Exam 4 Part 2

A bank has excess reserves of $6,000 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

$1,000.

In the simple deposit expansion model, if the required reserve ratio is 10 percent and the Fed increases reserves by $100, checkable deposits can potentially expand by

$1,000.

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, 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 extends a $100 discount loan to a bank that previously had no excess reserves, the bank can now increase its loans by

$100.

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.

If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then the bank has actual reserves of

$14,000.

If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then the bank has actual reserves of

$17,000.

If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 15 percent, then the bank has actual reserves of

$19,000

If a bank has excess reserves of $5,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has actual reserves of

$21,000

If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 15 percent, then the bank has actual reserves of

$22,000.

If a bank has excess reserves of $10,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has actual reserves of

$26,000.

If a bank has excess reserves of $15,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has total reserves of

$31,000.

If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has total reserves of

$36,000.

In the simple deposit expansion model, if the banking system has excess reserves of $75, and the required reserve ratio is 20%, the potential expansion of checkable deposits is

$375

A bank has excess reserves of $10,000 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

$5,000.

In the simple deposit expansion model, if the required reserve ratio is 20 percent and the Fed increases reserves by $100, checkable deposits can potentially expand by

$500

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

-$1,000.

A bank has no excess reserves 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 now be

-$5,000.

If reserves in the banking system increase by $100, then checkable deposits will increase by $2,000 in the simple model of deposit creation when the required reserve ratio is

0.05.

If reserves in the banking system increase by $100, then checkable deposits will increase by $1000 in the simple model of deposit creation when the required reserve ratio is

0.10.

If reserves in the banking system increase by $100, then checkable deposits will increase by $667 in the simple model of deposit creation when the required reserve ratio is

0.15.

If reserves in the banking system increase by $100, then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is

0.20

If reserves in the banking system increase by $100, then checkable deposits will increase by $400 in the simple model of deposit creation when the required reserve ratio is

0.25.

If reserves in the banking system increase by $200, then checkable deposits will increase by $500 in the simple model of deposit creation when the required reserve ratio is

0.40.

If reserves in the banking system increase by $100, then checkable deposits will increase by $100 in the simple model of deposit creation when the required reserve ratio is

1.00

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

10.0

A simple deposit multiplier equal to one implies a required reserve ratio equal to

100 percent.

A simple deposit multiplier equal to four implies a required reserve ratio equal to

25 percent.

If the required reserve ratio is 25 percent, the simple deposit multiplier is

4.0.

If the required reserve ratio is 20 percent, the simple deposit multiplier is

5.0.

A simple deposit multiplier equal to two implies a required reserve ratio equal to

50 percent.

If the required reserve ratio is 15 percent, the simple deposit multiplier is

6.67

The relationship between borrowed reserves, the nonborrowed monetary base, and the monetary base is

BR = MB - MBn.

For which of the following is the change in reserves necessarily different from the change in the monetary base?

Open market purchases from an individual who cashes the check

Explain two ways by which the Federal Reserve System can increase the monetary base. Why is the effect of Federal Reserve actions on bank reserves less exact than the effect on the monetary base?

The Fed can increase the monetary base by purchasing government bonds and by extending discount loans. If the person selling the security chooses to keep the proceeds in currency, bank reserves do not increase. Because the Fed cannot control the distribution of the monetary base between reserves and currency, it has less control over reserves than the base.

Total Reserves minus vault cash equals

bank deposits with the Fed.

When a member of the nonbank public withdraws currency from her bank account,

bank reserves fall, but the monetary base remains unchanged.

When a member of the nonbank public deposits currency into her bank account,

bank reserves rise, but the monetary base remains unchanged.

The three players in the money supply process include

banks, depositors, and the central bank.

The Fed does not tightly control the monetary base because it does not completely control

borrowed reserves.

The formula for the simple deposit multiplier can be expressed as

change in D= × change in R

The simple deposit multiplier can be expressed as the ratio of the

change in deposits divided by the change in reserves in the banking system

The monetary base minus reserves equals

currency in circulation

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.

Both ________ and ________ are monetary liabilities of the Fed.

currency in circulation; reserves

The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in ________, the open market purchase has no effect on reserves; if the proceeds are kept as ________, reserves increase by the amount of the open market purchase.

currency; deposits

All else the same, when the Fed calls in a $100 discount loan previously extended to the First National Bank, reserves in the banking system

decrease by $100.

When the Fed sells $100 worth of bonds to First National Bank, reserves in the banking system

decrease by $100.

When a bank buys a government bond from the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant.

decrease; decreases

When the Federal Reserve sells a government bond to a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant.

decrease; decreases

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

Individuals that lend funds to a bank by opening a checking account are called

depositors.

When banks borrow money from the Federal Reserve, these funds are called

discount loans.

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

discount rate.

Total reserves are the sum of ________ and ________.

excess reserves; required reserves

If a member of the nonbank public purchases a government bond from the Federal Reserve in exchange for currency, the monetary base will ________, but reserves will ________.

fall; remain unchanged

A decrease in ________ leads to an equal ________ in the monetary base in the short run.

float; decrease

An increase in ________ leads to an equal ________ in the monetary base in the short run.

float; increase

Both ________ and ________ are Federal Reserve assets.

government securities; discount loans

The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in currency, the open market purchase ________ reserves; if the proceeds are kept as deposits, the open market purchase ________ reserves.

has no effect on; increases

When an individual sells a $100 bond to the Fed, she may either deposit the check she receives or cash it for currency. In both cases

high-powered money increases.

When the Fed buys $100 worth of bonds from First National Bank, reserves in the banking system

increase by $100.

When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system

increase by $100.

When a bank sells a government bond to the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant.

increase; increases

When the Federal Reserve purchases a government bond from a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant.

increase; increases

When the Fed supplies the banking system with an extra dollar of reserves, deposits ________ by ________ than one dollara process called multiple deposit creation.

increase; more

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

increases; increase

If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to

its excess reserves.

When the Fed supplies the banking system with an extra dollar of reserves, deposits increase by more than one dollara process called

multiple deposit creation.

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

open market operations.

There are two ways in which the Fed can provide additional reserves to the banking system: it can ________ government bonds or it can ________ discount loans to commercial banks.

purchase; extend

In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed

purchased $100 in government bonds.

In the simple deposit expansion model, an expansion in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed

purchased $200 in government bonds.

If a person selling bonds to the Fed cashes the Fed's check, then reserves ________ and currency in circulation ________, everything else held constant.

remain unchanged; increases

Suppose your payroll check is directly deposited to your checking account. Everything else held constant, total reserves in the banking system ________ and the monetary base ________.

remain unchanged; remains unchanged

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

required reserve ratio.

Reserves are equal to the sum of

required reserves and excess reserves.

The amount of deposits that banks must hold in reserve is

required reserves.

High-powered money minus currency in circulation equals

reserves

The monetary base minus currency in circulation equals

reserves.

If a member of the nonbank public sells a government bond to the Federal Reserve in exchange for currency, the monetary base will ________, but ________.

rise; reserves will remain unchanged

A decrease in ________ leads to an equal ________ in the monetary base in the long run.

securities; decrease

An increase in ________ leads to an equal ________ in the monetary base in the long run.

securities; increase

If the Fed decides to reduce bank reserves, it can

sell government bonds.

In the simple model of multiple deposit creation in which banks do not hold excess reserves, the increase in checkable deposits equals the product of the change in excess reserves and the

simple deposit expansion multiplier.

In the simple deposit expansion model, a decline in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed

sold $100 in government bonds.

In the simple deposit expansion model, a decline in checkable deposits of $500 when the required reserve ratio is equal to 20 percent implies that the Fed

sold $100 in government bonds.

In the simple deposit expansion model, a decline in checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed

sold $200 in government bonds.

In the simple deposit expansion model, a decline in checkable deposits of $500 when the required reserve ratio is equal to 10 percent implies that the Fed

sold $50 in government bonds.

The monetary base declines when

the Fed sells securities.

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

the Federal Reserve System.

The government agency that oversees the banking system and is responsible for the conduct of monetary policy in the United States is

the Federal Reserve System.

The sum of the Fed's monetary liabilities and the U.S. Treasury's monetary liabilities is called

the monetary base.

Subtracting borrowed reserves from the monetary base obtains

the nonborrowed monetary base.

Excess reserves are equal to

vault cash plus deposits with Federal Reserve banks minus required reserves.

Total reserves minus bank deposits with the Fed equals

vault cash.