ch 14

(Scenario: Assets and Liabilities of the Banking System) Look at the scenario Assets and Liabilities of the Banking System. If the reserve ratio is 5% and the banking system does NOT want to hold excess reserves, how much more can be added to the money supply?

$1 million

The reserve requirement is 20%. Leroy receives $1,000 as a graduation present and deposits the money in his checking account. The bank does NOT want to hold excess reserves. (Scenario: Money Creation) Look at the scenario Money Creation. By how much did the monetary base change?

$1,000 WRONG

Look at the scenario Monetary Base and Money Supply. How much are excess reserves?

$100 billion

Look at the scenario Assets and Liabilities of the Banking System. If the reserve ratio is 8% and the banking system does NOT want to hold excess reserves, how much more can be added to the money supply?

$250,000

Suppose that the public holds 50% of the money supply in currency and the reserve requirement is 20%. Banks hold no excess reserves. A customer deposits $6,000 in her checkable deposit. (Scenario: Holding Cash) Look at the scenario Holding Cash. As a result of the deposit, the bank's loans will increase by:

$4,800.

Suppose the reserve ratio is 20%. If Sam deposits $500 in his checking account, his bank can increase loans by:

$400.

Look at the scenario Assets and Liabilities of the Banking System. Suppose that the reserve ratio is 10% and the Federal Reserve sells $66,700 worth of U.S. Treasury bills to the banking system. If the banking system does NOT want to hold any excess reserves, _____ will be _____ the money supply.

$667,000; subtracted from

If a bank has assets of $100 million, according to practice, its liabilities should NOT exceed:

$70 million. WRONG

If the Federal Reserve conducts a $10 million open-market sale and the reserve requirement is 20%, the maximum change in the money supply is:

a decrease of $50 million.

The reserve ratio is defined as the ratio of:

bank reserves to customers' checkable bank deposits.

A firm uses financial leverage when it

borrows money from a bank to enlarge a factory.

Which of the following is a component of BOTH the monetary base and the money supply?

currency in circulation

Charlotte withdraws $8,000 from her checkable bank deposit to pay tuition this semester. Assume that the reserve requirement is 20% and that banks do not hold excess reserves. (Scenario: Money Supply Changes II) Look at the scenario Money Supply Changes II. As a result of the withdrawal, loans _____ by _____.

decrease; $6,400

If the Fed conducts an open-market sale, bank reserves _____ and the money supply is likely to _____.

decrease; decrease

Suppose you transfer $500 from your checking account to your savings account. With this transaction, M1 _____ and M2_____.

decreases; stays the same

The reserve requirement is 10% and Jack withdraws $5,000 travel money from his checkable deposit. Assume that banks do not hold any excess reserves and that the public holds no currency, only checkable bank deposits. (Scenario: Money Supply Changes) Look at the scenario Money Supply Changes. After the withdrawal reserves _____, and checkable deposits _____ by $5,000.

increase by $5,000; decrease WRONG

The Panic of 1907, the savings and loan crisis, and the financial crisis of 2008 were similar in that they all:

involved financial institutions that were not as strictly regulated as deposit-taking banks.

Suppose a bank has excess reserves of $50 and the reserve ratio is 20%. If Andy deposits $5,000 of cash in his checking account and the bank lends $2,500 to Molly, the money supply:

is increased by $2,500.

Banks create money when they:

make loans.

The _____ multiplier is equal to _____.

money; 1 divided by the required reserve ratio

Most of the interest on the Fed's assets is:

returned to the U.S. taxpayers.

The reduction in a firm's net worth from falling asset prices is called:

the balance sheet effect

The eurozone is

the countries that use the euro as their common currency

Capital requirements for banks serve all of the following purposes EXCEPT:

to offset the change in incentives caused by deposit insurance. WRONG

"Tuition at State University this year is $8,000." Which function of money does this statement best illustrate?

unit of account