Question 1

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is smaller:

Accepted Answer

A) the greater the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
B) the greater the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
C) the smaller the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
D) the smaller the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
A) the greater the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
B) the greater the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves. 
C) the smaller the fraction of money people want to hold as currency and the greater the fraction of deposits banks want to hold as excess reserves. 
D) the smaller the fraction of money people want to hold as currency and the smaller the fraction of deposits banks want to hold as excess reserves.

Question 2

When a check written against an account at a particular bank is cleared:

Accepted Answer

A) it loses reserves and securities. 
B) it loses currency and savings deposits. 
C) it loses reserves and demand deposits. 
D) it gains loans and demand deposits. 
E) it gains reserves. 
A) it loses reserves and securities. 
B) it loses currency and savings deposits. 
C) it loses reserves and demand deposits. 
D) it gains loans and demand deposits. 
E) it gains reserves.

Question 3

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 4

When the required reserve ratio is decreased:

Accepted Answer

A) the excess reserves of member banks are reduced, but the money multiplier is not affected. 
B) the excess reserves of member banks are reduced, and the money multiplier is increased. 
C) the excess reserves of member banks are increased, but the money multiplier is not affected. 
D) the excess reserves of member banks are increased, and the money multiplier is increased. 
E) the excess reserves of member banks are reduced, and the money multiplier is decreased. 
A) the excess reserves of member banks are reduced, but the money multiplier is not affected. 
B) the excess reserves of member banks are reduced, and the money multiplier is increased. 
C) the excess reserves of member banks are increased, but the money multiplier is not affected. 
D) the excess reserves of member banks are increased, and the money multiplier is increased. 
E) the excess reserves of member banks are reduced, and the money multiplier is decreased.

Question 5

A majority of U.S.money, whether M1 or M2, is created by private businesses.

Accepted Answer

A) True 
 B)False

Question 6

If you deposit $500 cash into your account at a commercial bank.If it faces a 10 percent required reserve ratio, as a result of your deposit, the bank will:

Accepted Answer

A) have $450 of additional excess reserves. 
B) be capable of lending an additional $5,000. 
C) be capable of lending an additional $500 
D) have $50 of additional excess reserves. 
A) have $450 of additional excess reserves. 
B) be capable of lending an additional $5,000. 
C) be capable of lending an additional $500 
D) have $50 of additional excess reserves.

Question 7

The First State Bank of South Dakota in Sioux Falls, South Dakota, has the following items on its ledgers: (All numbers in millions.)
Time deposits: $6,000
Consumer loans: $6,000
Cash in vault: $400
South Dakota State Bonds: $2,000
Demand deposits: $10,000
Loans to businesses: $2,000
Miscellaneous liabilities: $1,000
Deposits with the Federal Reserve System: $1,600
U.S.Government Bonds: $4,000
a.Place them on the appropriate side of the balance sheet. Compute the bank's net worth.
b.If the reserve requirement is 15 percent on demand deposits, and 0 percent on time deposits, what are the bank's required reserves? Excess reserves?
c.By how much can this bank increase its loans? Explain.

Accepted Answer

a.The following are entered as Assets:
C

Question 8

People continue to value money because they have confidence in its convertibility into goods and services.

Accepted Answer

A) True 
 B)False

Question 9

M1 includes:

Accepted Answer

A) cash and travelers' checks. 
B) cash, checking account balances, and travelers' checks. 
C) cash, travelers checks', and bank deposits 
D) cash, checking account balances, and saving account balances. 
E) cash, bank deposits, and money market accounts. 
A) cash and travelers' checks. 
B) cash, checking account balances, and travelers' checks. 
C) cash, travelers checks', and bank deposits 
D) cash, checking account balances, and saving account balances. 
E) cash, bank deposits, and money market accounts.

Question 10

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

Question 11

Suppose you found $10,000 hidden under a rock and deposited it in a demand deposit account at your bank.If the reserve requirement was 10 percent, your deposit would add ____ to total demand deposits; the added loans that the banking system as a whole could make as a result of the deposit would generate ____ in additional demand deposits.

Accepted Answer

A) $10,000; $100,000 
B) $10,000; $90,000 
C) $1,000; $90,000 
D) $1,000; $9,000 
A) $10,000; $100,000 
B) $10,000; $90,000 
C) $1,000; $90,000 
D) $1,000; $9,000

Question 12

The money ____ is 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 13

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% 
E) 70% 
A) 10% 
B) 30% 
C) 40% 
D) 60% 
E) 70%

Question 14

The idea behind money as a unit of account is that use of money allows:

Accepted Answer

A) greater efficiency in exchange. 
B) receipt of income to be separated from spending. 
C) persons to hold spending power for some period of time. 
D) double-entry bookkeeping. 
E) prices quoted in money terms. 
A) greater efficiency in exchange. 
B) receipt of income to be separated from spending. 
C) persons to hold spending power for some period of time. 
D) double-entry bookkeeping. 
E) prices quoted in money terms.

Question 15

What limits a bank's ability to extend loans?

Accepted Answer

An individual bank can safely

Question 16

If the reserve requirement for a bank is $200,000 for a deposit of $1 million, then the money multiplier is:

Accepted Answer

A) 2 
B) 1.25 
C) 20 
D) 5 
A) 2 
B) 1.25 
C) 20 
D) 5

Question 17

If you deposit $8,000 in a bank, calculate how much the bank must keep as required reserves and how much it can loan out if the required reserve ratio was 5 percent.If it was 8 percent? 13 percent? 26 percent?

Accepted Answer

With a required reserve ratio of 5 perce

Question 18

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 19

If a bank had demand deposits of $50 million and it faced a 25 percent required reserve ratio, it would be required to have how many reserves?

Accepted Answer

A) $50 million 
B) $37.5 million 
C) $25 million 
D) $12.5 million 
A) $50 million 
B) $37.5 million 
C) $25 million 
D) $12.5 million

Question 20

A gold standard is:

Accepted Answer

A) a measurement of the importance of a good; it indicates high quality. 
B) the basis for monetary exchange internationally. 
C) an internationally recognized means for defining currency exchange rates. 
D) a system where currency (e.g., the dollar) was defined as equivalent in value to a certain amount of gold. 
A) a measurement of the importance of a good; it indicates high quality. 
B) the basis for monetary exchange internationally. 
C) an internationally recognized means for defining currency exchange rates. 
D) a system where currency (e.g., the dollar) was defined as equivalent in value to a certain amount of gold.

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is smaller:

When a check written against an account at a particular bank is cleared:

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

When the required reserve ratio is decreased:

A majority of U.S.money, whether M1 or M2, is created by private businesses.

If you deposit $500 cash into your account at a commercial bank.If it faces a 10 percent required reserve ratio, as a result of your deposit, the bank will:

People continue to value money because they have confidence in its convertibility into goods and services.

M1 includes:

A decrease in credit card balances would M1 and M2.

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

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?

The idea behind money as a unit of account is that use of money allows:

What limits a bank's ability to extend loans?

If the reserve requirement for a bank is $200,000 for a deposit of $1 million, then the money multiplier is:

If you deposit $8,000 in a bank, calculate how much the bank must keep as required reserves and how much it can loan out if the required reserve ratio was 5 percent.If it was 8 percent? 13 percent? 26 percent?

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

If a bank had demand deposits of $50 million and it faced a 25 percent required reserve ratio, it would be required to have how many reserves?

A gold standard is:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

Exam 15: Monetary Institutions

The size of the effect of a given deposit of cash into a demand deposit account on the money supply is smaller:

When a check written against an account at a particular bank is cleared:

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

When the required reserve ratio is decreased:

A majority of U.S.money, whether M1 or M2, is created by private businesses.

If you deposit $500 cash into your account at a commercial bank.If it faces a 10 percent required reserve ratio, as a result of your deposit, the bank will:

People continue to value money because they have confidence in its convertibility into goods and services.

M1 includes:

A decrease in credit card balances would ____ M1 and ____ M2.

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

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?

The idea behind money as a unit of account is that use of money allows:

What limits a bank's ability to extend loans?

If the reserve requirement for a bank is $200,000 for a deposit of $1 million, then the money multiplier is:

If you deposit $8,000 in a bank, calculate how much the bank must keep as required reserves and how much it can loan out if the required reserve ratio was 5 percent.If it was 8 percent? 13 percent? 26 percent?

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

If a bank had demand deposits of $50 million and it faced a 25 percent required reserve ratio, it would be required to have how many reserves?

A gold standard is:

The Role and Method of Economics

The Economic Way of Thinking

Supply and Demand

Using Supply and Demand

Market Failure and Public Choice

Production and Costs

Firms in Competitive Markets

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets, Income Distribution, and Poverty

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Economic Growth

Aggregate Demand and Aggregate Supply

Fiscal Policy

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Economics

Filters

A decrease in credit card balances would M1 and M2.

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