Question 1

A decrease in the discount rate by the Federal Reserve causes the money stock to expand.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 19-7 Lower Walloon National Bank
  
-In Exhibit 19-7,if the required reserve ratio is increased to 25 percent,the Lower Walloon National bank needs to keep:

Accepted Answer

A)  $2,000 on reserve at all times. 
B)  $2,500 on reserve at all times. 
C)  $10,000 on reserve at all times. 
D)  $0 on reserve at all times. 
E)  legal and excess reserves equal to each other at all times. 
A)  $2,000 on reserve at all times. 
B)  $2,500 on reserve at all times. 
C)  $10,000 on reserve at all times. 
D)  $0 on reserve at all times. 
E)  legal and excess reserves equal to each other at all times.

Question 3

Exhibit 19-4 Balance sheet of Tucker National Bank
  
-The required reserve ratio in Exhibit 19-4 is:

Accepted Answer

A)  5 percent. 
B)  10 percent. 
C)  15 percent. 
D)  20 percent. 
A)  5 percent. 
B)  10 percent. 
C)  15 percent. 
D)  20 percent.

Question 4

Describe the three basic tools used by the Fed to change the money supply.Which of these tools is most relied on in practice? Least relied on? Why?

Accepted Answer

The Fed can use open market operations,c

Question 5

A lowering of the required reserve ratio might not expand the money supply if:

Accepted Answer

A)  tax rates are also lowered at the same time. 
B)  tax rates are increased at the same time. 
C)  borrowers are unwilling to borrow the new funds the banks have available for loans. 
D)  borrowers are willing to borrow the new funds the banks have available for loans.. 
E)  borrowers expand their borrowing because of the lower interest rates that banks offer. 
A)  tax rates are also lowered at the same time. 
B)  tax rates are increased at the same time. 
C)  borrowers are unwilling to borrow the new funds the banks have available for loans. 
D)  borrowers are willing to borrow the new funds the banks have available for loans.. 
E)  borrowers expand their borrowing because of the lower interest rates that banks offer.

Question 6

Exhibit 19-3 Balance sheet of Tucker National Bank
  
-Assume the Fed purchases a government security from a private dealer and pays with a Fed check of $100,000.If this check is deposited by the dealer in the bank shown in Exhibit 19-3,the bank can extend new loans in the amount of:

Accepted Answer

A)  $20,000. 
B)  $80,000. 
C)  $100,000. 
D)  $120,000. 
A)  $20,000. 
B)  $80,000. 
C)  $100,000. 
D)  $120,000.

Question 7

When the Fed wishes to reduce the economy's money supply,it:

Accepted Answer

A)  lowers the discount rate. 
B)  lowers the required reserve ratio. 
C)  reduces the margin requirement. 
D)  sells some of its government securities. 
E)  prints more money. 
A)  lowers the discount rate. 
B)  lowers the required reserve ratio. 
C)  reduces the margin requirement. 
D)  sells some of its government securities. 
E)  prints more money.

Question 8

Exhibit 19-1 Balance sheet of First Iliad State Bank
  
-In Exhibit 19-1,if the required reserve ratio is raised to 15 percent,First Iliad State will have to convert loans worth:

Accepted Answer

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

Question 9

If the economy is inflationary,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 lowering 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 lowering the discount rate. 
D)  decrease bank reserves by selling government securities. 
E)  decrease bank reserves by lowering the legal reserve requirement.

Question 10

If the required reserve ratio is a uniform 25 percent on all deposits,the money multiplier will be:

Accepted Answer

A)  4.00. 
B)  2.50. 
C)  0.40. 
D)  0.25. 
A)  4.00. 
B)  2.50. 
C)  0.40. 
D)  0.25.

Question 11

During a period of inflation,the Fed is likely to:

Accepted Answer

A)  sell government securities to banks in order to reduce the amount of loanable funds. 
B)  buy government securities from banks in order to reduce the amount of loanable funds. 
C)  raise taxes in order to reduce the money supply. 
D)  cut the required reserve ratio in order to reduce the amount of excess reserves banks have to loan out. 
E)  cut the discount rate in order to increase the affordability of loanable funds. 
A)  sell government securities to banks in order to reduce the amount of loanable funds. 
B)  buy government securities from banks in order to reduce the amount of loanable funds. 
C)  raise taxes in order to reduce the money supply. 
D)  cut the required reserve ratio in order to reduce the amount of excess reserves banks have to loan out. 
E)  cut the discount rate in order to increase the affordability of loanable funds.

Question 12

The federal funds rate is the interest rate charged by:

Accepted Answer

A)  banks for loans to other banks. 
B)  the Fed for overnight loans. 
C)  the Fed for borrowed reserves. 
D)  the federal government on loans to member banks. 
A)  banks for loans to other banks. 
B)  the Fed for overnight loans. 
C)  the Fed for borrowed reserves. 
D)  the federal government on loans to member banks.

Question 13

The major assets and liabilities of a bank are:

Accepted Answer

A)  checkable deposits and total reserves, respectively. 
B)  checkable deposits and gold, respectively. 
C)  total reserves and checkable deposits, respectively. 
D)  total reserves and excess reserves, respectively. 
E)  checkable deposits and excess reserves, respectively. 
A)  checkable deposits and total reserves, respectively. 
B)  checkable deposits and gold, respectively. 
C)  total reserves and checkable deposits, respectively. 
D)  total reserves and excess reserves, respectively. 
E)  checkable deposits and excess reserves, respectively.

Question 14

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

Accepted Answer

A)  Increasing the required reserve ratio. 
B)  Selling government bonds in the open market. 
C)  Increasing the discount rate. 
D)  Reducing the required reserve ratio. 
A)  Increasing the required reserve ratio. 
B)  Selling government bonds in the open market. 
C)  Increasing the discount rate. 
D)  Reducing the required reserve ratio.

Question 15

A bank's required reserves are either held as vault cash or:

Accepted Answer

A)  used to purchase Treasury bonds. 
B)  deposited with the Fed. 
C)  invested in the stock market. 
D)  loaned out to other commercial banks. 
A)  used to purchase Treasury bonds. 
B)  deposited with the Fed. 
C)  invested in the stock market. 
D)  loaned out to other commercial banks.

Question 16

Imagine that Odyssey National is a brand new bank,and that its required reserve ratio is 10 percent.If it accepts a $1,000 deposit,then its required reserves balance will be:

Accepted Answer

A)  $0. 
B)  $90. 
C)  $100. 
D)  $900. 
E)  $910 
A)  $0. 
B)  $90. 
C)  $100. 
D)  $900. 
E)  $910

Question 17

If the economy is inflationary,the Fed would most likely:

Accepted Answer

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

Question 18

Suppose Brenda accepts a loan of $10,000 and deposits the money in her checking account.If the required reserve ratio is 10 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)  $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 19

If banks cannot lend all of their excess reserves:

Accepted Answer

A)  the money multiplier increases. 
B)  the money multiplier decreases. 
C)  the money multiplier stays the same. 
D)  the amount of loans by the bank increases. 
E)  checkable deposits decrease. 
A)  the money multiplier increases. 
B)  the money multiplier decreases. 
C)  the money multiplier stays the same. 
D)  the amount of loans by the bank increases. 
E)  checkable deposits decrease.

Question 20

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

Accepted Answer

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

Exam 19: Money Creation

A decrease in the discount rate by the Federal Reserve causes the money stock to expand.

Exhibit 19-7 Lower Walloon National Bank -In Exhibit 19-7,if the required reserve ratio is increased to 25 percent,the Lower Walloon National bank needs to keep:

Exhibit 19-4 Balance sheet of Tucker National Bank -The required reserve ratio in Exhibit 19-4 is:

Describe the three basic tools used by the Fed to change the money supply.Which of these tools is most relied on in practice? Least relied on? Why?

A lowering of the required reserve ratio might not expand the money supply if:

Exhibit 19-3 Balance sheet of Tucker National Bank -Assume the Fed purchases a government security from a private dealer and pays with a Fed check of $100,000.If this check is deposited by the dealer in the bank shown in Exhibit 19-3,the bank can extend new loans in the amount of:

When the Fed wishes to reduce the economy's money supply,it:

Exhibit 19-1 Balance sheet of First Iliad State Bank -In Exhibit 19-1,if the required reserve ratio is raised to 15 percent,First Iliad State will have to convert loans worth:

If the economy is inflationary,the Fed would most likely:

If the required reserve ratio is a uniform 25 percent on all deposits,the money multiplier will be:

During a period of inflation,the Fed is likely to:

The federal funds rate is the interest rate charged by:

The major assets and liabilities of a bank are:

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

A bank's required reserves are either held as vault cash or:

Imagine that Odyssey National is a brand new bank,and that its required reserve ratio is 10 percent.If it accepts a $1,000 deposit,then its required reserves balance will be:

If the economy is inflationary,the Fed would most likely:

Suppose Brenda accepts a loan of $10,000 and deposits the money in her checking account.If the required reserve ratio is 10 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 banks cannot lend all of their excess reserves:

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

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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