Exam 15: Banking and the Money Supply

Suppose the banking system has no excess reserves and required reserves equal to 20 percent of checkable deposits.If the Fed sells $10,000 in securities to Joe Bankustomer,what is the most that checkable deposits in the banking system fall? (Hint: Compare what the banking system might have done if it had loaned at every opportunity; also include the initial transaction with the Fed.)

When the Fed buys U.S.government securities from a member bank,that bank's excess reserves,required reserves,and total reserves all increase.

Banks are financial intermediaries because they

In the money and credit expansion process,when r = the required reserve ratio,the total change in checkable deposits is equal to the initial change in excess reserves

The Fed is profitable because it

If the required reserve ratio is 0.2,and the Fed buys $3,000 of U.S.government securities,the maximum amount by which the money supply can increase is

Banks are permitted to lend all of their excess reserves.

Money expansion stops when new reserves introduced into the banking system have been converted into

Which of the following would likely increase the money supply?

Narrowly defined,the M1 money supply consists primarily of

Coins in the United States are manufactured and distributed by the

The money expansion process continues until there are no more

Suppose the required reserve ratio is 0.2 and the Fed buys $100,000 in government securities from Big Bank.How much money can the commercial banking system create?

If r is the required reserve ratio,which of the following is the simple money multiplier?

If you know the required reserve ratio and the total value of a bank's assets,then you know how much the bank is holding in reserves.

Bank reserves can be held in the form of

What proportion of M1 is accounted for by checkable deposits and traveler's checks?

Reserve deposits at the Fed pay a small amount of interest.

If you know the required reserve ratio,then you know how much each bank is holding in reserves.

Suppose you borrow $1,000 to purchase a car.Which of the following correctly represents the changes in your personal balance sheet after the bank lends the money but before you spend it?