Loans. 
B)  Checkable deposits. 
C)  Savings deposits. 
D)  Net worth. 
A)  Loans. 
B)  Checkable deposits. 
C)  Savings deposits. 
D)  Net worth.

Question 20

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement,then the maximum amount of checkable deposits the bank can have if excess reserves are zero is:

Accepted Answer

A)  $100,000. 
B)  $80,000. 
C)  $300,000. 
D)  $20,000. 
E)  $200,000. 
A)  $100,000. 
B)  $80,000. 
C)  $300,000. 
D)  $20,000. 
E)  $200,000.

Exam 19: Money Creation

If the Fed wanted to use all three of its major monetary control tools to decrease the money supply,it would:

As discussed in the text,a bank can extend new loans equal to the amount by which its excess reserves increase.

The amount of checkable deposits in an economy cannot exceed the amount of currency that the government has issued.

Excess reserves equal total reserves plus required reserves.

A decrease in the required reserve ratio will increase banks' excess reserves and decrease the money multiplier.

If loans are $69,000,excess reserves are $1,400,and checkable deposits are $80,000,then the required reserve ratio must be:

If your bank receives a checkable deposit of $20,000 cash,and the banking system makes loans totaling $60,000,the maximum possible,then the money multiplier must be:

Which of the following would cause the money supply in the United States to decrease?

Exhibit 19-4 Balance sheet of Tucker National Bank -Suppose Connie Rich deposits $500 in the bank in Exhibit 19-4.The result would be that the bank must increase its required reserves to:

When a recession hits,we would expect the government to run a budget deficit by raising the level of its spending or by cutting taxes,or perhaps both.The Fed would be expected to:

Which of the following is a bank liability?

Because the banking system operates using fractional reserves,

When the Fed lowers the required reserve ratio,it:

Exhibit 19-7 Lower Walloon National Bank -In Exhibit 19-7,if the required reserve ratio is 20 percent for all banks,and every bank in the banking system loans out all of its excess reserves.Then a $10,000 deposit from Mr.Brown in checkable deposits could create for the entire banking system:

If your bank faces a 20 percent required reserve ratio and receives a cash deposit of $4,000 into a checkable deposit account,the maximum total amount of money possible after the banking system makes all loans is:

Which of the following is an interest-earning asset of banks?

Suppose Wilma accepts a loan of $10,000 and deposits the money in her checking account.If the required reserve ratio is 20 percent,and if banks loan out all of their reserves,then what is the maximum increase in the money supply after the multiplier effect has fully operated?

If a bank receives a new checkable deposit of $10,000,and the required reserve ratio is 20 percent,then the bank can lend out:

Which of the following would appear on the asset side of a commercial bank balance sheet?

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement,then the maximum amount of checkable deposits the bank can have if excess reserves are zero is:

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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