Question 1

The money ____ equals 1 divided by the reserve requirement.The larger the reserve requirement,the ____ the money multiplier.

Accepted Answer

A)  supply; larger 
B)  multiplier; larger 
C)  supply; smaller 
D)  multiplier; smaller 
A)  supply; larger 
B)  multiplier; larger 
C)  supply; smaller 
D)  multiplier; smaller

Question 2

A single bank is severely limited in its ability to create money because:

Accepted Answer

A)  the FDIC will not permit it to create money unless the Resolution Trust Corporation guarantees the loans. 
B)  loan recipients usually take the proceeds of the loan in cash. 
C)  the funds loaned probably will be deposited in another bank. 
D)  recent federal legislation prohibits banks from creating money except to finance international trade. 
A)  the FDIC will not permit it to create money unless the Resolution Trust Corporation guarantees the loans. 
B)  loan recipients usually take the proceeds of the loan in cash. 
C)  the funds loaned probably will be deposited in another bank. 
D)  recent federal legislation prohibits banks from creating money except to finance international trade.

Question 3

A reserve requirement of 12.5 percent implies a potential money multiplier of:

Accepted Answer

A)  5. 
B)  8. 
C)  12.5. 
D)  112.5. 
A)  5. 
B)  8. 
C)  12.5. 
D)  112.5.

Question 4

Other things being equal,if you took money out of your demand deposit account and put it in a savings deposit account:

Accepted Answer

A)  M1 would increase and M2 would increase. 
B)  M1 would increase but M2 would not change. 
C)  M1 would decrease and M2 would decrease. 
D)  M1 would fall but M2 would not change. 
A)  M1 would increase and M2 would increase. 
B)  M1 would increase but M2 would not change. 
C)  M1 would decrease and M2 would decrease. 
D)  M1 would fall but M2 would not change.

Question 5

Calculate M1 and M2 using details from the table given below.

Accepted Answer

M1: Currency + Checkable deposits + Trav

Question 6

A commercial bank has $1,000,000 of outstanding demand deposits and actual reserves of $300,000.If the required reserve ratio is 20 percent,what is the maximum amount of new loans the bank can extend?

Accepted Answer

A)  zero 
B)  $100,000 
C)  $300,000 
D)  $700,000 
A)  zero 
B)  $100,000 
C)  $300,000 
D)  $700,000

Question 7

Rapid inflation makes holding a large amount of money:

Accepted Answer

A)  wiser, because you will generally need more and more to buy the goods and services you want. 
B)  less wise, because the opportunity cost of holding money is high. 
C)  less wise, because someone might steal it, or it might be destroyed. 
D)  wiser, because the opportunity cost of holding money is high. 
A)  wiser, because you will generally need more and more to buy the goods and services you want. 
B)  less wise, because the opportunity cost of holding money is high. 
C)  less wise, because someone might steal it, or it might be destroyed. 
D)  wiser, because the opportunity cost of holding money is high.

Question 8

An increase in the excess reserves banks want to hold,together with people depositing currency into their demand deposit accounts,would:

Accepted Answer

A)  increase the money supply. 
B)  decrease the money supply. 
C)  leave the money supply unchanged. 
D)  have an indeterminate effect on the money supply. 
A)  increase the money supply. 
B)  decrease the money supply. 
C)  leave the money supply unchanged. 
D)  have an indeterminate effect on the money supply.

Question 9

Exhibit 25-1 A bank's assets consist of $500,000 in total reserves,$1,600,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $2,000,000 in demand deposits and $1,300,000 in capital.
Refer to Exhibit 25-1.If the required reserve ratio is 25 percent,what is the level of the bank's excess reserves? How much could it loan out as a result?

Accepted Answer

A)  zero; zero 
B)  $500,000; $500,000 
C)  $500,000; $2,000,000 
D)  $250,000; $1,000,000 
A)  zero; zero 
B)  $500,000; $500,000 
C)  $500,000; $2,000,000 
D)  $250,000; $1,000,000

Question 10

First Safety,a commercial bank,has $6,000,000 of outstanding demand deposits and actual reserves of $1,700,000.If the reserve ratio is 25 percent,what is the maximum amount of new loans the bank can extend?

Accepted Answer

A)  $100,000 
B)  $425,000 
C)  $200,000 
D)  $1,500,000 
A)  $100,000 
B)  $425,000 
C)  $200,000 
D)  $1,500,000

Question 11

What are money market mutual funds?

Accepted Answer

Money market mutual funds are interest-e

Question 12

A reserve requirement of 25 percent would mean that each dollar of reserves could support ____ of demand deposits.

Accepted Answer

A)  $0.25 
B)  $0.75 
C)  $1.33 
D)  $4.00 
A)  $0.25 
B)  $0.75 
C)  $1.33 
D)  $4.00

Question 13

A reserve requirement of 40 percent would mean that each dollar of reserves could support ____ of demand deposits.

Accepted Answer

A)  $0.40 
B)  $1.60 
C)  $2.50 
D)  $4.00 
A)  $0.40 
B)  $1.60 
C)  $2.50 
D)  $4.00

Question 14

A conversion of checking account balances into savings account balances would ____ M1 and ____ M2.

Accepted Answer

A)  increase; increase. 
B)  not change; increase. 
C)  decrease; decrease. 
D)  decrease; not change. 
A)  increase; increase. 
B)  not change; increase. 
C)  decrease; decrease. 
D)  decrease; not change.

Question 15

One major problem with some commodity monies is that:

Accepted Answer

A)  to be useful, money must be divisible. 
B)  to be useful, money must be storable. 
C)  to be useful, money must be of uniform quality. 
D)  all of the above are problems with commodity monies. 
A)  to be useful, money must be divisible. 
B)  to be useful, money must be storable. 
C)  to be useful, money must be of uniform quality. 
D)  all of the above are problems with commodity monies.

Question 16

Which of the following is not included in the M1 category?

Accepted Answer

A)  Currency 
B)  Checkable deposits 
C)  Traveler's checks 
D)  Savings deposits 
A)  Currency 
B)  Checkable deposits 
C)  Traveler's checks 
D)  Savings deposits

Question 17

Demand deposits are:

Accepted Answer

A)  assets of banks, liabilities of depositors. 
B)  liabilities of banks, assets of depositors. 
C)  assets of banks and their depositors. 
D)  liabilities of banks and their depositors. 
A)  assets of banks, liabilities of depositors. 
B)  liabilities of banks, assets of depositors. 
C)  assets of banks and their depositors. 
D)  liabilities of banks and their depositors.

Question 18

Exhibit 25-1 A bank's assets consist of $500,000 in total reserves,$1,600,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $2,000,000 in demand deposits and $1,300,000 in capital.
Refer to Exhibit 25-1.If the required reserve ratio is 30 percent,what is the level of the bank's excess reserves? How much money could the excess reserves be used to create in the banking system as a result?

Accepted Answer

A)  zero; zero 
B)  $50,000; $50,000 
C)  $50,000; $500,000 
D)  The bank has insufficient reserves to meet its reserve requirements. 
A)  zero; zero 
B)  $50,000; $50,000 
C)  $50,000; $500,000 
D)  The bank has insufficient reserves to meet its reserve requirements.

Question 19

A reserve requirement of 50 percent means a money multiplier of:

Accepted Answer

A)  0.50. 
B)  2. 
C)  5. 
D)  50. 
A)  0.50. 
B)  2. 
C)  5. 
D)  50.

Question 20

Exhibit 25-1 A bank's assets consist of $500,000 in total reserves,$1,600,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $2,000,000 in demand deposits and $1,300,000 in capital.
Refer to Exhibit 25-1.If the required reserve ratio is 20 percent,what is the level of the bank's excess reserves? How much could it loan out as a result?

Accepted Answer

A)  $100,000; $100,000 
B)  $100,000; $400,000 
C)  $400,000; $500,000 
D)  $400,000; $2,000,000 
A)  $100,000; $100,000 
B)  $100,000; $400,000 
C)  $400,000; $500,000 
D)  $400,000; $2,000,000

Exam 25: Monetary Institutions

The money ____ equals 1 divided by the reserve requirement.The larger the reserve requirement,the ____ the money multiplier.

A single bank is severely limited in its ability to create money because:

A reserve requirement of 12.5 percent implies a potential money multiplier of:

Other things being equal,if you took money out of your demand deposit account and put it in a savings deposit account:

Calculate M1 and M2 using details from the table given below.

A commercial bank has $1,000,000 of outstanding demand deposits and actual reserves of $300,000.If the required reserve ratio is 20 percent,what is the maximum amount of new loans the bank can extend?

Rapid inflation makes holding a large amount of money:

An increase in the excess reserves banks want to hold,together with people depositing currency into their demand deposit accounts,would:

First Safety,a commercial bank,has $6,000,000 of outstanding demand deposits and actual reserves of $1,700,000.If the reserve ratio is 25 percent,what is the maximum amount of new loans the bank can extend?

What are money market mutual funds?

A reserve requirement of 25 percent would mean that each dollar of reserves could support ____ of demand deposits.

A reserve requirement of 40 percent would mean that each dollar of reserves could support ____ of demand deposits.

A conversion of checking account balances into savings account balances would ____ M1 and ____ M2.

One major problem with some commodity monies is that:

Which of the following is not included in the M1 category?

Demand deposits are:

A reserve requirement of 50 percent means a money multiplier of:

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

Filters

The money equals 1 divided by the reserve requirement.The larger the reserve requirement,the the money multiplier.

A conversion of checking account balances into savings account balances would M1 and M2.