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