M&B 14.7 - The Money Multiplier

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 money supply is ________ billion. A) $8000 B) $1200 C) $1200.8 D) $8400

$1200

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.

$480.8 billion.

If the required reserve ratio is one-third, currency in circulation is $300 billion, and checkable deposits are $900 billion, then the level of excess reserves in the banking system is A) $300 billion. B) $30 billion. C) $3 billion. D) 0.

0.

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 excess reserves-checkable deposit ratio is A) 0.001. B) 0.10. C) 0.01. D) 0.05.

0.001.

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.

0.50.

If the required reserve ratio is one-third, currency in circulation is $300 billion, and checkable deposits are $900 billion, then the M1 money multiplier is A) 2.5. B) 2.8. C) 2.0. D) 0.67.

2.0.

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

2.5.

The formula that links checkable deposits to the monetary base is

D = 1/(r+e+c) × MB.

The formula that links checkable deposits to the money supply is

D= 1/(1+c) ×M.

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).

M = m × (MBn + BR)

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.

M = m × MB.

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=Dr +ER+C. D) MB = (r × D) - ER - C.

MB = (r × D) + ER + 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.

a decrease in the money supply.

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.

an increase in money supply.

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.

an increase in the money supply.

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

currency; deposits

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

decrease from 2.8 to 2.5

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

decrease from 2.8 to 2.55

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

decrease; decrease

Everything else held constant, an increase in the currency ratio causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) increase; decrease C) decrease; decrease D) increase; increase

decrease; decrease

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.

does not change.

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.

fallen.

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.

grow proportionally with checkable deposits.

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

high-powered money; reserves

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

increase from 2.8 to 3.11

Every thing else held constant, a decrease in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________. A) decrease; increase B) increase; increase C) decrease; decrease D) increase; decrease

increase; increase

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

increase; increase

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

increase; increase

During the bank panics of the Great Depression the currency ratio A) increased sharply. B) decreased sharply. C) increased slightly. D) decreased slightly.

increased sharply.

During the bank panics of the Great Depression the excess reserve ratio A) increased sharply. B) decreased sharply. C) increased slightly. D) decreased slightly.

increased sharply.

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

increases; remains unchanged

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.

m = (1 + c)/(r + e + c).

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.

money multiplier.

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.

money multiplier.

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

more than one dollar

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.

negatively related to the required reserve ratio.

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

negatively; positively

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

not multiplied; multiplied

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

positively; negatively

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

product of

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

sum of

Models describing the determination of the money supply and the Feds 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

the monetary base; reserves

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.

the money supply to fall.