Econ 320 Chapter 4

Use the balance sheet to answer the question. The reserve-deposit ratio is 20 percent and a customer deposits $100 into American Bank. The value of the bank's loans, once the bank makes the adjustment required to maintain its reserve deposit ratio, will be: Assets: Reserves- $400 Loans -$1600 Liabilities: Deposits $2000

1. Take 20% of 400 = $80 2. Add the loan $1600 3. bank value = $1,680

Suppose that a $100 purchase of government bonds by the U.S. Federal Reserve causes a $200 increase in the money supply in an economy in which banks hold 25 percent of deposits as reserves. Which percentage of bank deposits is held as currency? A. 10 percent B. 25 percent C. 50 percent D. Not enough information is given to make this calculation.

50 percent

Which are included in M1, but not included in M2? A. All items in M1 are also included in M2. B. demand deposits C. paper bills D. coins

A. All items in M1 are also included in M2.

_____ are included in the money supply. Please choose the correct answer from the following choices, and then select the submit answer button. A. Neither checks nor debit cards B. Debit cards, but not checks, C. Checks, but not debit cards, D. Both checks and debit cards

A. Neither checks nor debit cards

Which BEST describes a central bank's open market operations? A. The central bank sells Treasury bills to the public. B. The U.S. Treasury sells Treasury bills to the public. C. The U.S. Treasury prints money and uses it to make social security payments. D. The central bank buys foreign currency in the exchange market.

A. The central bank sells Treasury bills to the public

A leverage ratio of 15 means that for every dollar of capital that bank owners have contributed, the bank has 15: A. dollars of assets. B. dollars of capital. C. cents of assets. D. cents of loans.

A. dollars of assets.

The sum of the currency held by the public (C) and the reserves (R) held by the banks is called: A. the monetary base. B. the money supply. C. fiat money. D. the capital requirement.

A. the monetary base.

From 2007 to 2014, the U.S. monetary base increased about _____ percent, while M1 increased about _____ percent. A. 600; 450 B. 400; 100 C. 100; 400 D. 450; 600

B. 400; 100

If a bank holds 10 percent of its deposits as reserves, then a deposit of $100 will cause the bank's reserves to: A. increase by $90, and its loans to increase by $10. B. increase by $10, and its loans to increase by $90. C. change to an 85-15 reserve deposit ratio. D. increase by $10, and its loans to decrease by $90.

B. increase by $10, and its loans to increase by $90.

The Thirty-third National Bank operates in a 100-percent-reserve banking system. If a customer withdraws $1,000 from his checking account, the money supply in the economy will: A. increase or decrease, depending on the size of the multiplier. B. remain the same. C. decrease. D. increase.

B. remain the same.

Assuming no excess reserves are held by banks, suppose that banks hold a reserve-deposit ratio of 25 percent. If a customer deposits $4,000, the bank will keep as reserves _____ and will lend out _____. A. $2,500; 1,500 B. $0; $4,000 C. $1,000; $3,000 D. $3,000; $1,000

C. $1,000; $3,000

According to the text, which is the MOST likely reason that individuals began to hold paper money instead of gold? A. People stopped trading with one another. B. Governments worldwide created laws banning private ownership of gold. C. People believed the government's promise that it would redeem government-issued paper bills for gold. D. Large gold discoveries caused the value of gold to decrease.

C. People believed the government's promise that it would redeem government-issued paper bills for gold.

A bank that chooses to lend some of the deposits that it receives from customers: A. cannot let those customers make withdrawals without affecting the stability of the bank. B. holds all deposits as reserves. C. is no longer in a 100-percent-reserve banking system. D. can still operate within a 100-percent-reserve banking system.

C. is no longer in a 100-percent-reserve banking system.

A reserve requirement is the: A. maximum reserve-deposit ratio that bank regulators permit banks to have. B. interest rate on reserves that the Federal Reserve is required to pay. C. minimum reserve-deposit ratio that bank regulators require banks to have. D. minimum total reserves that banks are required to have.

C. minimum reserve-deposit ratio that bank regulators require banks to have.

Money is a perfect store of value when the economy is experiencing: A. both inflation and deflation. B. deflation. C. neither inflation nor deflation. D. inflation.

C. neither inflation nor deflation.

Which are included in M2, but not included in M1? A. currency B. demand deposits C. saving deposits D. All items in M2 are also included in M1.

C. saving deposits

Which is the equation used to calculate the monetary base B? A. B = Currency - Deposits B. B = Currency + Deposits C. B = Money Multiplier x Money Supply D. B = Currency + Reserves

D. B = Currency + Reserves

Which is an example of a fiat money? A. salt B. gold coins C. cigarettes in World War II prisoner of war camps D. U.S. dollar bills

D. U.S. dollar bills

m = (1 + cr) / (cr + rr), where cr is the currency-deposit ratio and rr is the reserve-deposit ratio. Which equation is used to calculate the money multiplier m? A. m = Currency + Deposits. B. m = monetary base x money supply. C. m = 1 / reserve-deposit ratio. D. m = (1 + cr) / (cr + rr), where cr is the currency-deposit ratio and rr is the reserve-deposit ratio.

D. m = (1 + cr) / (cr + rr), where cr is the currency-deposit ratio and rr is the reserve-deposit ratio.

Which is/are NOT considered part of M1? A. demand deposits B. paper bills C. coins D. savings deposits

D. savings deposits

Members of the U.S. Federal Open Market Committee include: A. just the members of the Federal Reserve Board of Governors. B. just the presidents of the regional Federal Reserve banks. C. members of the three branches of government: legislative, judicial, and executive. D. the members of the Federal Reserve Board of Governors and the presidents of the regional Federal Reserve banks.

D. the members of the Federal Reserve Board of Governors and the presidents of the regional Federal Reserve banks.

Suppose that the monetary base is $50,000 and that the reserve-deposit ratio and the currency-deposit ratio are 0.2 and 0.2, respectively. In this scenario, the money supply will equal: A. $10,000. B. $25,000. C. $150,000. D. $250,000.

Formula m=cr+1/cr+rr xB 1. m = (.2+1)/(.2+.2) x B 2. m = 3 * 50,000 C. 3. $150,000

Which is the equation used to calculate the money supply M? A. M = Money Multiplier x Money Supply B. M = Currency + Deposits C. M = Currency - Deposits D. M = Currency + Reserves

M = Currency + Deposits