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Exam 25: Money, Banks, and the Federal Reserve System

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Question 111

Multiple Choice

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Banks can continue to make loans until their

A) actual reserves equal their required reserves.
B) excess reserves equal their required reserves.
C) actual reserves equal their excess reserves.
D) actual reserves equal their checking account balances.

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Question 112

Multiple Choice

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Suppose Bill Gates deposits $20 million into his checking account at Wells Fargo Bank. If the required reserve ratio is 10 percent, what is the maximum change in money supply?

A) -$200 million
B) -$180 million
C) $2 million
D) $180 million
E) $200 million

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Question 113

Multiple Choice

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To increase the money supply, the Federal Reserve could

Why is the real-world deposit multiplier smaller than 1/RR, where RR is the required reserve ratio?

To decrease the money supply, the Federal Reserve could

How will the purchase of $100 million of government securities by the Federal Reserve change bank reserves and total checking account deposits in the banking system as a whole? Assume that banks do not hold any excess reserves, that households and firms do not change the amount of currency they hold, and that the required reserve ratio is 20 percent.

If households and firms decide to hold less of their money in checking account deposits and more in currency, then initially, the money supply

Which of the following tools of monetary policy is used least often?

Suppose the Federal Reserve purchases $10,000 of Treasury bonds from you and that you deposit the $10,000 into your checking account deposit at Bank Y. Assume that Bank Y has no excess reserves at the time you make your deposit and that the required reserve ratio is 20 percent. a. Use a T-account to show the initial effect of this transaction on Bank Y's balance sheet. b. Suppose that Bank Y makes the maximum loan they can from the funds you deposited. Use a T-account to show the initial effect on Bank Y's balance sheet from granting the loan. Also include in this T-account the transaction from question (a.). c. Now suppose that whoever took out the loan in question (b) writes a check for this amount and that the person receiving the check deposits it in Bank Z. Show the effect of these transactions on the balance sheet of Bank Y and Bank Z, after the check has been cleared. On the T-account for Bank Y, include the transactions from questions (a) and (b). d. What is the maximum increase in checking account deposits that can result from your $10,000 deposit? What is the maximum increase in the money supply? Explain.

Of the three primary tools the Federal Reserve uses to conduct monetary policy, the tool used most often is

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve reduces the required reserve ratio to 4 percent, then the bank can make a maximum loan of

In an economy with money, as opposed to barter, people are more likely to specialize in the production of goods and services.

If a bank receives a $20 million discount loan from the Federal Reserve, then the bank's reserves will

The Federal Open Market Committee consists of the seven members of the ________, the president of the Federal Reserve Bank of New York, and ________.

Article Summary In August 2017, the Central Bank of Russia (CBR) announced plans to bail out Otkritie, the country's seventh-largest bank, raising fears of a nationwide crisis in the banking sector. Otkritie Bank had grown rapidly in recent years, with the acquisitions of smaller banks, non-pension funds, insurers, and even a diamond business, prompting the CBRs first deputy chairman to refer to the bank's business practices as "questionable". While not stating a specific amount to be spent on the bailout, the CBR did say it planned to take a minimum 75 percent stake in the bank. -Refer to the Article Summary. The CBR announced in August 2017 its intention to bail out Otkritie Bank, Russia's seventh-largest bank. In bailing out this bank, the CBR was, in effect, acting as a

Consider the following T-account for National City Bank: If the required reserve ratio is lowered to 8 percent, how much can National City loan out?

The amount of national income in an economy equals the money supply in an economy.

If you transfer all of your currency to your checking account, then initially, M1 will ________ and M2 will ________.

The quantity theory of money implies that the price level will be stable (no inflation or deflation) when the growth rate of the money supply equals

To decrease the money supply, the Federal Reserve could