Question 1

Paper money is fiat money because it has been declared by government as a means of exchange.

Accepted Answer

A) True 
 B)False

Question 2

Deposit insurance and government's willingness to help distressed banks have virtually eliminated the potential for serious bank runs.

Accepted Answer

A) True 
 B)False

Question 3

Assume that the reserve requirement is 20 percent.First National Bank has vault cash and deposits with the Fed of $80 million,loans and securities of $320 million,and demand deposits of $400 million.First National:

Accepted Answer

A)  could extend a maximum of $40 million of additional loans. 
B)  could extend a maximum of $20 million of additional loans. 
C)  could extend a maximum of $10 million of additional loans. 
D)  is not in a position to extend additional loans. 
A)  could extend a maximum of $40 million of additional loans. 
B)  could extend a maximum of $20 million of additional loans. 
C)  could extend a maximum of $10 million of additional loans. 
D)  is not in a position to extend additional loans.

Question 4

What limits a bank's ability to extend loans?

Accepted Answer

An individual bank can safely

Question 5

Exhibit 25-2 A bank's assets consist of $1,000,000 in total reserves,$2,100,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital.
Refer to Exhibit 25-2.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)  $600,000; $600,000 
B)  $600,000; $3,000,000 
C)  $400,000; $400,000 
D)  $400,000; $2,000,000 
A)  $600,000; $600,000 
B)  $600,000; $3,000,000 
C)  $400,000; $400,000 
D)  $400,000; $2,000,000

Question 6

A reserve requirement of 10 percent means a money multiplier of:

Accepted Answer

A)  1. 
B)  9. 
C)  10. 
D)  11.1. 
A)  1. 
B)  9. 
C)  10. 
D)  11.1.

Question 7

An increase in demand deposits would ____ M1 and ____ M2.

Accepted Answer

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

Question 8

Ceteris paribus,expanding loans made by the commercial banking system:

Accepted Answer

A)  changes the composition, but not the magnitude, of the money supply. 
B)  decreases the money supply. 
C)  increases the money supply. 
D)  would help to stabilize an economy experiencing rapid inflation. 
A)  changes the composition, but not the magnitude, of the money supply. 
B)  decreases the money supply. 
C)  increases the money supply. 
D)  would help to stabilize an economy experiencing rapid inflation.

Question 9

If banks faced a 100 percent reserve requirement,a $10,000 reduction in banking reserves would decrease the money supply by:

Accepted Answer

A)  $1,000,000. 
B)  $100,000. 
C)  $10,000. 
D)  $1,000. 
A)  $1,000,000. 
B)  $100,000. 
C)  $10,000. 
D)  $1,000.

Question 10

A bank receives a demand deposit of $3,000.The bank loans out $1,800 of this deposit and increases its excess reserves by $300.What is the required reserve ratio?

Accepted Answer

A)  10% 
B)  30% 
C)  40% 
D)  60% 
A)  10% 
B)  30% 
C)  40% 
D)  60%

Question 11

Even though the use of checks lower transaction costs when compared to the use of paper currency,it is unlikely that the use of paper or metallic currency will disappear entirely.Why?

Accepted Answer

In small transactions,the gains in safet

Question 12

Exhibit 25-2 A bank's assets consist of $1,000,000 in total reserves,$2,100,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital.
Refer to Exhibit 25-2.If the bank is required to keep reserves equal to one-third of deposits,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)  $300,000; $300,000 
C)  $300,000; $900,000 
D)  $700,000; $2,100,000 
A)  zero; zero 
B)  $300,000; $300,000 
C)  $300,000; $900,000 
D)  $700,000; $2,100,000

Question 13

Which of the following is included in both M1 and M2?

Accepted Answer

A)  traveler's checks 
B)  checkable deposits 
C)  currency 
D)  all of the above. 
A)  traveler's checks 
B)  checkable deposits 
C)  currency 
D)  all of the above.

Question 14

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 10 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)  $200,000; $200,000 
B)  $200,000; $2,000,000 
C)  $300,000; $300,000 
D)  $300,000; $3,000,000 
A)  $200,000; $200,000 
B)  $200,000; $2,000,000 
C)  $300,000; $300,000 
D)  $300,000; $3,000,000

Question 15

The primary benefit of monetary exchange compared to barter exchange is:

Accepted Answer

A)  the possibility of tracking trade for tax purposes. 
B)  increased time devoted to finding trade partners. 
C)  increased time devoted to shopping for what we want. 
D)  increased efficiency in arranging transactions. 
A)  the possibility of tracking trade for tax purposes. 
B)  increased time devoted to finding trade partners. 
C)  increased time devoted to shopping for what we want. 
D)  increased efficiency in arranging transactions.

Question 16

Why is the money multiplier considered to be a potential multiplier rather than an indication of exactly how much multiplication should be expected?

Accepted Answer

Some banks may not choose to loan out al

Question 17

If the reserve requirement is 15 percent and a customer makes a new cash deposit of $50,000,how much new excess reserves are created?

Accepted Answer

A)  $7,500 
B)  $33,000 
C)  $67,500 
D)  $42,500 
A)  $7,500 
B)  $33,000 
C)  $67,500 
D)  $42,500

Question 18

Other things constant,a decrease in credit card balances would ____ M1 and ____ M2.

Accepted Answer

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

Question 19

Exhibit 25-2 A bank's assets consist of $1,000,000 in total reserves,$2,100,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital.
Refer to Exhibit 25-2.If the bank is required to keep reserves equal to one-third of deposits,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)  $300,000; $300,000 
C)  $300,000; $900,000 
D)  $700,000; $2,100,000 
A)  zero; zero 
B)  $300,000; $300,000 
C)  $300,000; $900,000 
D)  $700,000; $2,100,000

Question 20

M1 includes currency,checkable deposits,traveler's checks,and savings deposits.

Accepted Answer

A) True 
 B)False

Exam 25: Monetary Institutions

Paper money is fiat money because it has been declared by government as a means of exchange.

Deposit insurance and government's willingness to help distressed banks have virtually eliminated the potential for serious bank runs.

Assume that the reserve requirement is 20 percent.First National Bank has vault cash and deposits with the Fed of $80 million,loans and securities of $320 million,and demand deposits of $400 million.First National:

What limits a bank's ability to extend loans?

A reserve requirement of 10 percent means a money multiplier of:

An increase in demand deposits would ____ M1 and ____ M2.

Ceteris paribus,expanding loans made by the commercial banking system:

If banks faced a 100 percent reserve requirement,a $10,000 reduction in banking reserves would decrease the money supply by:

A bank receives a demand deposit of $3,000.The bank loans out $1,800 of this deposit and increases its excess reserves by $300.What is the required reserve ratio?

Even though the use of checks lower transaction costs when compared to the use of paper currency,it is unlikely that the use of paper or metallic currency will disappear entirely.Why?

Which of the following is included in both M1 and M2?

The primary benefit of monetary exchange compared to barter exchange is:

Why is the money multiplier considered to be a potential multiplier rather than an indication of exactly how much multiplication should be expected?

If the reserve requirement is 15 percent and a customer makes a new cash deposit of $50,000,how much new excess reserves are created?

Other things constant,a decrease in credit card balances would ____ M1 and ____ M2.

M1 includes currency,checkable deposits,traveler's checks,and savings deposits.

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

An increase in demand deposits would M1 and M2.

Other things constant,a decrease in credit card balances would M1 and M2.