Practice Questions Chapter 14

A bank has excess reserves of $6000 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 bank's excess reserves will be

$1,000

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

$1200 billion

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

$1400 billion

If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves that total $1 billion, then the excess reserves checkable deposit ratio is

0.001

If the required ratio is one third currency in circulation is $300 billion and checkable deposits are $900 billion then the currency ratio is

0.33

If reserves in the banking system increase by $100, then checkable deposits will increase by $2000 in the simple model of deposit creation when the required reserve ratio is

0.5

If the required reserve ratio is 15 percent, currency in circulation is $400 billion, checkable deposits and excess reserves total $0.8 billion, then the M1 money multiplier is

2.3

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 M1 money multiplier is

2.72

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 M1 money multiplier is

2.8

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

375

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 bank's excess reserves will be

5,000

The relationship between borrowed reserves, the nonborrowed monetary base and the monetary base is

BR=MB-MBn

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.

Currency, excess reserves

Which of the following are not assets on the Feds balance sheet

Deferred availability of cash

The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits, excess reserves, and currency is

MB = (r × D) + ER + C

The money multiplier is

Negatively related to the required reserve ratio

Which is the most important category of fed assets

Securities

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.

Ten

Factors causing an increase in currency holdings included

an increase in illegal activity

Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the discount rate from 5% to 4%

an increase, an increase

When a member of the nonbank public withdraws currency from her bank account,

bank reserves fall, but the monetary base remains unchanged.

The monetary liabilities of the federal reserve include

currency in circulation and reserves

Assuming initially that rr = 10%, c = 40%, and e = 0, an increase in rr to 15% causes the M1 money multiplier to ________, everything else held constant.

decrease from 2.8 to 2.55

Everything else held constant, and increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to ___ and the money supply to ____

decrease, decrease

When the Federal Reserve sells a government bond to a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant.

decrease, decrease

Total reserves are the sum of ________ and ________.

excess reserves, required reserves

In the early 1930's, 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

fallen

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

float, decrease

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.

has no effect on, increases

When the Fed extends a $100 discount loan to the First National Bank, reserves in the banking system

increase by $100

The ratio that relates the change in the money supply to a given change in the monetary base is called the

money multiplier

The amount of borrowed reserves is ________ related to the discount rate, and is ________ related to the market interest rate.

negatively, positively

An increase in the monetary base that goes into currency is ___ while an increase that goes into deposits is ___

not multiplied, multiplied

In the simple deposit expansion model, an expansion in checkable deposits of $1000 when the required reserve ratio is equal to 10 percent implies that the fed

purchased for $100

The amount of deposits that banks must hold in reserve is

required reserves

The steepest increase in the currency ratio since 1892 occurred during A) World War II. B) the Great Depression. C) the interwar years. D) the past twenty years.

the Great Depression

The sum of the Fed's monetary liabilities and the U.S. Treasury's monetary liabilities is called

the monetary base

When the fed purchases artwork to decorate the conference room at the federal reserve bank of Kansas city

the monetary base rises

Everything else held constant, an increase in currency holding will cause

the money supply to fall

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.

two