MACRO SET 5

A currency drain is A) an increase in currency held outside banks. B) when the Fed buys securities but it is not when the Fed sells securities. C) when the Fed sells securities but it is not when the Fed buys securities. D) when the Fed either buys or sells securities. E) when the Fed raises the required reserve ratio.

A

At any point in time, a single bank can loan an amount equal to A) its excess reserves. B) its required reserves. C) its government securities. D) the amount of loans the bank made in the past. E) its total reserves.

A

If the currency drain ratio is zero, which of the following situations leads to the greatest total increase in the quantity of money? A) an increase in the monetary base of $100,000 when the desired reserve ratio is 5 percent B) an increase in the monetary base of $120,000 when the desired reserve ratio is 10 percent C) an increase in the monetary base of $200,000 when the desired reserve ratio is 20 percent D) an increase in the monetary base of $250,000 when the desired reserve ratio is 15 percent E) an increase in the monetary base of $100,000 when the desired reserve ratio is 50 percent

A

A currency drain is cash ________ and has ________ effect on the money multiplier. A) draining into the banks; no B) draining into the banks; an C) held outside the banks; an D) held at the Fed; an E) held as reserves; no

C

A currency drain occurs when the A) Fed increases the required reserve ratio. B) Fed sells U.S. government securities. C) non-bank public increases its holdings of currency outside the banking system. D) banks reduce the number of loans they create with their excess reserves. E) Fed buys U.S. government securities.

C

An open market purchase of securities by the Fed leads to all of the following EXCEPT A) an initial increase in excess reserves. B) an increase in bank lending. C) a decrease in the quantity of money. D) an increase in banks' reserves. E) an increase in the monetary base.

C

Banks create money by A) printing paper money. B) minting coins. C) making loans. D) buying government securities. E) None of the above because banks cannot create money, only the Federal Reserve can create money.

C

Decisions of ________ determine the magnitude of the monetary multiplier. A) only the Fed B) only the public C) both the Fed and the public D) neither the Fed nor the public E) Fed and the U.S. Congress

C

Excess reserves are the A) same as the required reserves. B) amount of reserves the Fed requires banks to hold. C) amount of reserves held over what is desired. D) amount of reserves a bank holds at the Fed. E) amount of reserves banks keep in their vaults.

C

If Jose deposits $2,000 in his bank and the desired reserve ratio is 10 percent, what is the amount of new loans that the bank can make? A) $2,000 B) $200 C) $1,800 D) $1,900 E) $2,200

C

If a single bank has $25,000 in excess reserves and the desired reserve ratio is 20 percent, what is the maximum this bank can loan? A) $5,000 B) $20,000 C) $25,000 D) $125,000 E) $30,000

C

If the Fed makes an open market purchase of $1 million of government securities, the monetary base A) is decreased by $1 million. B) is unchanged in size, though its composition changes. C) is increased by $1 million. D) will decrease by a multiple of $1 million over time. E) will increase by a multiple of $1 million over time.

C

If the desired reserve ratio increases, then A) banks' desired reserves increase and their excess reserves decrease. B) bank customers become more willing to make deposits in banks. C) banks are able to make more loans. D) banks can buy more government securities. E) the Fed has supplied banks with more reserves.

A

If the desired reserve ratio is 10 percent and there is no currency drain, then a $100 increase in the monetary base leads the banking system to increase the quantity of money by A) $1,000. B) $400. C) $900. D) $110. E) $1,100.

A

If the desired reserve ratio is 15 percent, then for every dollar that is deposited in the bank, the bank will A) keep 15 cents as reserves. B) keep 85 cents as reserves. C) keep 85 cents as reserves and loan 85 cents. D) loan 15 cents. E) keep 15 cents as reserves and loan 15 cents.

A

If the money multiplier is 3.0, a $1,000 increase in the monetary base A) increases quantity of money by $3,000. B) decreases quantity of money by $3,000. C) increases the monetary base by $300. D) increases the money multiplier by 3 percent. E) decreases the quantity of money by 3 percent.

A

Suppose the desired reserve ratio is 10 percent. If Urban Bank has total deposits of $1000 and total assets of $10,000, the amount of desired reserves is A) $100. B) $900. C) $1,000. D) $9,000. E) $1,100.

A

The currency drain reduces the amount of A) reserves available to banks to make loans. B) currency the Fed has outstanding in the economy. C) currency available for banks to borrow from the Fed. D) the monetary base. E) open market operations the Fed can make.

A

The monetary multiplier is 3 and the change in the monetary base is $100,000. How much will the quantity of money increase? A) $300,000 B) $200,000 C) $100,000 D) $70,000 E) $33,333

A

When the Fed buys $100 million of securities from a commercial bank the A) monetary base increases. B) money supply decreases. C) bank's reserves decrease. D) required reserve ratio decreases. E) bank is risking its depositors' money.

A

When the Fed buys government securities, the immediate effect of the purchase is that banks' A) reserves increase. B) deposits increase. C) assets increase. D) reserves decrease. E) loans decrease.

A

When the Fed buys securities from the public, banks' reserves ________ and the quantity of money ________. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases E) do not change; increases

A

When the Fed purchases government securities, A) excess reserves in the banking system increase, leading to more loans being made. B) required reserves in the banking system increase, leading to more loans being made. C) excess reserves in the banking system decrease, leading to fewer loans being made. D) required reserves in the banking system decrease, leading to fewer loans being made. E) the monetary base does not change.

A

Which of the following financial institutions does NOT have to meet minimum reserve ratios? i. the Fed ii. commercial banks iii. credit unions A) i only B) ii only C) iii only D) ii and iii E) i, ii, and iii

A

ssume the First Bank of Townsville makes a loan of $2,500. This loan will A) increase the quantity of money initially by $2,500. B) decrease the quantity of money initially by $2,500. C) have no change on the quantity of money, just its composition. D) increase the First Bank of Townville's liabilities at the Fed. E) increase the First Bank of Townville's reserves.

A

The Fed purchases $1 million of U.S. government securities from First Bank. The desired reserve ratio is 10 percent, the currency drain ratio is zero, and banks loan all excess reserves. The Fed's purchase increases First Bank's excess reserves by how much? A) $900,000 B) $1,000,000 C) $1,100,000 D) $10,000,000 E) $100,000

B

A bank has deposits of $400, reserves of $50, and the desired reserve ratio is 7 percent. The bank's excess reserves are A) $0. B) $22. C) $28. D) $3.50 E) $50.

B

If the Fed buys government securities, then A) the quantity of money is not changed, just its composition. B) new bank reserves are created. C) the quantity of money decreases. D) bank reserves are destroyed. E) banks' excess reserves decrease.

B

If the desired reserve ratio is 7 percent and a bank has $10,000 of deposits, then its desired reserves are A) $7. B) $700. C) $9,300 D) $930. E) $7,000.

B

If the reserve requirement is 20 percent and the Fed buys $10,000 worth of Treasury bonds, what is the change in the banks' total reserves? A) $2,000 B) $10,000 C) $20,000 D) $50,000 E) 100,000

B

New money is created in the U.S. economy by A) increased federal government expenditures. B) banks that create checkable deposits. C) the U.S. Treasury. D) U.S. Department of Mint. E) the U.S. Congress.

B

Open market operations are defined as A) a bank borrowing from the Fed. B) the buying and selling of securities by the Fed. C) the buying and selling of securities between banks. D) the amount banks can lend on each deposit. E) a bank making a loan to the Fed.

B

Suppose the Fed sells $100 of government securities. If the desired reserve ratio is 20 percent and there is no currency drain, then the quantity of money A) decreases by $100. B) decreases by $500. C) decreases by $400. D) increases by $100. E) decreases by $80.

B

Suppose the desired reserve ratio is 10 percent and there is no currency drain. Then a $200 increase in the monetary base results in the banking system increasing the quantity of money by A) $200. B) $2,000. C) $20. D) $10. E) $2,190.

B

The Commerce Bank of Beverly Hills has total deposits of $1,000,000 and total reserves of $220,000. The desired reserve ratio is 10 percent. The bank's excess reserves are A) $22,000. B) $120,000. C) $100,000. D) $80,000. E) $1,000,000.

B

The Fed buys $20,000 of government securities. The desired reserve ratio is 5 percent and the currency drain ratio is zero. What will be the change in the quantity of money? A) $20,000 B) $400,000 C) $399,980 D) $19,000 E) $5,000

B

A bank has deposits of $100,000, reserves of $20,000, and loans of $80,000. If the desired reserve ratio is 10 percent, then its excess reserves are A) 0. B) $8,000. C) $10,000. D) $2,000. E) $12,000.

C

The amount of loans that a bank can create is limited by A) a law enacted by Congress. B) the bank's excess reserves. C) a directive from the Federal Reserve System, which takes into account the bank's financial stability. D) the real interest rate. E) the bank's government securities

B

The money multiplier is the A) fraction of the monetary base that is kept in currency. B) factor by which a change in the monetary base is multiplied to give the change in the quantity of money. C) factor by which a change in the deposits base is multiplied to give the change in the monetary base. D) proportion by which a change in the quantity of money changes the monetary base. E) number of times that the Fed conducts open market operations in a month.

B

The money multiplier is used to determine how much the A) monetary base increases when the Fed purchases government securities. B) quantity of money increases when the monetary base increases. C) monetary base increases when the quantity of money increases. D) quantity of money increases when the required reserve ratio increases. E) monetary base increases when the Fed sells government securities.

B

The number by which a change in the monetary base is multiplied to find the resulting change in the quantity of money is called the A) desired reserve ratio. B) money multiplier. C) currency multiplier. D) currency drain. E) open market operation.

B

The process of money creation by the banking system is limited, in part, by the A) number of banks. B) desired reserve ratio. C) number of depositors. D) Comptroller of the Currency. E) laws passed each year by the U.S. Congress.

B

When Grayce deposits $4,000 cash in her checkable deposit at the Beach Bank and the Beach Bank's excess reserves increase by $3,600, the desired reserve ratio is A) 5 percent. B) 10 percent. C) 15 percent. D) 90 percent. E) $400.

B

When the Fed ________ securities in an open market operation, banks' reserves ________, and therefore lending ________. A) sells; increase; increases B) buys; increase; increases C) sells; decrease; increases D) buys; decrease; decreases E) buys; do not change; does not change

B

When the Fed buys or sells securities, it is conducting ________ operation. A) a government debt B) an open market C) a money multiplier D) a deposit E) a currency

B

When the desired reserve ratio is 10 percent, suppose the Fed buys $1,000,000 of government securities from banks. As a result, the banks' excess reserves A) increase by $900,000. B) increase by $1,000,000. C) increase by $10,000. D) decrease by $10,000. E) decrease by $1,000,000.

B

If the desired reserve ratio decreases, then A) banks' desired reserves increase and their excess reserves decrease. B) bank customers become more willing to make deposits in banks. C) banks are able to make more loans. D) banks are forced to buy fewer government securities. E) banks' desired reserves decrease and their excess reserves do not change.

C

Riley deposits $4,000 cash in her checkable deposit at Fershur Bank. If the desired reserve ratio is 5 percent, Fershur Bank's A) desired reserves increase by $4,000. B) assets and its liabilities change in opposite directions. C) desired reserves increase by $200 and its excess reserves increase by $3,800. D) excess reserves increase by $4,000. E) liabilities do not change but its assets increase.

C

Suppose the desired reserve ratio is 20 percent and there is no currency drain. Then a $1 increase in the monetary base leads to the banking system to increase the quantity of money by A) $0.02. B) $4. C) $5. D) $20. E) $2.

C

The Fed buys $50,000 of government securities. The desired reserve ratio is 10 percent and the currency drain ratio is zero. What will be the change in the quantity of money? A) $5,000 B) $50,000 C) $500,000 D) $5,000,000 E) $0

C

The Fed conducts an open market purchase of securities of $5,000. If the currency drain ratio is 0 percent and the desired reserve ratio is 10 percent, then the total increase in the quantity of money is A) $5,000. B) $20,000. C) $50,000. D) $10,000. E) $4,000.

C

The part of a commercial bank's reserves that are larger than desired are called A) additional reserves. B) required reserves. C) excess reserves. D) nonrequired reserves. E) unnecessary reserves.

C

The required reserve ratio is 20 percent and banks have no excess reserves. Katie deposits $300 in her bank. What are the bank's excess reserves immediately after Katie makes her deposit? A) $30 B) $90 C) $240 D) $60 E) $300

C

To increase the quantity of money in the economy, the Federal Reserve can A) print more money and give it to the banks. B) increase the required reserve ratio. C) buy government bonds in an open market operation. D) sell government bonds in an open market operation. E) cut taxes.

C

When Zane deposits $20,000 cash in his checkable deposit at the Citicorp and the Citicorp's desired reserves increase by $5,000, the desired reserve ratio is A) 5 percent. B) 75 percent. C) 25 percent. D) 20 percent. E) $5,000.

C

When the Fed ________, the quantity of banks' reserves decreases. A) hikes taxes B) buys government securities C) sells government securities D) lowers the required reserve ratio E) raises the required reserve ratio

C

When the Fed sells $100 million of securities to a commercial bank the A) monetary base increases. B) money supply increases. C) bank's reserves decrease. D) required reserve ratio decreases. E) bank's reserves do not change.

C

When the First Bank of Townsville makes a loan, it A) prints money. B) borrows the money from the Fed. C) creates a checkable deposit. D) decreases the quantity of money. E) increases its reserves.

C

A bank has $200 of reserves and $4,000 of deposits. It is just meeting its desired reserves and has no excess reserves. Thus the desired reserve ratio is A) 10 percent. B) 20 percent. C) 25 percent. D) 5 percent. E) $200.

D

Actual reserves are equal to A) minimum balances plus desired reserves. B) required reserves plus fractional deposits. C) excess reserves plus liabilities. D) desired reserves plus excess reserves. E) government securities plus cash in the bank's vault.

D

Banks can make loans as long as they have A) deposits. B) reserves. C) required reserves. D) excess reserves. E) excess government securities

D

Banks can make loans up to an amount equal to their A) total deposits. B) total reserves. C) required reserves. D) excess reserves. E) total government securities.

D

Banks create money by A) printing currency. B) asking the Fed to print more currency. C) lending to the Fed. D) making loans. E) buying government securities.

D

Banks create money by A) printing dollar bills without limit. B) creating deposits without limit. C) printing money up to their required reserve limit. D) making loans and creating deposits, a process that is limited by the size of banks' excess reserves. E) buying U.S. government securities with cash.

D

If the monetary base does not change and the desired reserve ratio increases, the money multiplier ________ and the quantity of money ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases E) decreases; does not change

D

Suppose a bank has $1,000 in deposits and $100 in reserves. If the desired reserve ratio is 5 percent, how much can this bank increase its loans? A) $0 B) $400 C) $80 D) $50 E) $100

D

The Fed buys $25,000 of government securities. The desired reserve ratio is 20 percent and the currency drain ratio is zero. What will be the change in the quantity of money? A) $5,000 B) $20,000 C) $25,000 D) $125,000 E) $50,000

D

When a bank receives $100,000 in new deposits, the amount of loans the bank can make is limited by A) federal law. B) the annual federal budget. C) the Treasury Department. D) its desired reserve ratio. E) state law, with banks in different states being able to make different amounts of loans.

D

When a bank receives deposits, A) it must hold the entire amount as reserves in case of withdrawal. B) the Fed requires it to hold only a small percentage as reserves. C) it and it alone decides how much it will hold as reserves. D) its liabilities increase in amount but its assets do not change. E) its assets increase in amount but its liabilities do not change.

E