Macroeconomics Chapter 14 Quiz
If each bank in the United States had to keep 100 percent of checkable deposits as reserves, each $1 the Fed injected into new reserves could increase the money supply by as much as
$1
Exeter Bank has $100 million in checkable deposits and $10 million in net worth. With a 10% reserve requirement, Exeter Bank must maintain ______ in reserves.
$10 million
Suppose that a bank has $100 million in checkable deposits and the required reserve ratio is 0.1. If the bank has $5 million in excess reserves, then its actual reserves must be
$15 million
If the required reserve ratio is 0.2, and the Fed buys $3,000 of U.S. government securities, the maximum amount by which the money supply can increase is
$15,000
Assume there are no excess reserves in the banking system when the reserve requirement is 20%. The purchase by the Fed of $10,000 in U.S. government securities from Academy National Bank has the potential of ultimately increasing the money supply by a total of
$50,000
If the reserve ratio is 15 percent, and your bank acquires new deposits of $100,000, the maximum it can lend out of these new deposits is
$85,000
If checking deposits increase by $6,000 after all rounds of the money-creation process when the Fed buys $1,200 worth of U.S. government securities, the maximum value of the required reserve ratio is
0.2
If r is the required reserve ratio, which of the following is the simple money multiplier?
1/r
Refer to Exhibit 15-1. If Eubank is holding no excess reserves, what must the required reserve ratio be?
10 percent
If an increase in excess reserves of $10 million increases checkable deposits in the banking system by a maximum of $200 million, the required reserve ratio is
5 percent
The Federal Reserve's narrowest definition of money is
M1
Tony deposits $2,000 in cash at the Last National Bank and the bank credits Tony's checking account in the amount of $2,000. Which of the following is true immediately after this transaction
Only the composition of M1 changes, not its amount.
Tony deposits $2,000 in cash at the Last National Bank and the bank credits Tony's checking account in the amount of $2,000. Which of the following is true immediately after this transaction?
Only the composition of M1 changes, not its amount.
Suppose the reserve requirement is 15 percent. Which of the following is true?
The simple money multiplier is 1/0.15.
A $20 Federal Reserve note is
an asset to a commercial bank if it is currently in the bank's vault
Decreasing the required reserve ratio is
an expansionary policy because it raises the amount of excess reserves in the banking system
As a lender, a bank holds an advantage over any individual person because
banks develop expertise in evaluating borrowers' loan applications
In the federal funds market,
banks make short-term loans to other banks
In order to meet a deficiency of excess reserves, a bank could
borrow from another bank in the federal funds market
Banks are financial intermediaries because they
bring together the two sides of the market-savers and borrowers
Open market operations involve
buying and selling government securities in the open market
A bank's assets include all but one of the following. Which one is the exception?
checkable deposits
The largest component of M1 is
checkable deposits
The M1 money supply consists of
coins and currency held by the nonbank public, checkable deposits, and traveler's checks
To increase the money supply, the Fed might
decrease the reserve requirement and the discount rate
On a bank's balance sheet,
deposits are liabilities; loans are assets
Bank reserves can be held in the form of
deposits with the Fed and cash in the bank's vault
In order to increase the money supply, the banking system must have
excess reserves
Banks want to minimize their holdings of excess reserves because
excess reserves earn no interest
A bank that borrows from the Fed at 3 percent annual interest
hopes to charge more than 3 percent for its loans
By reducing the required reserve ratio, the Fed can not only create excess reserves but also
increase the money multiplier
Banks earn a profit on the difference between
interest charged on loans and interest paid on deposits
All of the following are part of M2 except one. Which is the exception?
large denomination time deposits
The extent of money expansion will be
less if banks hold on to excess reserves or private individuals hold on to cash
The ability to convert a store of value into a medium of exchange with little loss of value is known as
liquidity
If a bank has $6,000 in checkable deposits and the required reserve ratio is 0.2, then the bank can lend
no more than $4,800
The money multiplier will be
smaller if either banks hold on to excess reserves or private citizens hold on to cash
A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is
the federal funds rate
If banks allow some of their excess reserves to remain in the vault,
the simple money multiplier will exceed the actual money multiplier
A 2005 quarter is called token money because
there is less than a quarter's worth of metal in it