chapter 14
High-powered money minus currency in circulation equals A) reserves. B) the borrowed base. C) the nonborrowed base. D) discount loans.
A) reserves.
Since the Federal Reserve sets the required reserve ratio to less than one, one dollar of reserves can support ________ of checkable deposits. A) exactly one dollar B) less than one dollar C) more than one dollar D) exactly twice the amount
C
Subtracting borrowed reserves from the monetary base obtains A) reserves. B) high-powered money. C) the nonborrowed monetary base. D) the borrowed monetary base.
C) the nonborrowed monetary base.
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 bankʹs excess reserves will be A) -$5,000. B) -$1,000. C) $1,000. D) $5,000.
D
An increase in the monetary base that goes into ________ is not multiplied, while an increase that goes into ________ is multiplied. A) deposits; currency B) excess reserves; currency C) currency; excess reserves D) currency; deposits
D
Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply. A) borrowers; depositors B) banks; depositors C) depositors; borrowers D) depositors; banks
D
Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts. A) deposits; required reserves B) deposits; excess reserves C) currency; required reserves D) currency; excess reserves
D
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 A) $16,000. B) $20,000. C) $26,000. D) $36,000.
D
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 A) 0.01. B) 0.10. C) 0.20. D) 1.00
D
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 A) 0.01. B) 0.10. C) 0.20. D) 0.25.
D
If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base ________ and the money supply ________. A) remains unchanged; remains unchanged B) remains unchanged; increases C) increases; increases D) increases; remains unchanged
D
If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply A) increases by only the initial increase in reserves. B) increases by only one-half the initial increase in reserves. C) increases by a multiple of the initial increase in reserves. D) does not change.
D
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 A) $75. B) $750. C) $37.50. D) $375.
D
Models describing the determination of the money supply and the Fedʹs role in this process normally focus on ________ rather than ________, since Fed actions have a more predictable effect on the former. A) reserves; the monetary base B) reserves; high-powered money C) the monetary base; high-powered money D) the monetary base; reserves
D
Total reserves minus bank deposits with the Fed equals A) vault cash. B) excess reserves. C) required reserves. D) currency in circulation.
A) vault cash.
Everything else held constant, a decrease in holdings of excess reserves will mean A) a decrease in the money supply. B) an increase in the money supply. C) a decrease in checkable deposits. D) an increase in discount loans.
B
Everything else held constant, a decrease in the currency ratio causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease
B
Everything else held constant, a decrease in the currency-checkable deposit ratio will mean A) an increase in currency in circulation and an increase in the money supply. B) an increase in money supply. C) a decrease in the money supply. D) an increase in currency in circulation but no change in the money supply.
B
Everything else held constant, a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease
B
Everything else held constant, a decrease in the required reserve ratio on checkable deposits will mean A) a decrease in the money supply. B) an increase in the money supply. C) a decrease in checkable deposits. D) an increase in discount loans.
B
The amount of borrowed reserves is ________ related to the discount rate, and is ________ related to the market interest rate. A) negatively; negatively B) negatively; positively C) positively; negatively D) positively; positively
B
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 A) $10. B) $100. C) $100 times the reciprocal of the required reserve ratio. D) $100 times the required reserve ratio.
B) $100.
When the Fed supplies the banking system with an extra dollar of reserves, deposits ________ by ________ than one dollara process called multiple deposit creation. A) increase; less B) increase; more C) decrease; less D) decrease; more
b
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 bankʹs excess reserves will now be A) -$5,000. B) -$1,000. C) $1,000. D) $5,000
A
A simple deposit multiplier equal to one implies a required reserve ratio equal to A) 100 percent. B) 50 percent. C) 25 percent. D) 0 percent.
A
Assuming initially that r = 10%, c = 40%, and e = 0, a decrease in r to 5% causes the M1 money multiplier to ________, everything else held constant. A) increase from 2.8 to 3.11 B) decrease from 3.11 to 2.8 C) increase from 2 to 2.22 D) decrease from 2.22 to 2
A
Assuming initially that r = 10%, c = 40%, and e = 0, an decrease in c to 30% causes the M1 money multiplier to ________, everything else held constant. A) increase from 2.8 to 3.25 B) decrease from 3.25 to 2.8 C) increase from 2.8 to 3.5 D) decrease from 3.5 to 2.8
A
During the bank panics of the Great Depression the currency ratio A) increased sharply. B) decreased sharply. C) increased slightly. D) decreased slightly.
A
During the bank panics of the Great Depression the excess reserve ratio A) increased sharply. B) decreased sharply. C) increased slightly. D) decreased slightly.
A
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 A) $14,000. B) $19,000. C) $24,000. D) $29,000.
A
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is A) 2.5. B) 1.67. C) 2.0. D) 0.601.
A
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 A) sold $200 in government bonds. B) sold $500 in government bonds. C) purchased $200 in government bonds. D) purchased $500 in government bonds.
A
The Fed can exert more precise control over ________ than it can over ________. A) high-powered money; reserves B) high-powered money; the monetary base C) the monetary base; high-powered money D) reserves; high-powered money
A
The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits, excess reserves, and currency is A) MB = (r × D) + ER + C. B) MB = (r + D) + ER + C. C) MB = r D + ER + C. D) MB = (r × D) - ER - C.
A
The formula for the M1 money multiplier is A) m = (1 + c)/(r + e + c). B) M = 1/(r + e + c). C) M = (1 + c)/(r + e + c). D) m = [1/(r + e + c)] × MB.
A
The ratio that relates the change in the money supply to a given change in the monetary base is called the A) money multiplier. B) required reserve ratio. C) deposit ratio. D) discount rate.
A
The total amount of reserves in the banking system is equal to the ________ required reserves and excess reserves. A) sum of B) difference between C) product of D) ratio between
A
Total Reserves minus vault cash equals A) bank deposits with the Fed. B) excess reserves. C) required reserves. D) currency in circulation.
A) bank deposits with the Fed.
The monetary base minus reserves equals A) currency in circulation. B) the borrowed base. C) the nonborrowed base. D) discount loans.
A) currency in circulation.
A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent, the bankʹs excess reserves will be A) $1,000. B) $5,000. C) $8,000. D) $9,000.
B
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 bankʹs excess reserves will be A) -$5,000. B) -$1,000. C) $1,000. D) $5,000.
B
An assumption in the model of the money supply process is that the desired levels of currency and excess reserves A) are given as constants. B) grow proportionally with checkable deposits. C) grow proportionally with high-powered money. D) grow proportionally over time
B
An increase in the monetary base that goes into currency is ________, while an increase that goes into deposits is ________. A) multiplied; multiplied B) not multiplied; multiplied C) multiplied; not multiplied D) not multiplied; not multiplied
B
An increase in the nonborrowed monetary base, everything else held constant, will cause A) the money supply to fall. B) the money supply to rise. C) no change in the money supply. D) demand deposits to fall.
B
Assuming initially that r = 10%, c = 40%, and e = 0, an increase in c to 50% causes the M1 money multiplier to ________, everything else held constant. A) increase from 2.5 to 2.8 B) decrease from 2.8 to 2.5 C) increase from 2.33 to 2.8 D) decrease from 2.8 to 2.33
B
Assuming initially that r = 10%, c = 40%, and e = 0, an increase in r to 15% causes the M1 money multiplier to ________, everything else held constant. A) increase from 2.55 to 2.8 B) decrease from 2.8 to 2.55 C) increase from 1.82 to 2 D) decrease from 2 to 1.82
B
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 A) $17,000. B) $19,000. C) $24,000. D) $29,000.
B
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 A) $14,000. B) $17,000. C) $22,000. D) $27,000.
B
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 A) $17,000. B) $22,000. C) $27,000. D) $29,000.
B
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 A) 0.01. B) 0.05. C) 0.10. D) 0.20.
B
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the M1 money multiplier is A) 2.5. B) 2.8. C) 2.0. D) 0.7.
B
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the currency ratio is A) 0.25. B) 0.50. C) 0.40. D) 0.05.
B
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is A) $480 billion. B) $480.8 billion. C) $80 billion. D) $80.8 billion.
B
If the required reserve ratio is 5 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is A) 2.5. B) 2.72. C) 2.3. D) 0.551.
B
In the early 1930s, the currency ratio rose, as did the level of excess reserves. Money supply analysis predicts that, everything else held constant, the money supply should have A) risen. B) fallen. C) remain unchanged. D) either risen, fallen, or remain unchanged.
B
In the model of the money supply process, the Federal Reserveʹs role in influencing the money supply is represented by A) both the required reserve ratio and the market interest rate. B) the required reserve ratio, nonborrowed reserves, borrowed reserves, and the market interest rate. C) only borrowed reserves. D) only nonborrowed reserves
B
In the model of the money supply process, the bankʹs role in influencing the money supply process is represented by A) only the excess reserve ratio. B) both the excess reserve ratio and the market interest rate. C) only the currency ratio. D) only borrowed reserves.
B
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 A) sold $250 in government bonds. B) sold $100 in government bonds. C) sold $50 in government bonds. D) purchased $100 in government bonds
B
Recognizing the distinction between borrowed reserves and the nonborrowed monetary base, the money supply model is specified as A) M = m × (MBn - BR). B) M = m × (MBn + BR). C) M = m + (MBn - BR). D) M = m - (MBn + BR).
B
The formula linking the money supply to the monetary base is A) M = m/MB. B) M = m × MB. C) m = M × MB. D) MB = M × m. E) M = m + MB.
B
The money supply is ________ related to expected deposit outflows, and is ________ related to the market interest rate. A) negatively; negatively B) negatively; positively C) positively; negatively D) positively; positively
B
f the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is ________ billion. A) $8000 B) $1200 C) $1200.8 D) $8400
B
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 A) $10. B) $100. C) $100 times the reciprocal of the required reserve ratio. D) $100 times the required reserve ratio.
B) $100.
The monetary liabilities of the Federal Reserve include A) government securities and discount loans. B) currency in circulation and reserves. C) government securities and reserves. D) currency in circulation and discount loans.
B) currency in circulation and reserves.
Everything else hed constant, an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease
C
A ________ in market interest rates relative to the discount rate will cause discount borrowing to ________. A) fall; increase B) rise; decrease C) rise; increase D) fall; remain unchanged
C
A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 20 percent. If the reserve requirement is lowered to 10 percent, the bankʹs excess reserves will be A) $1,000. B) $8,000. C) $9,000. D) $17,000.
C
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 bankʹs excess reserves will be A) -$5,000. B) -$1,000. C) $1,000. D) $5,000.
C
A simple deposit multiplier equal to four implies a required reserve ratio equal to A) 100 percent. B) 50 percent. C) 25 percent. D) 0 percent.
C
Decisions by depositors to increase their holdings of ________, or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts. A) deposits; smaller B) deposits; larger C) currency; smaller D) currency; larger
C
Everything else held constant, an increase in currency holdings will cause A) the money supply to rise. B) the money supply to remain constant. C) the money supply to fall. D) checkable deposits to rise.
C
Everything else held constant, an increase in the currency-checkable deposit ratio will mean A) an increase in currency in circulation and an increase in the money supply. B) an increase in money supply but no change in reserves. C) a decrease in the money supply. D) an increase in currency in circulation but no change in the money supply.
C
Everything else held constant, an increase in the required reserve ratio on checkable deposits will cause A) the money supply to rise. B) the money supply to remain constant. C) the money supply to fall. D) checkable deposits to rise
C
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 A) $16,000. B) $20,000. C) $26,000. D) $36,000
C
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 A) $11,000. B) $21,000. C) $31,000. D) $41,000
C
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 A) $11,000. B) $20,000. C) $21,000. D) $26,000
C
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the currency ratio is A) 0.25. B) 0.50. C) 0.40. D) 0.05.
C
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the excess reserves-checkable deposit ratio is A) 0.01. B) 0.10. C) 0.001. D) 0.05.
C
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the money supply is ________ billion. A) $10,000 B) $4000 C) $1400 D) $10,400
C
If the required reserve ratio is 15 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is A) 2.5. B) 1.67. C) 2.3. D) 0.651.
C
In the model of the money supply process, the depositorʹs role in influencing the money supply is represented by A) only the currency ratio. B) both the currency ratio and excess reserve ratio. C) the currency ratio, excess reserve ratio, and the market interest rate. D) only the market interest rate.
C
The excess reserves ratio is ________ related to expected deposit outflows, and is ________ related to the market interest rate. A) negatively; negatively B) negatively; positively C) positively; negatively D) positively; positively
C
The formula that links checkable deposits to the money supply is A) M = 1 + c/D . B) M = 1/1 + c × D. C) D = 1/1 + c × M. D) D = (1 + c) × M
C
The money multiplier is A) negatively related to high-powered money. B) positively related to the excess reserves ratio. C) negatively related to the required reserve ratio. D) positively related to holdings of excess reserves.
C
The money supply is ________ related to the nonborrowed monetary base, and ________ related to the level of borrowed reserves. A) positively; negatively B) negatively; not C) positively; positively D) negatively; negatively
C
The total amount of required reserves in the banking system is equal to the ________ the required reserve ratio and checkable deposits. A) sum of B) difference between C) product of D) ratio between
C
The variable that reflects the effect on the money supply of changes in factors other than the monetary base is the A) currency-checkable deposits ratio. B) required reserve ratio. C) money multiplier. D) nonborrowed base.
C
If the Fed decides to reduce bank reserves, it can A) purchase government bonds. B) extend discount loans to banks. C) sell government bonds. D) print more currency.
C) sell government bonds.
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 A) $10. B) $100. C) $100 times the reciprocal of the required reserve ratio. D) $100 times the required reserve ratio.
C) $100 times the reciprocal of the required reserve
If the required reserve ratio is 15 percent, the simple deposit multiplier is A) 15.0. B) 1.5. C) 6.67. D) 3.33.
C) 6.67.
The relationship between borrowed reserves, the nonborrowed monetary base, and the monetary base is A) MB = MBn - BR. B) BR = MBn - MB. C) BR = MB - MBn. D) MB = BR - MBn.
C) BR = MB - MBn.
The three players in the money supply process include A) banks, depositors, and the U.S. Treasury. B) banks, depositors, and borrowers. C) banks, depositors, and the central bank. D) banks, borrowers, and the central bank.
C) banks, depositors, and the central bank. .
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 A) 0.01. B) 0.10. C) 0.05. D) 0.20
D) 0.20
If the required reserve ratio is 10 percent, the simple deposit multiplier is A) 5.0. B) 2.5. C) 100.0. D) 10.0
D) 10.0
When a member of the nonbank public withdraws currency from her bank account, A) both the monetary base and bank reserves fall. B) both the monetary base and bank reserves rise. C) the monetary base falls, but bank reserves remain unchanged. D) bank reserves fall, but the monetary base remains unchanged.
D) bank reserves fall, but the monetary base remains unchanged.
When a member of the nonbank public deposits currency into her bank account, A) both the monetary base and bank reserves fall. B) both the monetary base and bank reserves rise. C) the monetary base falls, but bank reserves remain unchanged. D) bank reserves rise, but the monetary base remains unchanged.
D) bank reserves rise, but the monetary base remains unchanged.
When a bank buys a government bond from the Federal Reserve, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases
D) 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. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases
D) decrease; decreases
The formula that links checkable deposits to the monetary base is A) m = 1/r + e + c . B) M = 1/r + e + c . C) M = 1 + c/r + e + c . D) D = 1/r + e + c . E) D = 1/r + e + c × MB.
E
When the Fed buys $100 worth of bonds from First National Bank, reserves in the banking system A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.
A) increase by $100.
When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.
A) 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. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases
A) 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. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases
A) increase; increases
If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up to a maximum amount equal to A) its excess reserves. B) 10 times its excess reserves. C) 10 percent of its excess reserves. D) its total reserves.
A) its excess reserves. .
Reserves are equal to the sum of A) required reserves and excess reserves. B) required reserves and vault cash reserves. C) excess reserves and vault cash reserves. D) vault cash reserves and total reserves.
A) required reserves and excess reserves.
An increase in ________ leads to an equal ________ in the monetary base in the short run. A) float; decrease B) float; increase C) discount loans; decrease D) Treasury deposits at the Fed; increase
B) float; increase
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. A) has no effect on; has no effect on B) has no effect on; increases C) increases; has no effect on D) decreases; increase
B) has no effect on; increases
The amount of deposits that banks must hold in reserve is A) excess reserves. B) required reserves. C) total reserves. D) vault cash.
B) required reserves.
Purchases and sales of government securities by the Federal Reserve are called A) discount loans. B) federal fund transfers. C) open market operations. D) swap transactions
C) open market operations.
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 A) sold $1,000 in government bonds. B) sold $100 in government bonds. C) purchased $1000 in government bonds. D) purchased $100 in government bonds.
D
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 A) $100. B) $250. C) $500. D) $1,000.
D
Total reserves are the sum of ________ and ________. A) excess reserves; borrowed reserves B) required reserves; currency in circulation C) vault cash; excess reserves D) excess reserves; required reserves
D) 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 ________. A) remain unchanged; rise B) remain unchanged; fall C) rise; remain unchanged D) fall; remain unchanged
D) fall; remain unchanged
If a member of the nonbank public sells a government bond to the Federal Reserve in exchange for currency, the monetary base will ________, but ________. A) remain unchanged; reserves will fall B) remain unchanged; reserves will rise C) rise; currency in circulation will remain unchanged D) rise; reserves will remain unchanged
D) rise; reserves will remain unchanged
Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in required reserves. A) one B) two C) nine D) ten
A) one
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves. Given this information, we can say First National Bank has ________ million dollars in required reserves. A) one B) two C) eight D) ten
A) one
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 ________. A) remain unchanged; remains unchanged B) remain unchanged; increases C) decrease; increases D) decrease; decreases
A) remain unchanged; remains unchanged
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in excess reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent. A) ten B) twenty C) eighty D) ninety
A) ten
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank faces a required reserve ratio of ________ percent. A) ten B) twenty C) eighty D) ninety
A) ten
The government agency that oversees the banking system and is responsible for the conduct of monetary policy in the United States is A) the Federal Reserve System. B) the United States Treasury. C) the U.S. Gold Commission. D) the House of Representatives
A) the Federal Reserve System.
Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in vault cash. A) two B) eight C) nine D) ten
Answer: A
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in required reserves. A) one B) two C) eight D) ten
Answer: A
Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in excess reserves. A) two B) eight C) nine D) ten
Answer: C
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 A) 0.01. B) 0.10. C) 0.05. D) 0.20.
B) 0.10.
The simple deposit multiplier can be expressed as the ratio of the A) change in reserves in the banking system divided by the change in deposits. B) change in deposits divided by the change in reserves in the banking system. C) required reserve ratio divided by the change in reserves in the banking system. D) change in deposits divided by the required reserve ratio.
B) change in deposits divided by the change in reserves in the banking system.
High-powered money minus reserves equals A) reserves. B) currency in circulation. C) the monetary base. D) the nonborrowed base.
B) currency in circulation.
Both ________ and ________ are monetary liabilities of the Fed. A) government securities; discount loans B) currency in circulation; reserves C) government securities; reserves D) currency in circulation; discount loans
B) currency in circulation; reserves
When banks borrow money from the Federal Reserve, these funds are called A) federal funds. B) discount loans. C) federal loans. D) Treasury funds.
B) discount loans.
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 A) reserves increase. B) high-powered money increases. C) reserves decrease. D) high-powered money decreases.
B) high-powered money increases.
When the Fed supplies the banking system with an extra dollar of reserves, deposits increase by more than one dollara process called A) extra deposit creation. B) multiple deposit creation. C) expansionary deposit creation. D) stimulative deposit creation.
B) multiple deposit creation.
If a person selling bonds to the Fed cashes the Fedʹs check, then reserves ________ and currency in circulation ________, everything else held constant. A) remain unchanged; declines B) remain unchanged; increases C) decline; remains unchanged D) increase; remains unchanged
B) remain unchanged; increases
The percentage of deposits that banks must hold in reserve is the A) excess reserve ratio. B) required reserve ratio. C) total reserve ratio. D) currency ratio.
B) required reserve ratio.
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 A) reciprocal of the excess reserve ratio. B) simple deposit expansion multiplier. C) reciprocal of the simple deposit multiplier. D) discount rate.
B) simple deposit expansion multiplier.
Of the three players in the money supply process, most observers agree that the most important player is A) the United States Treasury. B) the Federal Reserve System. C) the FDIC. D) the Office of Thrift Supervision.
B) the Federal Reserve System.
Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in vault cash. A) one B) two C) nine D) ten
B) two
Excess reserves are equal to A) total reserves minus discount loans. B) vault cash plus deposits with Federal Reserve banks minus required reserves. C) vault cash minus required reserves. D) deposits with the Fed minus vault cash plus required reserves.
B) vault cash plus deposits with Federal Reserve banks minus required reserves.
The formula for the simple deposit multiplier can be expressed as A) △R = 1/r × △T B) △D = 1/r × △R C) △r = 1/R × △T D) △R = 1/r × △D
B) △D = 1 r × △R
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 A) 0.01. B) 0.05. C) 0.15. D) 0.20.
C
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 A) 0.04. B) 0.25. C) 0.40. D) 0.50.
C
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 A) sold $200 in government bonds. B) sold $500 in government bonds. C) purchased $200 in government bonds. D) purchased $500 in government bonds.
C
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 A) $100. B) $250. C) $500. D) $1,000
C
For which of the following is the change in reserves necessarily different from the change in the monetary base? A) Open market purchases from a bank B) Open market purchases from an individual who deposits the check in a bank C) Open market purchases from an individual who cashes the check D) Open market sale to a bank
C) Open market purchases from an individual who cashes the check
The monetary base consists of A) currency in circulation and Federal Reserve notes. B) currency in circulation and the U.S. Treasuryʹs monetary liabilities. C) currency in circulation and reserves. D) reserves and Federal Reserve Notes.
C) currency in circulation and reserves.
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 A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.
C) decrease by $100.
When the Fed sells $100 worth of bonds to First National Bank, reserves in the banking system A) increase by $100. B) increase by more than $100. C) decrease by $100. D) decrease by more than $100.
C) decrease by $100.
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 ________. A) remain unchanged; increases B) decrease; increases C) decrease; remains unchanged D) decrease; decreases
C) decrease; remains unchanged
When the Federal Reserve calls in a discount loan from a bank, the monetary base ________ and reserves ________. A) remains unchanged; decrease B) remains unchanged; increase C) decreases; decrease D) decreases; remains unchanged
C) decreases; decrease
Individuals that lend funds to a bank by opening a checking account are called A) policyholders. B) partners. C) depositors. D) debt holders.
C) depositors.
The interest rate the Fed charges banks borrowing from the Fed is the A) federal funds rate. B) Treasury bill rate. C) discount rate. D) prime rate.
C) discount rate.
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, nine million dollars in excess reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars on deposit with the Federal Reserve. A) one B) two C) eight D) ten
C) eight
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars on deposit with the Federal Reserve. A) one B) two C) eight D) ten
C) eight
Both ________ and ________ are Federal Reserve assets. A) currency in circulation; reserves B) currency in circulation; government securities C) government securities; discount loans D) government securities; reserves
C) government securities; discount loans
When the Federal Reserve extends a discount loan to a bank, the monetary base ________ and reserves ________. A) remains unchanged; decrease B) remains unchanged; increase C) increases; increase D) increases; remain unchanged
C) increases; increase
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in excess reserves. A) one B) two C) nine D) ten
C) nine
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. A) sell; extend B) sell; call in C) purchase; extend D) purchase; call in
C) purchase; extend
An increase in ________ leads to an equal ________ in the monetary base in the long run. A) float; increase B) float; decrease C) securities; increase D) securities; decrease
C) securities; increase
A decrease in ________ leads to an equal ________ in the monetary base in the long run. A) float; increase B) float; decrease C) securities; increase D) securities; decrease
D) securities; decrease
The monetary base declines when A) the Fed extends discount loans. B) Treasury deposits at the Fed decrease. C) float increases. D) the Fed sells securities.
D) the Fed sells securities.
The sum of the Fedʹs monetary liabilities and the U.S. Treasuryʹs monetary liabilities is called A) the money supply. B) currency in circulation. C) bank reserves. D) the monetary base.
D) the monetary base.
If the required reserve ratio is 20 percent, the simple deposit multiplier is A) 5.0. B) 2.5. C) 4.0. D) 10.0.
a
A decrease in ________ leads to an equal ________ in the monetary base in the short run. A) float; increase B) float; decrease C) Treasury deposits at the Fed; decrease D) discount loans; increase
b
A simple deposit multiplier equal to two implies a required reserve ratio equal to A) 100 percent. B) 50 percent. C) 25 percent. D) 0 percen
b
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, eight million dollars on deposit with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bank has ________ million dollars in excess reserves. A) three B) nine C) ten D) eleven
b) nine
If the required reserve ratio is 25 percent, the simple deposit multiplier is A) 5.0. B) 2.5. C) 4.0. D) 10.0
c
The Fed does not tightly control the monetary base because it does not completely control A) open market purchases. B) open market sales. C) borrowed reserves. D) the discount rate.
c
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. A) deposits; deposits B) deposits; currency C) currency; deposits D) currency; currency
c
The monetary base minus currency in circulation equals A) reserves. B) the borrowed base. C) the nonborrowed base. D) discount loans.
s A) reserves.
