Chapter 13 Quiz

Suppose a bank has $50,000 in transactions accounts and a minimum reserve requirement of 10 percent. Then required reserves are:

$5,000

The money multiplier is

1 divided by the required reserve ratio

If the required reserve ratio is 25 percent, the money multiplier is:

4.0

Ceteris paribus, the money supply becomes smaller when:

An individual repays the money that he borrowed from a bank

The reserve ratio is equal to:

Bank reserves divided by total deposits

Money creation occurs when:

Banks make loans to borrowers

Barter:

Is the direct exchange of one good or service for another

Which of the following is not true about barter?

It allows people to obtain more goods than they can using money

Which of the following is not an essential characteristic of money?

It serves as a benchmark for barter

The reserve requirement directly limits the ability of banks to:

Make new loans

When money is used to pay for goods and services it is functioning as a:

Medium of exchange

Money is functioning as a medium of exchange if you:

Purchase coffee at the local coffee shop before class

Money is functioning as a store of value if you:

Put it in a savings account so you can buy a new car next summer

The term fractional reserves refers to:

Reserves being a fraction of total deposits

The money multiplier represents:

The number of deposit dollars the banking system can create from $1 of excess reserves