Question 1

Under which of the following circumstances will the simple money multiplier most overstate the change in checkable deposits arising from a change in excess reserves?

Accepted Answer

A)  The public withdraws no cash and banks hold no excess reserves.
B)  The public withdraws no cash and banks hold excess reserves.
C)  The public withdraws cash and banks hold no excess reserves.
D)  The public withdraws cash and banks hold excess reserves.
E)  The required reserve ratio equals 1.F) All of the above
G) None of the above

Question 2

The ability to convert a store of value into a medium of exchange with little loss of value is known as

Accepted Answer

A)  arbitrage
B)  solvency
C)  liquidity
D)  liability
E)  currencyF) A) and B)
G) A) and C)

Question 3

Banks have more expertise than individual households in making loans because banks

Accepted Answer

A)  lend larger amounts of money
B)  are regulated by the government
C)  also pay interest to savers
D)  are subject to severe penalties if they make bad loans
E)  make many more loans than individual households doF) A) and B)
G) A) and C)

Question 4

The Fed can increase the amount of excess reserves in the banking system by

Accepted Answer

A)  lending at the discount window
B)  raising the required reserve ratio
C)  selling securities
D)  lowering the federal funds rate
E)  selling off member banksF) A) and D)
G) B) and D)

Question 5

Which of the following statements is correct?

Accepted Answer

A)  To control the money supply, the Fed relies primarily on the reserve requirement.
B)  The discount rate is the rate of interest banks charge to their best customers.
C)  The Fed changes the reserve requirement frequently.
D)  Because the Fed has no way to earn income, it is dependent upon Congress for appropriations.
E)  Banks can turn a borrower's IOU into money--i.e., they can create money.F) B) and C)
G) All of the above

Question 6

The Fed operates

Accepted Answer

A)  on a balanced budget
B)  at a loss, since Federal Reserve notes and member bank deposits earn no interest
C)  at a profit, since Federal Reserve notes and bank deposits earn no interest, but government securities and loans to commercial banks do
D)  at a profit, since Federal Reserve notes and member bank deposits earn interest
E)  at a loss, since Federal Reserve notes and member bank deposits earn interest, but government securities and loans to commercial banks do notF) A) and B)
G) A) and C)

Question 7

Currency held by banks is not included in the money supply.

Accepted Answer

A) True 
 B)False

Question 8

Through changes in the discount rate, the Federal Reserve can

Accepted Answer

A)  force banks to increase reserves but can't force them to decrease reserves
B)  force banks to decrease reserves but can't force them to increase reserves
C)  force either an increase or a decrease in reserves
D)  give banks an incentive to either increase or decrease reserves but cannot force them to change
E)  affect a commercial bank's major customers by lending to them directlyF) B) and E)
G) A) and B)

Question 9

Net Worth on a bank's balance sheet is

Accepted Answer

A)  equal to assets plus liabilities
B)  sometimes called the owners' equity
C)  equal to assets minus reserves
D)  the same thing as net profits
E)  on the asset side of the balance sheetF) A) and C)
G) C) and D)

Question 10

Suppose the required reserve ratio is 0.1 and Linda deposits $4,000 in cash at the College State Bank. If the bank held no excess reserves before Linda's deposit and now increases its reserves by $500, which of the following is true?

Accepted Answer

A)  The bank must have lent out an additional $4,000.
B)  The $500 are required reserves.
C)  The bank has excess reserves of $100.
D)  Both the bank's assets and its liabilities rise by $500.
E)  The bank has $500 in excess reserves.F) B) and C)
G) A) and C)

Question 11

In the money and credit expansion process, when r = the required reserve ratio, the total change in checkable deposits is equal to the initial change in excess reserves

Accepted Answer

A)  multiplied by r
B)  plus the change in required reserves
C)  divided by 1/r
D)  multiplied by 1/r
E)  divided by the change in required reservesF) D) and E)
G) All of the above

Question 12

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

Accepted Answer

A)  $1
B)  $2
C)  $100
D)  zero
E)  a pennyF) A) and C)
G) None of the above

Question 13

When a customer deposits $100 into a checking account, the effect is to

Accepted Answer

A)  increase the bank's liabilities
B)  decrease the bank's liabilities
C)  increase the bank's assets
D)  decrease the bank's assets
E)  increase both the bank's liabilities and its assetsF) A) and C)
G) B) and D)

Question 14

If the Fed sells a member bank a $3,000 security, the required reserve ratio is 20 percent, banks hold no excess reserves, and all loans are redeposited, then the money supply (Hint: Compare what the banking system might have done if it had loaned at every opportunity; also include the initial transaction with the Fed.)

Accepted Answer

A)  increases by less than $15,000
B)  decreases by less than $15,000
C)  increases by $15,000
D)  decreases by more than $15,000
E)  decreases by $15,000F) A) and B)
G) B) and D)

Question 15

Which of the following is not a liability to a bank?

Accepted Answer

A)  checkable deposits
B)  NOW accounts
C)  net worth
D)  borrowings from the Fed
E)  deposits with the FedF) B) and E)
G) C) and D)

Question 16

Decreasing the required reserve ratio is

Accepted Answer

A)  a contractionary policy because it lowers the amount of total reserves in the banking system
B)  a contractionary policy because it lowers the amount of excess reserves in the banking system
C)  an expansionary policy because it raises the amount of required reserves in the banking system
D)  an expansionary policy because it raises the amount of total reserves in the banking system
E)  an expansionary policy because it raises the amount of excess reserves in the banking systemF) B) and C)
G) A) and D)

Question 17

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits, then its

Accepted Answer

A)  required reserves are $500,000
B)  required reserves are $20,000
C)  assets are $500,000
D)  liabilities are $500,000
E)  liabilities plus its net worth are $500,000F) A) and B)
G) A) and C)

Question 18

Narrowly defined, the M1 money supply consists primarily of

Accepted Answer

A)  coins and currency
B)  gold
C)  gold and silver
D)  certificates of deposit
E)  checkable depositsF) A) and E)
G) A) and D)

Question 19

If the reserve requirement is constant, it is impossible for a bank's excess reserves to fall if its total reserves have not fallen.

Accepted Answer

A) True 
 B)False

Question 20

When the Fed buys U.S. government securities from a bank, that bank's excess reserves and required reserves increase but total reserves decrease.

Accepted Answer

A) True 
 B)False

Exam 15: Banking and the Money Supply

The ability to convert a store of value into a medium of exchange with little loss of value is known as

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Currency held by banks is not included in the money supply.

Correct Answer
verified

If the reserve requirement is constant, it is impossible for a bank's excess reserves to fall if its total reserves have not fallen.

Correct Answer
verified

Banks have more expertise than individual households in making loans because banks

Correct Answer
verified

Which of the following is not a liability to a bank?

Correct Answer
verified

Through changes in the discount rate, the Federal Reserve can

Correct Answer
verified

When the Fed buys U.S. government securities from a bank, that bank's excess reserves and required reserves increase but total reserves decrease.

Correct Answer
verified

Suppose the required reserve ratio is 0.1 and Linda deposits $4,000 in cash at the College State Bank. If the bank held no excess reserves before Linda's deposit and now increases its reserves by $500, which of the following is true?

Correct Answer
verified

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits, then its

Correct Answer
verified

Decreasing the required reserve ratio is

Correct Answer
verified

The Fed can increase the amount of excess reserves in the banking system by

Correct Answer
verified

Under which of the following circumstances will the simple money multiplier most overstate the change in checkable deposits arising from a change in excess reserves?

Correct Answer
verified

Narrowly defined, the M1 money supply consists primarily of

Correct Answer
verified

In the money and credit expansion process, when r = the required reserve ratio, the total change in checkable deposits is equal to the initial change in excess reserves

Correct Answer
verified

When a customer deposits $100 into a checking account, the effect is to

Correct Answer
verified

Correct Answer
verified

Net Worth on a bank's balance sheet is

Correct Answer
verified

The Fed operates

Correct Answer
verified

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

Correct Answer
verified

Exam 15: Banking and the Money Supply

The ability to convert a store of value into a medium of exchange with little loss of value is known as

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Currency held by banks is not included in the money supply.

Correct AnswerverifiedShow Answer

If the reserve requirement is constant, it is impossible for a bank's excess reserves to fall if its total reserves have not fallen.

Correct AnswerverifiedShow Answer

Banks have more expertise than individual households in making loans because banks

Correct AnswerverifiedShow Answer

Which of the following is not a liability to a bank?

Correct AnswerverifiedShow Answer

Through changes in the discount rate, the Federal Reserve can

Correct AnswerverifiedShow Answer

When the Fed buys U.S. government securities from a bank, that bank's excess reserves and required reserves increase but total reserves decrease.

Correct AnswerverifiedShow Answer

Suppose the required reserve ratio is 0.1 and Linda deposits $4,000 in cash at the College State Bank. If the bank held no excess reserves before Linda's deposit and now increases its reserves by $500, which of the following is true?

Correct AnswerverifiedShow Answer

If the required reserve ratio is 20 percent and a bank has $100,000 in checkable deposits, then its

Correct AnswerverifiedShow Answer

Decreasing the required reserve ratio is

Correct AnswerverifiedShow Answer

The Fed can increase the amount of excess reserves in the banking system by

Correct AnswerverifiedShow Answer

Under which of the following circumstances will the simple money multiplier most overstate the change in checkable deposits arising from a change in excess reserves?

Correct AnswerverifiedShow Answer

Narrowly defined, the M1 money supply consists primarily of

Correct AnswerverifiedShow Answer

In the money and credit expansion process, when r = the required reserve ratio, the total change in checkable deposits is equal to the initial change in excess reserves

Correct AnswerverifiedShow Answer

When a customer deposits $100 into a checking account, the effect is to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Net Worth on a bank's balance sheet is

Correct AnswerverifiedShow Answer

The Fed operates

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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