Macro HW 8

An increase in the reserve requirement increases reserves and decreases the money supply. a) True b) False

a) True

Banks cannot influence the money supply if they are required to hold all deposits in reserve. a) True b) False

a) True

If the Fed decreases reserve requirements, the money supply will increase. a) True b) False

a) True

The Federal Reserve was created in 1913 after a series of bank failures in 1907. a) True b) False

a) True

The discount rate is the rate the Federal Reserve charges banks for loans. By lowering this rate, the Fed provides banks with a greater incentive to borrow from it. a) True b) False

a) True

If the reserve ratio is 4 percent, then the money multiplier is: a) 24 b) 25 c) 26 d) 4

b) 25

An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves of $150 for this bank has the potential to increase deposits for all banks by: (refer to picture) a) $287.25 b) $1,614.71 c) $1,764.71 d) $2,000 or more

c) $1,764.71

​Under a 100-percent-reserve banking system, banks do not influence the supply of money. a) True b) False

a) True

When you purchase school supplies at the book store using cash, you are using money as a medium of exchange. a) True b) False

a) True

​Bank runs are only a concern under a fractional-reserve banking system. a) True b) False

a) True

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their respective balance sheets, this loan is: a) an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply. b) an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the money supply. c) a liability for the bank and an asset for Kellie's Print Shop. The loan increases the money supply. d) a liability for the bank and an asset for Kellie's Print Shop. The loan does not increase the money supply.

a) an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply.

When the Fed conducts open-market purchases, a) it buys Treasury securities, which increases the money supply. b) it buys Treasury securities, which decreases the money supply. c) it borrows money from member banks, which increases the money supply. d) it lends money to member banks, which decreases the money supply.

a) it buys Treasury securities, which increases the money supply.

If the reserve ratio is 5 percent, then $500 of additional reserves can create up to: a) $10,500 of new money. b) $10,000 of new money. c) $9,500 of new money. d) $2,500 of new money.

b) $10,000 of new money.

An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. The bank's reserve ratio is: (refer to picture) a) 17.5 percent b) 8.5 percent c) 91.5 percent d) 100 percent

b) 8.5 percent

The money supply of Granov is $10,000 in a 100-percent-reserve banking system. If the Central Bank of Granov decreases the reserve requirement ratio to 10 percent, the money supply could increase by no more than $9,000. a) True b) False

b) False

U.S. dollars are an example of commodity money and hides used to make trades are an example of fiat money. a) True b) False

b) False

To increase the money supply, the Fed can: a) buy government bonds or increase the discount rate. b) buy government bonds or decrease the discount rate. c) sell government bonds or increase the discount rate. d) sell government bonds or decrease the discount rate.

b) buy government bonds or decrease the discount rate.

If the Fed raised the reserve requirement, the demand for reserves would: a) increase, so the federal funds rate would fall. b) increase, so the federal funds rate would rise. c) decrease, so the federal funds rate would fall. d) decrease, so the federal funds rate would rise.

b) increase, so the federal funds rate would rise.

An open-market purchase: a) increases the number of dollars and the number of bonds in the hands of the public. b) increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public. c) decreases the number of dollars and the number of bonds in the hands of the public. d) decreases the number of dollars in the hands of the public and increases the number of bonds in the hands of the public.

b) increases the number of dollars in the hands of the public and decreases the number of bonds in the hands of the public.

Which of the following best illustrates the medium of exchange function of money? a) You keep some money hidden in your shoe. b) You keep track of the value of your assets in terms of currency. c) You pay for your oil change using currency. d) None of the above is correct.

c) You pay for your oil change using currency.

The primary difference between commodity money and fiat money is that: a) commodity money is a medium of exchange but fiat money is not. b) fiat money is a medium of exchange but commodity money is not. c) commodity money has intrinsic value but fiat money does not. d) fiat money has intrinsic value but commodity money does not.

c) commodity money has intrinsic value but fiat money does not.

Which of the following does the Federal Reserve not do? a) conduct monetary policy b) act as a lender of last resort c) convert Federal Reserve Notes into gold d) serve as a bank regulator

c) convert Federal Reserve Notes into gold

Other things the same if reserve requirements are decreased, the reserve ratio: a) decreases, the money multiplier increases, and the money supply decreases. b) increases, the money multiplier increases, and the money supply increases. c) decreases, the money multiplier increases, and the money supply increases. d) increases, the money multiplier increases, and the money supply decreases.

c) decreases, the money multiplier increases, and the money supply increases.

In a fractional-reserve banking system, a bank: a) does not make loans. b) does not accept deposits. c) keeps only a fraction of its deposits in reserve. d) None of the above is correct.

c) keeps only a fraction of its deposits in reserve.

The interest rate the Fed charges on loans it makes to banks is called: a) the prime rate. b) the federal funds rate. c) the discount rate. d) the LIBOR.

c) the discount rate.

A bank's reserve ratio is 5 percent and the bank has $2,280 in reserve. Its deposits amount to: a) $114 b) $2,166 c) $2,400 d) $45,600

d) $45,600

An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown below. If all banks in the economy have the same reserve ratio as this bank, then the value of the economy's money multiplier is: (refer to picture) a) 9.33 b) 1.09 c) 10.76 d) 11.76

d) 11.76

If the reserve requirement is 10 percent, and it receives a new deposit of $500, it: a) must increase required reserves by $50. b) will initially see reserves increase by $500. c) will be able to use this deposit to make new loans amounting to $450. d) All of the above are correct.

d) All of the above are correct.

Which type of money has intrinsic value? a) commodity money b) fiat money c) both commodity money and fiat money d) neither commodity money nor fiat money

d) neither commodity money nor fiat money

If the federal funds rate were below the level the Federal Reserve had targeted, the Fed could move the rate back towards its target by: a) buying bonds. This buying would increase the money supply. b) buying bonds. This buying would reduce the money supply. c) selling bonds. This selling would increase the money supply. d) selling bonds. This selling would reduce the money supply.

d) selling bonds. This selling would reduce the money supply.