Question 1

The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits,excess reserves,and currency is

Accepted Answer

A) MB =  (r × 
D)  + ER + C 
B) MB = (r + 
D)  + ER + C 
C) MB =   + ER + C 
D) MB = (r × 
D)  - ER - C 
A) MB =  (r × 
D)  + ER + C 
B) MB = (r + 
D)  + ER + C 
C) MB =   + ER + C 
D) MB = (r × 
D)  - ER - C

Question 2

The increase in the availability of ATM's has caused the cost of acquiring currency to ________ which will cause the currency ratio to ________,everything else held constant.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Question 3

Explain the complete formula for the M1 money supply,and explain how changes in required reserves,excess reserves,the currency ratio,the nonborrowed base,and borrowed reserves affect the money supply.

Accepted Answer

The formula is M = @#IMG-DLM& × (MB_n + BR).The form

Question 4

Excess reserves are equal to

Accepted Answer

A) total reserves minus discount loans. 
B) vault cash plus deposits with Federal Reserve banks minus required reserves. 
C) vault cash minus required reserves. 
D) deposits with the Fed minus vault cash plus required reserves. 
A) total reserves minus discount loans. 
B) vault cash plus deposits with Federal Reserve banks minus required reserves. 
C) vault cash minus required reserves. 
D) deposits with the Fed minus vault cash plus required reserves.

Question 5

When the Fed buys $100 worth of bonds from First National Bank,reserves in the banking system

Accepted Answer

A) increase by $100. 
B) increase by more than $100. 
C) decrease by $100. 
D) decrease by more than $100. 
A) increase by $100. 
B) increase by more than $100. 
C) decrease by $100. 
D) decrease by more than $100.

Question 6

The simple deposit multiplier can be expressed as the ratio of the

Accepted Answer

A) change in reserves in the banking system divided by the change in deposits. 
B) change in deposits divided by the change in reserves in the banking system. 
C) required reserve ratio divided by the change in reserves in the banking system. 
D) change in deposits divided by the required reserve ratio. 
A) change in reserves in the banking system divided by the change in deposits. 
B) change in deposits divided by the change in reserves in the banking system. 
C) required reserve ratio divided by the change in reserves in the banking system. 
D) change in deposits divided by the required reserve ratio.

Question 7

Which of the following are not liabilities on the Fed's balance sheet?

Accepted Answer

A) Discount loans 
B) Bank deposits 
C) Deferred availability cash items 
D) U.S.Treasury deposits 
A) Discount loans 
B) Bank deposits 
C) Deferred availability cash items 
D) U.S.Treasury deposits

Question 8

The formula for the M1 money multiplier is

Accepted Answer

A) m = (1 + c)/(r + e + c). 
B) M = 1/(r + e + c). 
C) M = (1 + c)/(r + e + c). 
D) m = [1/(r + e + c)] × MB. 
A) m = (1 + c)/(r + e + c). 
B) M = 1/(r + e + c). 
C) M = (1 + c)/(r + e + c). 
D) m = [1/(r + e + c)] × MB.

Question 9

Suppose that from a new checkable deposit,First National Bank holds two million dollars in vault cash,eight million dollars on deposit with the Federal Reserve,and one million dollars in required reserves.Given this information,we can say First National Bank faces a required reserve ratio of ________ percent.

Accepted Answer

A) ten 
B) twenty 
C) eighty 
D) ninety 
A) ten 
B) twenty 
C) eighty 
D) ninety

Question 10

If the required reserve ratio is one-third,currency in circulation is $300 billion,and checkable deposits are $900 billion,then the monetary base is

Accepted Answer

A) $300 billion. 
B) $600 billion. 
C) $333 billion. 
D) $667 billion. 
A) $300 billion. 
B) $600 billion. 
C) $333 billion. 
D) $667 billion.

Question 11

Everything else held constant,a decrease in the required reserve ratio on checkable deposits will mean

Accepted Answer

A) a decrease in the money supply. 
B) an increase in the money supply. 
C) a decrease in checkable deposits. 
D) an increase in discount loans. 
A) a decrease in the money supply. 
B) an increase in the money supply. 
C) a decrease in checkable deposits. 
D) an increase in discount loans.

Question 12

Which of the following are not assets on the Fed's balance sheet?

Accepted Answer

A) Discount loans 
B) U.S.Treasury deposits 
C) Cash items in the process of collection 
D) U.S.Treasury bills 
A) Discount loans 
B) U.S.Treasury deposits 
C) Cash items in the process of collection 
D) U.S.Treasury bills

Question 13

Suppose that from a new checkable deposit,First National Bank holds two million dollars in vault cash,nine million dollars in excess reserves,and faces a required reserve ratio of ten percent.Given this information,we can say First National Bank has ________ million dollars in required reserves.

Accepted Answer

A) one 
B) two 
C) eight 
D) ten 
A) one 
B) two 
C) eight 
D) ten

Question 14

An assumption in the model of the money supply process is that the desired levels of currency and excess reserves

Accepted Answer

A) are given as constants. 
B) grow proportionally with checkable deposits. 
C) grow proportionally with high-powered money. 
D) grow proportionally over time. 
A) are given as constants. 
B) grow proportionally with checkable deposits. 
C) grow proportionally with high-powered money. 
D) grow proportionally over time.

Question 15

If reserves in the banking system increase by $100,then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is

Accepted Answer

A) 0.01. 
B) 0.10. 
C) 0.05. 
D) 0.20 
A) 0.01. 
B) 0.10. 
C) 0.05. 
D) 0.20

Question 16

During the bank panics of the Great Depression the currency ratio

Accepted Answer

A) increased sharply. 
B) decreased sharply. 
C) increased slightly. 
D) decreased slightly. 
A) increased sharply. 
B) decreased sharply. 
C) increased slightly. 
D) decreased slightly.

Question 17

Suppose the Bank of China permanently decreases its purchases of U.S.government bonds and,instead,holds more dollars on deposit at the Federal Reserve.Everything else held constant,a open market ________ would be the appropriate monetary policy action for the Fed to take to offset the expected ________ in the monetary base in the United States.

Accepted Answer

A) purchase; decrease 
B) purchase; increase 
C) sale; decrease 
D) sale; increase 
A) purchase; decrease 
B) purchase; increase 
C) sale; decrease 
D) sale; increase

Question 18

If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $1000 billion,and excess reserves total $1 billion,then the excess reserves-checkable deposit ratio is

Accepted Answer

A) 0.01. 
B) 0.10. 
C) 0.001. 
D) 0.05. 
A) 0.01. 
B) 0.10. 
C) 0.001. 
D) 0.05.

Question 19

A simple deposit multiplier equal to four implies a required reserve ratio equal to

Accepted Answer

A) 100 percent. 
B) 50 percent. 
C) 25 percent. 
D) 0 percent. 
A) 100 percent. 
B) 50 percent. 
C) 25 percent. 
D) 0 percent.

Question 20

Explain two ways by which the Federal Reserve System can increase the monetary base.Why is the effect of Federal Reserve actions on bank reserves less exact than the effect on the monetary base?

Accepted Answer

The Fed can increase the monetary base b

Exam 14: The Money Supply Process

The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits,excess reserves,and currency is

The increase in the availability of ATM's has caused the cost of acquiring currency to ________ which will cause the currency ratio to ________,everything else held constant.

Explain the complete formula for the M1 money supply,and explain how changes in required reserves,excess reserves,the currency ratio,the nonborrowed base,and borrowed reserves affect the money supply.

Excess reserves are equal to

When the Fed buys $100 worth of bonds from First National Bank,reserves in the banking system

The simple deposit multiplier can be expressed as the ratio of the

Which of the following are not liabilities on the Fed's balance sheet?

The formula for the M1 money multiplier is

If the required reserve ratio is one-third,currency in circulation is $300 billion,and checkable deposits are $900 billion,then the monetary base is

Everything else held constant,a decrease in the required reserve ratio on checkable deposits will mean

Which of the following are not assets on the Fed's balance sheet?

Suppose that from a new checkable deposit,First National Bank holds two million dollars in vault cash,nine million dollars in excess reserves,and faces a required reserve ratio of ten percent.Given this information,we can say First National Bank has ________ million dollars in required reserves.

An assumption in the model of the money supply process is that the desired levels of currency and excess reserves

If reserves in the banking system increase by $100,then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is

During the bank panics of the Great Depression the currency ratio

If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $1000 billion,and excess reserves total $1 billion,then the excess reserves-checkable deposit ratio is

A simple deposit multiplier equal to four implies a required reserve ratio equal to

Explain two ways by which the Federal Reserve System can increase the monetary base.Why is the effect of Federal Reserve actions on bank reserves less exact than the effect on the monetary base?

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises and the Subprime Meltdown

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

Tools for Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

The Demand for Money

The Islm Model

Monetary and Fiscal Policy in the ISLM Model

Aggregate Demand and Supply Analysis

Transmission Mechanisms of Monetary Policy: The Evidence

Money and Inflation

Rational Expectations: Implications for Policy

Filters

The increase in the availability of ATM's has caused the cost of acquiring currency to which will cause the currency ratio to ,everything else held constant.