Question 1

Economists estimate that the total lag for monetary policy is about:

Accepted Answer

A)  1-2 days. 
B)  2 weeks to 1 month. 
C)  3-12 months. 
D)  2-4 years. 
A)  1-2 days. 
B)  2 weeks to 1 month. 
C)  3-12 months. 
D)  2-4 years.

Question 2

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

Accepted Answer

A)  An open market sale of government securities. 
B)  An increase in required reserve ratios. 
C)  An increase in the discount rate. 
D)  An open-market purchase of government securities. 
A)  An open market sale of government securities. 
B)  An increase in required reserve ratios. 
C)  An increase in the discount rate. 
D)  An open-market purchase of government securities.

Question 3

Which of the following is not an interest-earning asset of commercial banks?

Accepted Answer

A)  Required reserves. 
B)  Securities. 
C)  Loans. 
D)  All of the above are interest-earning assets of commercial banks. 
A)  Required reserves. 
B)  Securities. 
C)  Loans. 
D)  All of the above are interest-earning assets of commercial banks.

Question 4

If the banking system's money multiplier is 4,then a $2,000 increase in checkable deposits when banks hold excess reserves will result in which of the following events?

Accepted Answer

A)  The money supply will decrease 
B)  The money supply will not change. 
C)  The money supply will increase by exactly $8,000. 
D)  The money supply will increase by more than $8,000. 
E)  The money supply will increase by less than $8,000. 
A)  The money supply will decrease 
B)  The money supply will not change. 
C)  The money supply will increase by exactly $8,000. 
D)  The money supply will increase by more than $8,000. 
E)  The money supply will increase by less than $8,000.

Question 5

Exhibit 19-4 Balance sheet of Tucker National Bank
  
-In Exhibit 19-4,the bank could make:

Accepted Answer

A)  $1,000 in new loans. 
B)  $4,000 in new loans. 
C)  $16,000 in new loans. 
D)  $20,000 in new loans. 
A)  $1,000 in new loans. 
B)  $4,000 in new loans. 
C)  $16,000 in new loans. 
D)  $20,000 in new loans.

Question 6

Imagine that Odyssey National is a brand new bank,and that its required reserve ratio is 10 percent.If it accepts a $1,000 cash deposit,then,excluding the $1,000 initial deposit,the banking system can increase the money supply by:

Accepted Answer

A)  $900. 
B)  $910. 
C)  $1,000. 
D)  $9,000. 
E)  $10,000. 
A)  $900. 
B)  $910. 
C)  $1,000. 
D)  $9,000. 
E)  $10,000.

Question 7

Best National Bank operates with a 20 percent required reserve ratio.One day a depositor withdraws $500 from his or her checking account at this bank.As a result,the bank's excess reserves:

Accepted Answer

A)  fall by $500. 
B)  fall by $400. 
C)  rise by $100. 
D)  rise by $500. 
A)  fall by $500. 
B)  fall by $400. 
C)  rise by $100. 
D)  rise by $500.

Question 8

Exhibit 19-2 Balance Sheet of Springfield National Bank
  
-In Exhibit 19-2,if Springfield National has excess reserves equal to $300,and the required reserve ratio increases to 35 percent,it will:

Accepted Answer

A)  be able to cover its increased reserve requirements from its excess reserves. 
B)  have to call in loans worth $350. 
C)  have to call in loans worth $250. 
D)  have to call in loans worth $200. 
E)  have to call in loans worth $150. 
A)  be able to cover its increased reserve requirements from its excess reserves. 
B)  have to call in loans worth $350. 
C)  have to call in loans worth $250. 
D)  have to call in loans worth $200. 
E)  have to call in loans worth $150.

Question 9

Which of the following will make the real-world money multiplier smaller than the theoretical formula?

Accepted Answer

A) Banks actually hold fewer reserves than technically required by the Fed. 
B) Banks actually make loans for more money than they have in excess reserves. 
C) Banks may keep some excess reserves rather than loan it all out. 
D) Both a.and b.above are correct. 
A) Banks actually hold fewer reserves than technically required by the Fed. 
B) Banks actually make loans for more money than they have in excess reserves. 
C) Banks may keep some excess reserves rather than loan it all out. 
D) Both a.and b.above are correct.

Question 10

When the required reserve ratio is lowered,

Accepted Answer

A)  the money multiplier increases, and the amount of excess reserves increases in the banking system. 
B)  the money multiplier decreases, and the amount of excess reserves increases in the banking system. 
C)  the money multiplier decreases, and the amount of excess reserves decreases in the banking system. 
D)  the money multiplier increases, and the amount of excess reserves decreases in the banking system. 
E)  there is no change in either the money multiplier or the amount of excess reserves in the banking system. 
A)  the money multiplier increases, and the amount of excess reserves increases in the banking system. 
B)  the money multiplier decreases, and the amount of excess reserves increases in the banking system. 
C)  the money multiplier decreases, and the amount of excess reserves decreases in the banking system. 
D)  the money multiplier increases, and the amount of excess reserves decreases in the banking system. 
E)  there is no change in either the money multiplier or the amount of excess reserves in the banking system.

Question 11

The cost to a member bank of borrowing from the Federal Reserve is called by the:

Accepted Answer

A)  reserve requirement. 
B)  price of securities in the open market. 
C)  discount rate. 
D)  yield on government bonds. 
A)  reserve requirement. 
B)  price of securities in the open market. 
C)  discount rate. 
D)  yield on government bonds.

Question 12

If a bank has $100,000 in checkable deposits,reserves of $20,000,and no excess reserves,then the required reserve ratio is:

Accepted Answer

A)  10 percent. 
B)  20 percent. 
C)  25 percent. 
D)  30 percent. 
E)  50 percent. 
A)  10 percent. 
B)  20 percent. 
C)  25 percent. 
D)  30 percent. 
E)  50 percent.

Question 13

A bank's "required reserves" are:

Accepted Answer

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

Question 14

If the Fed buys $10 million dollars in government securities,and the required reserve ratio is 20 percent,the banking system is able to expand the money supply by:

Accepted Answer

A)  $10 million. 
B)  $8 million. 
C)  $2 million. 
D)  $40 million. 
E)  $50 million. 
A)  $10 million. 
B)  $8 million. 
C)  $2 million. 
D)  $40 million. 
E)  $50 million.

Question 15

When the discount rates fall,the cost:

Accepted Answer

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

Question 16

Raising the required reserve ratio causes the money multiplier to increase.

Accepted Answer

A) True 
 B)False

Question 17

Assume a simplified banking system in which all banks are subject to a uniform reserve requirement of 20 percent and checkable deposits are the only from of money.A bank that received a new checkable deposit of $10,000 would be able to extend new loans up to a maximum of:

Accepted Answer

A)  $2,000. 
B)  $8,000. 
C)  $9,000. 
D)  $10,000. 
A)  $2,000. 
B)  $8,000. 
C)  $9,000. 
D)  $10,000.

Question 18

Assume a simplified banking system subject to a 25 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 $400,000. 
C)  increases $125,000. 
D)  decreases $500,000. 
A)  increases $100,000. 
B)  increases $400,000. 
C)  increases $125,000. 
D)  decreases $500,000.

Question 19

When reserve requirements are increased,the:

Accepted Answer

A)  excess reserves of commercial banks will decrease. 
B)  excess reserves of commercial banks will increase. 
C)  U.S. Treasury will have to borrow additional funds. 
D)  money supply will rise. 
A)  excess reserves of commercial banks will decrease. 
B)  excess reserves of commercial banks will increase. 
C)  U.S. Treasury will have to borrow additional funds. 
D)  money supply will rise.

Question 20

Exhibit 19-1 Balance sheet of First Iliad State Bank
  
-In Exhibit 19-1,if the required reserve ratio is raised to 18 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. 
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.

Exam 19: Money Creation

Economists estimate that the total lag for monetary policy is about:

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

Which of the following is not an interest-earning asset of commercial banks?

If the banking system's money multiplier is 4,then a $2,000 increase in checkable deposits when banks hold excess reserves will result in which of the following events?

Exhibit 19-4 Balance sheet of Tucker National Bank -In Exhibit 19-4,the bank could make:

Imagine that Odyssey National is a brand new bank,and that its required reserve ratio is 10 percent.If it accepts a $1,000 cash deposit,then,excluding the $1,000 initial deposit,the banking system can increase the money supply by:

Best National Bank operates with a 20 percent required reserve ratio.One day a depositor withdraws $500 from his or her checking account at this bank.As a result,the bank's excess reserves:

Exhibit 19-2 Balance Sheet of Springfield National Bank -In Exhibit 19-2,if Springfield National has excess reserves equal to $300,and the required reserve ratio increases to 35 percent,it will:

Which of the following will make the real-world money multiplier smaller than the theoretical formula?

When the required reserve ratio is lowered,

The cost to a member bank of borrowing from the Federal Reserve is called by the:

If a bank has $100,000 in checkable deposits,reserves of $20,000,and no excess reserves,then the required reserve ratio is:

A bank's "required reserves" are:

If the Fed buys $10 million dollars in government securities,and the required reserve ratio is 20 percent,the banking system is able to expand the money supply by:

When the discount rates fall,the cost:

Raising the required reserve ratio causes the money multiplier to increase.

Assume a simplified banking system in which all banks are subject to a uniform reserve requirement of 20 percent and checkable deposits are the only from of money.A bank that received a new checkable deposit of $10,000 would be able to extend new loans up to a maximum of:

Assume a simplified banking system subject to a 25 percent required reserve ratio.If there is an initial increase in excess reserves of $100,000,the money supply:

When reserve requirements are increased,the:

Exhibit 19-1 Balance sheet of First Iliad State Bank -In Exhibit 19-1,if the required reserve ratio is raised to 18 percent,then First Iliad State will:

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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