ECON 2035 CH 14 fixed

High-powered money minus currency in circulation equals A) reserves. B) the borrowed base. C) the nonborrowed base. D) discount loans.

A

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

In the model of the money supply process, the bank's role in influencing the money supply process is represented by A) the excess reserve. B) both the excess reserve and the market interest rate. C) the currency ratio. D) only borrowed reserves.

A

In the model of the money supply process, the depositor's role in influencing the money supply is represented by A) the currency holdings. B) the currency holdings and excess reserve. C) the currency holdings and borrowed reserve. D) the market interest rate.

A

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

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

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 = (rr × D) + ER + C. B) MB = (rr + D) + ER + C. C) MB = + ER + C. D) MB = (rr × D) - ER - C.

A

The formula for the M1 money multiplier is A) m = (1 + c)/(rr + e + c). B) M = 1/(rr + e + c). C) M = (1 + c)/(rr + e + c). D) m = [1/(rr + e + c)] × MB.

A

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 monetary base minus currency in circulation equals A) reserves. B) the borrowed base. C) the nonborrowed base. D) discount loans.

A

The monetary base minus reserves equals A) currency in circulation. B) the borrowed base. C) the nonborrowed base. D) discount loans.

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

Total reserves minus bank deposits with the Fed equals A) vault cash. B) excess reserves. C) required reserves. D) currency in circulation.

A

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

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

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

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

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

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 ________ 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

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

Both ________ and ________ are monetary liabilities of the Fed. A) securities; loans to financial institutions B) currency in circulation; reserves C) securities; reserves D) currency in circulation; loans to financial institutions

B

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-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

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

High-powered money minus reserves equals A) reserves. B) currency in circulation. C) the monetary base. D) the nonborrowed base.

B

If a person selling bonds to the Fed cashes the Fed's 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

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

In the model of the money supply process, the Federal Reserve's 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, and borrowed reserves. C) only borrowed reserves. D) only nonborrowed reserves.

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

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

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 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

The amount of deposits that banks must hold in reserve is A) excess reserves. B) required reserves. C) total reserves. D) vault cash.

B

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; increases

B

The formula for the simple deposit multiplier can be expressed as A) △R = × △T B) △D = × △R C) △rr = × △T D) △R = × △D

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 monetary liabilities of the Federal Reserve include A) securities and loans to financial institutions. B) currency in circulation and reserves. C) securities and reserves. D) currency in circulation and loans to financial institutions.

B

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

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

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

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

When the Fed supplies the banking system with an extra dollar of reserves, deposits ________ by ________ than one dollar—a process called multiple deposit creation. A) increase; less B) increase; more C) decrease; less D) decrease; more

B

When the Fed supplies the banking system with an extra dollar of reserves, deposits increase by more than one dollar—a process called A) extra deposit creation. B) multiple deposit creation. C) expansionary deposit creation. D) stimulative deposit creation

B

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 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

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

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

Both ________ and ________ are Federal Reserve assets. A) currency in circulation; reserves B) currency in circulation; securities C) securities; loans to financial institutions D) securities; reserves

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 causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

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

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

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 Fed extends a $100 discount loan to 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

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

Individuals that lend funds to a bank by opening a checking account are called A) policyholders. B) partners. C) depositors. D) debt holders.

C

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

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

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

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 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 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

The monetary base consists of A) currency in circulation and Federal Reserve notes. B) currency in circulation and the U.S. Treasury's monetary liabilities. C) currency in circulation and reserves. D) reserves and Federal Reserve Notes.

C

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

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

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

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

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

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

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

e 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

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 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

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

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

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

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

Models describing the determination of the money supply and the Fed's 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

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 sum of the Fed's monetary liabilities and the U.S. Treasury's monetary liabilities is called A) the money supply. B) currency in circulation. C) bank reserves. D) the monetary base

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

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

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

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

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

The formula that links checkable deposits to the monetary base is A) m = 1/(rr+e+c) B) M = 1/(rr+e+c) C) M = 1+c/(rr+e+c) D) D = 1/(rr+e+c) E) D = 1/(rr+e+c) × MB.

E

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