Question 1

In banking,Assets plus Liabilities must equal Net Worth.

Accepted Answer

A) True 
 B)False

Question 2

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits,then its

Accepted Answer

A) required reserves are $500,000 
B) required reserves are $20,000 
C) assets are $500,000 
D) liabilities are $500,000 
E) liabilities plus its net worth are $500,000 
A) required reserves are $500,000 
B) required reserves are $20,000 
C) assets are $500,000 
D) liabilities are $500,000 
E) liabilities plus its net worth are $500,000

Question 3

If the simple money multiplier is 5,the required reserve ratio must be

Accepted Answer

A) 5 percent 
B) 0 
C) 10 percent 
D) 50 percent 
E) 20 percent 
A) 5 percent 
B) 0 
C) 10 percent 
D) 50 percent 
E) 20 percent

Question 4

When the Fed buys U.S.government securities from a member bank,the immediate effect on that member bank's balance sheet is

Accepted Answer

A) a decrease in assets 
B) an increase in assets 
C) a decrease in liabilities 
D) an increase in liabilities 
E) that there is no change in the total amount of assets or liabilities 
A) a decrease in assets 
B) an increase in assets 
C) a decrease in liabilities 
D) an increase in liabilities 
E) that there is no change in the total amount of assets or liabilities

Question 5

A bank that borrows from the Fed at 3 percent annual interest

Accepted Answer

A) must hold 3 percent of its total reserves as required reserves 
B) must hold 97 percent of its total reserves as required reserves 
C) will be able to profit by charging less than 3 percent for its loans 
D) hopes to charge more than 3 percent for its loans 
E) must give up U.S.government securities to secure the loan 
A) must hold 3 percent of its total reserves as required reserves 
B) must hold 97 percent of its total reserves as required reserves 
C) will be able to profit by charging less than 3 percent for its loans 
D) hopes to charge more than 3 percent for its loans 
E) must give up U.S.government securities to secure the loan

Question 6

When a customer deposits $100 into a checking account,the effect is to

Accepted Answer

A) increase the bank's liabilities 
B) decrease the bank's liabilities 
C) increase the bank's assets 
D) decrease the bank's assets 
E) increase both the bank's liabilities and its assets 
A) increase the bank's liabilities 
B) decrease the bank's liabilities 
C) increase the bank's assets 
D) decrease the bank's assets 
E) increase both the bank's liabilities and its assets

Question 7

If checking deposits increase by $6,000 after all rounds of the money-creation process when the Fed buys $1,200 worth of U.S.government securities,the maximum value of the required reserve ratio is

Accepted Answer

A) 5 
B) 0.75 
C) 0.2 
D) 1.2 
E) 1.0 
A) 5 
B) 0.75 
C) 0.2 
D) 1.2 
E) 1.0

Question 8

The primary tool the Fed uses to control the money supply today is

Accepted Answer

A) the discount rate 
B) the required reserve ratio 
C) the discount window 
D) chartering 
E) open market operations 
A) the discount rate 
B) the required reserve ratio 
C) the discount window 
D) chartering 
E) open market operations

Question 9

The liquidity of an asset indicates

Accepted Answer

A) its buying power 
B) the ease with which it can be converted into the medium of exchange without a significant loss of value 
C) the ease with which it can be converted into another asset 
D) how likely people are to convert it into the medium of exchange without a significant loss of value 
E) how easy it is to buy with a check 
A) its buying power 
B) the ease with which it can be converted into the medium of exchange without a significant loss of value 
C) the ease with which it can be converted into another asset 
D) how likely people are to convert it into the medium of exchange without a significant loss of value 
E) how easy it is to buy with a check

Question 10

When the Fed buys U.S.government securities from a bank,that bank's excess reserves and total reserves increase,but there is no change in required reserves.

Accepted Answer

A) True 
 B)False

Question 11

Suppose that a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2.If the bank wishes to hold no excess reserves,its actual reserves will be

Accepted Answer

A) $4,000 
B) $1,200 
C) $3,000 
D) less than $1,000 
E) $4,800 
A) $4,000 
B) $1,200 
C) $3,000 
D) less than $1,000 
E) $4,800

Question 12

Currency held by banks is not included in the money supply.

Accepted Answer

A) True 
 B)False

Question 13

If banks allow some of their excess reserves to remain in the vault,

Accepted Answer

A) the simple money multiplier will exceed the actual money multiplier 
B) the simple money multiplier will understate the expansion of credit 
C) the actual money multiplier and the simple money multiplier will be equal 
D) banks will earn more interest 
E) credit expansion will be greater than if they had lent out these reserves 
A) the simple money multiplier will exceed the actual money multiplier 
B) the simple money multiplier will understate the expansion of credit 
C) the actual money multiplier and the simple money multiplier will be equal 
D) banks will earn more interest 
E) credit expansion will be greater than if they had lent out these reserves

Question 14

Most of the Fed's liabilities are in the form of

Accepted Answer

A) Federal Reserve notes 
B) checkable deposits 
C) U.S.Treasury deposits 
D) loans to member banks 
E) certificates of deposit 
A) Federal Reserve notes 
B) checkable deposits 
C) U.S.Treasury deposits 
D) loans to member banks 
E) certificates of deposit

Question 15

When the Fed sells U.S.government securities to a member bank,the immediate effect on that bank's balance sheet is a(n)

Accepted Answer

A) decrease in assets and an increase in liabilities 
B) increase in assets and a decrease in liabilities 
C) increase in both assets and liabilities 
D) decrease in both assets and liabilities 
E) change in the type of assets the bank is holding,but no change in liabilities 
A) decrease in assets and an increase in liabilities 
B) increase in assets and a decrease in liabilities 
C) increase in both assets and liabilities 
D) decrease in both assets and liabilities 
E) change in the type of assets the bank is holding,but no change in liabilities

Question 16

Currency held by the nonbank public is a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 17

Stores need not accept your check but must accept currency because

Accepted Answer

A) currency is backed by gold 
B) checks are not money but currency is 
C) currency is legal tender; checks are not 
D) currency is easier to handle 
E) currency is a medium of exchange; checks are not 
A) currency is backed by gold 
B) checks are not money but currency is 
C) currency is legal tender; checks are not 
D) currency is easier to handle 
E) currency is a medium of exchange; checks are not

Question 18

The simple money multiplier is equal to 1 minus the required reserve ratio.

Accepted Answer

A) True 
 B)False

Question 19

Decreasing the required reserve ratio is

Accepted Answer

A) a contractionary policy because it lowers the amount of total reserves in the banking system 
B) a contractionary policy because it lowers the amount of excess reserves in the banking system 
C) an expansionary policy because it raises the amount of required reserves in the banking system 
D) an expansionary policy because it raises the amount of total reserves in the banking system 
E) an expansionary policy because it raises the amount of excess reserves in the banking system 
A) a contractionary policy because it lowers the amount of total reserves in the banking system 
B) a contractionary policy because it lowers the amount of excess reserves in the banking system 
C) an expansionary policy because it raises the amount of required reserves in the banking system 
D) an expansionary policy because it raises the amount of total reserves in the banking system 
E) an expansionary policy because it raises the amount of excess reserves in the banking system

Question 20

To increase the money supply,the Fed might

Accepted Answer

A) increase the discount rate and sell bonds on the open market 
B) decrease the reserve requirement and buy bonds on the open market 
C) increase the reserve requirement and sell bonds on the open market 
D) increase the discount rate and lower the reserve requirement 
E) sell government securities and increase the discount rate 
A) increase the discount rate and sell bonds on the open market 
B) decrease the reserve requirement and buy bonds on the open market 
C) increase the reserve requirement and sell bonds on the open market 
D) increase the discount rate and lower the reserve requirement 
E) sell government securities and increase the discount rate

Exam 15: Banking and the Money Supply

In banking,Assets plus Liabilities must equal Net Worth.

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits,then its

If the simple money multiplier is 5,the required reserve ratio must be

When the Fed buys U.S.government securities from a member bank,the immediate effect on that member bank's balance sheet is

A bank that borrows from the Fed at 3 percent annual interest

When a customer deposits $100 into a checking account,the effect is to

If checking deposits increase by $6,000 after all rounds of the money-creation process when the Fed buys $1,200 worth of U.S.government securities,the maximum value of the required reserve ratio is

The primary tool the Fed uses to control the money supply today is

The liquidity of an asset indicates

When the Fed buys U.S.government securities from a bank,that bank's excess reserves and total reserves increase,but there is no change in required reserves.

Suppose that a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2.If the bank wishes to hold no excess reserves,its actual reserves will be

Currency held by banks is not included in the money supply.

If banks allow some of their excess reserves to remain in the vault,

Most of the Fed's liabilities are in the form of

When the Fed sells U.S.government securities to a member bank,the immediate effect on that bank's balance sheet is a(n)

Currency held by the nonbank public is a medium of exchange.

Stores need not accept your check but must accept currency because

The simple money multiplier is equal to 1 minus the required reserve ratio.

Decreasing the required reserve ratio is

To increase the money supply,the Fed might

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand, supply, and Markets

Introduction to Macroeconomics

Tracking the Useconomy

Unemployment and Inflation

Productivity and Growth

Aaggregate Expenditure and Aggregate Demand

Baggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

International Trade

Externalities and the Environment

International Finance

Economic Development

understanding Graphs

National Income Accounts

The Algebra of Demand-Side Equilibrium

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