Question 1

Suppose that the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent.Which of the following is true?

Accepted Answer

A) The First National Bank can increase the money supply by $500,000. 
B) The First National Bank can increase the money supply by $400,000. 
C) The First National Bank can increase the money supply by $440,000. 
D) The entire banking system can increase the money supply by no more than $500,000 if the First National Bank lends out its excess reserves. 
E) The entire banking system can increase the money supply by no more than $440,000 if the First National Bank lends out its excess reserves. 
A) The First National Bank can increase the money supply by $500,000. 
B) The First National Bank can increase the money supply by $400,000. 
C) The First National Bank can increase the money supply by $440,000. 
D) The entire banking system can increase the money supply by no more than $500,000 if the First National Bank lends out its excess reserves. 
E) The entire banking system can increase the money supply by no more than $440,000 if the First National Bank lends out its excess reserves.

Question 2

Exhibit 14-2
Exhibit 14-2
$$\begin{array}{l}
\text { COUNTYBANK}\
\begin{array} {lll } 
 &\text { assets}&&\text {Liabilities and Net Worth }\
\hline \text {cash }&&\text {+\$ 1,000 Checkable deposits }&&+\$1,000\
\end{array}
\end{array}$$
-Refer to Exhibit 14-2.By how much can this bank alone now increase its lending? Assume a required reserve ratio of 10 percent.

Accepted Answer

A) $1,000 
B) $10,000 
C) $0 
D) $90 
E) $900 
A) $1,000 
B) $10,000 
C) $0 
D) $90 
E) $900

Question 3

Suppose that a bank has $100 million in checkable deposits and the required reserve ratio is 0.1.If the bank has $5 million in excess reserves,then its actual reserves must be

Accepted Answer

A) $0 
B) $5 million 
C) $10 million 
D) $15 million 
E) $20 million 
A) $0 
B) $5 million 
C) $10 million 
D) $15 million 
E) $20 million

Question 4

The Federal Reserve may increase the money supply by

Accepted Answer

A) selling a bond to a member bank 
B) selling a bond to a securities dealer 
C) lending reserves to banks 
D) increasing required reserve ratios 
E) increasing the discount rate 
A) selling a bond to a member bank 
B) selling a bond to a securities dealer 
C) lending reserves to banks 
D) increasing required reserve ratios 
E) increasing the discount rate

Question 5

Which of the following is a liability for a bank?

Accepted Answer

A) U.S.government securities 
B) deposits with the Fed 
C) checkable deposits 
D) consumer and business loans 
E) building and furniture 
A) U.S.government securities 
B) deposits with the Fed 
C) checkable deposits 
D) consumer and business loans 
E) building and furniture

Question 6

Which of the following is not a function of a depository institution?

Accepted Answer

A) serving as a financial intermediary 
B) providing expertise on loans 
C) acting as a stockbroker 
D) reducing the risk of savers 
E) linking savers and borrowers 
A) serving as a financial intermediary 
B) providing expertise on loans 
C) acting as a stockbroker 
D) reducing the risk of savers 
E) linking savers and borrowers

Question 7

If the Fed sells a member bank a $3,000 security,the required reserve ratio is 20 percent,banks hold no excess reserves,and all loans are redeposited,then the money supply (Hint: Compare what the banking system might have done if it had loaned at every opportunity; also include the initial transaction with the Fed.)

Accepted Answer

A) increases by less than $15,000 
B) decreases by less than $15,000 
C) increases by $15,000 
D) decreases by more than $15,000 
E) decreases by $15,000 
A) increases by less than $15,000 
B) decreases by less than $15,000 
C) increases by $15,000 
D) decreases by more than $15,000 
E) decreases by $15,000

Question 8

Banks are permitted to lend all of their reserves.

Accepted Answer

A) True 
 B)False

Question 9

Increasing 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 total reserves in the banking system 
D) an expansionary policy because it raises the amount of excess reserves in the banking system 
E) an expansionary policy because it raises the amount of required 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 total reserves in the banking system 
D) an expansionary policy because it raises the amount of excess reserves in the banking system 
E) an expansionary policy because it raises the amount of required reserves in the banking system

Question 10

A bank with $1 million in deposits and $50,000 in excess reserves,facing a required reserve ratio of 20 percent,holds total reserves of $250,000.

Accepted Answer

A) True 
 B)False

Question 11

Tony deposits $2,000 in cash at the Last National Bank and the bank credits Tony's checking account in the amount of $2,000.Which of the following is true immediately after this transaction?

Accepted Answer

A) The money supply,M1,increases by $2,000. 
B) Only the composition of M1 changes,not its amount. 
C) A $2,000 loan from the Last National Bank is an asset to Tony. 
D) Both the assets and the liabilities of the Last National Bank fall by $2,000. 
E) The immediate effect of this transaction is that M1 increases by $2,000 times the money multiplier. 
A) The money supply,M1,increases by $2,000. 
B) Only the composition of M1 changes,not its amount. 
C) A $2,000 loan from the Last National Bank is an asset to Tony. 
D) Both the assets and the liabilities of the Last National Bank fall by $2,000. 
E) The immediate effect of this transaction is that M1 increases by $2,000 times the money multiplier.

Question 12

If the required reserve ratio is 20 percent and the Fed buys a $10,000 security from a depository institution that currently has no excess reserves,what happens to the money supply,using the simple multiplier?

Accepted Answer

A) Nothing. 
B) It increases by $5,000. 
C) It decreases by $5,000. 
D) It increases by $50,000. 
E) It decreases by $50,000. 
A) Nothing. 
B) It increases by $5,000. 
C) It decreases by $5,000. 
D) It increases by $50,000. 
E) It decreases by $50,000.

Question 13

Suppose the Fed sells $10 million in government securities to a commercial bank.If the required reserve ratio is 0.2,what is the maximum amount by which checkable deposits in the banking system can change? (Hint: Compare what the banking system might have done if it had loaned at every opportunity; also include the initial transaction with the Fed.)

Accepted Answer

A) +$10,000,000 
B) -$10,000,000 
C) +$50,000,000 
D) -$50,000,000 
E) +$20,000,000 
A) +$10,000,000 
B) -$10,000,000 
C) +$50,000,000 
D) -$50,000,000 
E) +$20,000,000

Question 14

The Fed's sale of U.S.government securities in its open market operations constitutes a(n)

Accepted Answer

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

Question 15

All depository institutions are subject to the Fed's required reserve ratios.

Accepted Answer

A) True 
 B)False

Question 16

Transactions using debit cards and other electronic transfers now exceed payments by check.

Accepted Answer

A) True 
 B)False

Question 17

If at the end of the business day a bank has $50,000 in excess reserves,and the required reserve ratio is 20 percent,the bank can maximize its profits if it

Accepted Answer

A) keeps the excess reserves 
B) loans out $40,000 
C) loans $50,000 to another bank 
D) borrows $50,000 to remove the excess reserves 
E) keeps $10,000 and deposits $40,000 with the Fed 
A) keeps the excess reserves 
B) loans out $40,000 
C) loans $50,000 to another bank 
D) borrows $50,000 to remove the excess reserves 
E) keeps $10,000 and deposits $40,000 with the Fed

Question 18

The simple money multiplier equals

Accepted Answer

A) 1 divided by the dollar amount of required reserves 
B) the dollar amount of total reserves divided by the dollar amount of excess reserves 
C) the dollar amount of excess reserves divided by the dollar amount of total reserves 
D) 1 divided by the percentage of deposits that must be held by a bank in the form of reserves 
E) 1 divided by the percentage of deposits that can be lent out by a bank 
A) 1 divided by the dollar amount of required reserves 
B) the dollar amount of total reserves divided by the dollar amount of excess reserves 
C) the dollar amount of excess reserves divided by the dollar amount of total reserves 
D) 1 divided by the percentage of deposits that must be held by a bank in the form of reserves 
E) 1 divided by the percentage of deposits that can be lent out by a bank

Question 19

The Fed's most important monetary policy tool is

Accepted Answer

A) printing money 
B) clearing checks 
C) setting the required reserve ratio 
D) setting the discount rate 
E) conducting open market operations 
A) printing money 
B) clearing checks 
C) setting the required reserve ratio 
D) setting the discount rate 
E) conducting open market operations

Question 20

By holding highly liquid assets to guard against sudden large withdrawals,banks

Accepted Answer

A) sacrifice safety 
B) sacrifice profitability 
C) increase profitability 
D) hold less cash in their vaults 
E) earn more interest than they could on business loans 
A) sacrifice safety 
B) sacrifice profitability 
C) increase profitability 
D) hold less cash in their vaults 
E) earn more interest than they could on business loans

Exam 15: Banking and the Money Supply

Suppose that the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent.Which of the following is true?

Exhibit 14-2 Exhibit 14-2 COUNTYBANK assets Liabilities and Net Worth cash +\ 1,000 Checkable deposits + \1 ,000 -Refer to Exhibit 14-2.By how much can this bank alone now increase its lending? Assume a required reserve ratio of 10 percent.

Suppose that a bank has $100 million in checkable deposits and the required reserve ratio is 0.1.If the bank has $5 million in excess reserves,then its actual reserves must be

The Federal Reserve may increase the money supply by

Which of the following is a liability for a bank?

Which of the following is not a function of a depository institution?

Banks are permitted to lend all of their reserves.

Increasing the required reserve ratio is

A bank with $1 million in deposits and $50,000 in excess reserves,facing a required reserve ratio of 20 percent,holds total reserves of $250,000.

Tony deposits $2,000 in cash at the Last National Bank and the bank credits Tony's checking account in the amount of $2,000.Which of the following is true immediately after this transaction?

If the required reserve ratio is 20 percent and the Fed buys a $10,000 security from a depository institution that currently has no excess reserves,what happens to the money supply,using the simple multiplier?

The Fed's sale of U.S.government securities in its open market operations constitutes a(n)

All depository institutions are subject to the Fed's required reserve ratios.

Transactions using debit cards and other electronic transfers now exceed payments by check.

If at the end of the business day a bank has $50,000 in excess reserves,and the required reserve ratio is 20 percent,the bank can maximize its profits if it

The simple money multiplier equals

The Fed's most important monetary policy tool is

By holding highly liquid assets to guard against sudden large withdrawals,banks

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

Filters