money and banking exam #2 chapter 14
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
