Question 1

The three players in the money supply process include

Accepted Answer

A) banks,depositors,and the U.S.Treasury. 
B) banks,depositors,and borrowers. 
C) banks,depositors,and the central bank. 
D) banks,borrowers,and the central bank. 
A) banks,depositors,and the U.S.Treasury. 
B) banks,depositors,and borrowers. 
C) banks,depositors,and the central bank. 
D) banks,borrowers,and the central bank.

Question 2

The formula that links checkable deposits to the money supply is

Accepted Answer

A) M =   . 
B) M =   × D 
C) D =   × M 
D) D = (1 + c)× M 
A) M =   . 
B) M =   × D 
C) D =   × M 
D) D = (1 + c)× M

Question 3

Assuming initially that r = 10%,c = 40%,and e = 0,an decrease in c to 30% causes the M1 money multiplier to ________,everything else held constant.

Accepted Answer

A) increase from 2.8 to 3.25 
B) decrease from 3.25 to 2.8 
C) increase from 2.8 to 3.5 
D) decrease from 3.5 to 2.8 
A) increase from 2.8 to 3.25 
B) decrease from 3.25 to 2.8 
C) increase from 2.8 to 3.5 
D) decrease from 3.5 to 2.8

Question 4

Every thing else held constant,a decrease in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________.

Accepted Answer

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

Question 5

When the Fed extends a $100 discount loan to the 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

In the simple deposit expansion model,if the Fed extends a $100 discount loan to a bank that previously had no excess reserves,the bank can now increase its loans by

Accepted Answer

A) $10. 
B) $100. 
C) $100 times the reciprocal of the required reserve ratio. 
D) $100 times the required reserve ratio. 
A) $10. 
B) $100. 
C) $100 times the reciprocal of the required reserve ratio. 
D) $100 times the required reserve ratio.

Question 7

Purchases and sales of government securities by the Federal Reserve are called

Accepted Answer

A) discount loans. 
B) federal fund transfers. 
C) open market operations. 
D) swap transactions. 
A) discount loans. 
B) federal fund transfers. 
C) open market operations. 
D) swap transactions.

Question 8

Everything else held constant,a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.

Accepted Answer

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

Question 9

The total amount of reserves in the banking system is equal to the ________ required reserves and excess reserves.

Accepted Answer

A) sum of 
B) difference between 
C) product of 
D) ratio between 
A) sum of 
B) difference between 
C) product of 
D) ratio between

Question 10

If a bank has excess reserves of $15,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has total reserves of

Accepted Answer

A) $11,000. 
B) $21,000. 
C) $31,000. 
D) $41,000. 
A) $11,000. 
B) $21,000. 
C) $31,000. 
D) $41,000.

Question 11

A bank has excess reserves of $10,000 and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be

Accepted Answer

A) -$5,000. 
B) -$1,000. 
C) $1,000. 
D) $5,000. 
A) -$5,000. 
B) -$1,000. 
C) $1,000. 
D) $5,000.

Question 12

An increase in the nonborrowed monetary base,everything else held constant,will cause

Accepted Answer

A) the money supply to fall. 
B) the money supply to rise. 
C) no change in the money supply. 
D) demand deposits to fall. 
A) the money supply to fall. 
B) the money supply to rise. 
C) no change in the money supply. 
D) demand deposits to fall.

Question 13

Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply.

Accepted Answer

A) borrowers; depositors 
B) banks; depositors 
C) depositors; borrowers 
D) depositors; banks 
A) borrowers; depositors 
B) banks; depositors 
C) depositors; borrowers 
D) depositors; banks

Question 14

Suppose that from a new checkable deposit,First National Bank holds eight million dollars on deposit with the Federal Reserve,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) nine 
D) ten 
A) one 
B) two 
C) nine 
D) ten

Question 15

The formula for the simple deposit multiplier can be expressed as

Accepted Answer

A) △R =   × △T 
B) △D =   × △R 
C) △r =   × △T 
D) △R =   × △D 
A) △R =   × △T 
B) △D =   × △R 
C) △r =   × △T 
D) △R =   × △D

Question 16

A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 20 percent.If the reserve requirement is lowered to 10 percent,the bank's excess reserves will be

Accepted Answer

A) $1,000. 
B) $8,000. 
C) $9,000. 
D) $17,000. 
A) $1,000. 
B) $8,000. 
C) $9,000. 
D) $17,000.

Question 17

If a bank has excess reserves of $10,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has actual reserves of

Accepted Answer

A) $16,000. 
B) $20,000. 
C) $26,000. 
D) $36,000. 
A) $16,000. 
B) $20,000. 
C) $26,000. 
D) $36,000.

Question 18

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

Accepted Answer

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

Question 19

Everything else held constant,a decrease in the currency-checkable deposit ratio will mean

Accepted Answer

A) an increase in currency in circulation and an increase in the money supply. 
B) an increase in money supply. 
C) a decrease in the money supply. 
D) an increase in currency in circulation but no change in the money supply. 
A) an increase in currency in circulation and an increase in the money supply. 
B) an increase in money supply. 
C) a decrease in the money supply. 
D) an increase in currency in circulation but no change in the money supply.

Question 20

The steepest increase in the currency ratio since 1892 occurred during

Accepted Answer

A) World War II. 
B) the Great Depression. 
C) the interwar years. 
D) the past twenty years. 
A) World War II. 
B) the Great Depression. 
C) the interwar years. 
D) the past twenty years.

Exam 14: The Money Supply Process

The three players in the money supply process include

The formula that links checkable deposits to the money supply is

Assuming initially that r = 10%,c = 40%,and e = 0,an decrease in c to 30% causes the M1 money multiplier to ________,everything else held constant.

Every thing else held constant,a decrease in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________.

When the Fed extends a $100 discount loan to the First National Bank,reserves in the banking system

In the simple deposit expansion model,if the Fed extends a $100 discount loan to a bank that previously had no excess reserves,the bank can now increase its loans by

Purchases and sales of government securities by the Federal Reserve are called

Everything else held constant,a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.

The total amount of reserves in the banking system is equal to the ________ required reserves and excess reserves.

If a bank has excess reserves of $15,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has total reserves of

A bank has excess reserves of $10,000 and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be

An increase in the nonborrowed monetary base,everything else held constant,will cause

Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply.

The formula for the simple deposit multiplier can be expressed as

A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 20 percent.If the reserve requirement is lowered to 10 percent,the bank's excess reserves will be

If a bank has excess reserves of $10,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has actual reserves of

Everything else held constant,a decrease in the currency-checkable deposit ratio will mean

The steepest increase in the currency ratio since 1892 occurred during

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

Every thing else held constant,a decrease in the excess reserves ratio causes the M1 money multiplier to and the money supply to .

Everything else held constant,a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to and the money supply to .

Decisions by about their holdings of currency and by about their holdings of excess reserves affect the money supply.