money and banking exam #2 chapter 14

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In the simple deposit expansion​ model, if the Fed extends a​ $100 discount loan to a bank that previously had no excess​ reserves, deposits in the banking system can potentially increase by

$100 times the reciprocal of the required reserve ratio.

In the simple deposit expansion​ model, if the Fed purchases​ $100 worth of bonds from a bank that previously had no excess​ reserves, the bank can now increase its loans by

$100.

Of the three players in the money supply​ process, most observers agree that the most important player is

The Federal Reserve System

The monetary base consists of

currency in circulation and reserves

The monetary liabilities of the Federal Reserve include

currency in circulation and reserves.

High-powered money minus reserves equals

currency in circulation.

Total reserves are the sum of​ ________ and​ ________.

excess​ reserves; required reserves

Assuming initially that the required reserve ratio​ = 15%, the currency-deposit ratio​ = 40%, and the excess reserve ratio​ = 5%, a decrease in the excess reserve ratio to​ 0% causes the M1 money multiplier to​ ________, everything else held constant.

ncrease from 2.33 to 2.55

Purchases and sales of government securities by the Federal Reserve are called

open market operations

The percentage of deposits that banks must hold in reserve is the

required reserve ratio

The amount of deposits that banks must hold in reserve is

required reserves.

Total reserves minus bank deposits with the Fed equals

vault cash

A bank has excess reserves of​ $4,000 and demand deposit liabilities of​ $100,000 when the required reserve ratio is 20 percent. If the reserve ratio is raised to 25​ percent, the​ bank's excess reserves will be

-$1000

If the required reserve ratio is 10​ percent, the simple deposit multiplier is

10.0

Everything else held​ constant, if the sum of the required reserve ratio and the excess reserve ratio is less than​ one, a decrease in the currencydashcheckable deposit ratio will mean

an increase in money supply.

Assuming initially that the required reserve ratio​ = 15%, the currencydashdeposit ratio​ = 40%, and the excess reserve ratio​ = 5%, an increase in the excess reserve ratio to​ 10% causes the M1 money multiplier to​ ________, everything else held constant.

decrease from 2.33 to 2.15

Assuming initially that the required reserve ratio​ = 10%, the currency-deposit ratio​ = 40%, and the excess reserve ratio​ = 0, an increase in the currency-deposit ratio to​ 50% causes the M1 money multiplier to​ ________, everything else held constant.

decrease from 2.8 to 2.5

Everything else held​ constant, an increase in the excess reserves ratio causes the M1 money multiplier to​ ________ and the money supply to​ ________.

decrease; decrease

Suppose a person cashes his payroll check and holds all the funds in the form of currency. Everything else held​ constant, total reserves in the banking system​ ________ and the monetary base​ ________.

decrease; remains unchanged

When the Federal Reserve calls in a discount loan from a​ bank, the monetary base​ ________ and reserves​ ________.

decreases; decrease

The interest rate the Fed charges banks borrowing from the Fed is the

discount rate

Assuming initially that the required reserve ratio​ = 10%, the currency-deposit ratio​ = 40%, and the excess reserve ratio​ = 0, a decrease in the currency-deposit ratio to​ 30% causes the M1 money multiplier to​ ________, everything else held constant.

increase from 2.8 to 3.25

Every thing else held​ constant, a decrease in the excess reserves ratio causes the M1 money multiplier to​ ________ and the money supply to​ ________.

increase; increase

Everything else held​ constant, if the sum of the required reserve ratio and the excess reserve ratio is greater than​ one, an increase in the​ currency-deposit ratio causes the M1 money multiplier to​ ________ and the money supply to​ ________.

increase; increase

When the Federal Reserve extends a discount loan to a​ bank, the monetary base​ ________ and reserves​ ________.

​increases; increase


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