Chapter 14 Homework
If the required reserve ratio on checkable deposits increases to 20%, how much multiple deposit creation will take place when reserves are increased by $100? Assume that banks do not hold any excess reserves and the public's holdings of currency do not change.
$500
If the required reserve ratio is 10 percent, currency in circulation is $1,200 billion, checkable deposits are $1,600 billion, and excess reserves total $2,500 billion, then the M1 money multiplier is
0.73
Under 100% reserve banking, the money multiplier will be:
1
What happens to checkable deposits in the banking system when the Fed sells $2 million of bonds to the First National Bank, assuming that the required reserve ratio on checkable deposits is 10%, banks do not hold any excess reserves, and the public's holdings of currency do not change?
Checkable deposits decline by $20 million.
What happens to checkable deposits in the banking system when the Fed lends an additional $1 million to the First National Bank, assuming that the required reserve ratio on checkable deposits is 10%, banks do not hold any excess reserves, and the public's holdings of currency do not change?
Checkable deposits rise by $10 million.
The Federal Reserve's act of controlling the monetary base through its purchases or sales of securities is known as
an open market operation
The monetary policy player that determines the borrowed reserves is the
banking system
Which of the following players can affect the money supply by its holdings of excess reserves>
banks
By definition, when the Fed conducts an open market purchase, it is:
buying bonds, increasing the quantity of reserves.
The Federal Reserve System is the ___________ for the United States, which is defined as the government agency responsible for __________.
central bank; the conduct of monetary policy
The monetary liabilities of the Federal Reserve include
currency in circulation and reserve
The monetary base is comprised of:
currency in circulation and reserves.
If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply
does not change
Total reserves are the sum of ________ and ________.
excess reserve;required reserves
The monetary policy player that determines the nonborrowed monetary base is the
federal reserve system
If there is a sharp rise in the currency ratio, then people begin to hold___deposits relative to currency and the level of multiple deposit expansion_____. This couses the money multiplier to____, which in turn causes the money supply to____
fewer,decrease, fall, decrease
Which of the following are found on the asset side of the Fed's balance sheet?
government securities
Two primary assets of the Federal Reserve System are:
government securities and loans to commercial banks.
The monetary base is known as
high powered money
When the Federal Reserve purchases a government bond from a primary dealer, reserves in the banking system ________ and the monetary base ________, everything else held constant.
increase;increase
When the Fed supplies the banking system with an extra dollar of reserves, deposits increase by more than one dollarlong dash—a process called
multiple deposit creation
If the nonbank public holds currency in addition to deposits, then an open market purchase will result in
A smaller increase in total deposits than is predicted by the simple deposit multiplier
The operation of the Fed and its monetary policy involve actions that affects its record of holdings known as the Fed's
Balance sheet
The process whereby, when the Fed supplies the banking system with $1 of additional reserves, deposits increase by a multiple of that amount is known as
Multiple deposit creation
The monetary policy player that determines the currency holdings is the Holding the monetary base constant, paying interest on reserve should____the excess reserves ratio, which__the money multiploer and_____the money supply
Raise, reduces,reduces
The interest rate charged to banks that borrow funds from the Fed is known as the:
discount rate
The monetary policy player that determines the currency holdings is the
nonbank public
A bank has a required reserve ratio of 10%. If the bank has deposits of $100,000 and is holding $12,000 in reserves:
the bank is holding $2,000 in excess reserves.
Which of the following players can affect the money supply through open market operations?
the central bank
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
The ratio of the money supply to the monetary base is called:
the money multiplier
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.
Loans that the Fed makes to banks appear on the balance sheet as part of its __________, and deposits made by banks appear on the Fed's balance sheet as part of its ____________.
assets; liabilities
If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base ________ and the money supply ________.
increases; remains unchanged