Question 1

Suppose a bank has $100,000 in checking account deposits with no excess reserves and the required reserve ratio is 5 percent.If the Federal Reserve lowers the required reserve ratio to 3 percent,then the bank will now have excess reserves of

Accepted Answer

A)  $0.
B)  $2,000.
C)  $3,000.
D)  $5,000.

Question 2

Scenario 14-1
  Consider the information above for a simple economy.Assume there are no traveler's checks.
-Refer to Scenario 14-1.M2 in this simple economy equals

Accepted Answer

A)  $3,000.
B)  $8,000.
C)  $14,000.
D)  $21,000.

Question 3

________ sell shares to investors and use the money to buy short-term securities.

Accepted Answer

A)  Mortgage-backed securities dealers
B)  Hedge funds
C)  Money market mutual funds
D)  Shadow banks

Question 4

During World War II,prisoners of war used ________ as money.

Accepted Answer

A)  bullets
B)  cowrie shells
C)  chocolate
D)  cigarettes

Question 5

Open market operations refer to the buying and selling of ________ by the ________ to control the money supply.

Accepted Answer

A)  Treasury securities; Treasury Department
B)  Treasury securities; Federal Reserve
C)  stocks and bonds; Treasury Department
D)  stocks and bonds; Federal Reserve

Question 6

A cash withdrawal from the banking system

Accepted Answer

A)  decreases reserves.
B)  decreases deposits.
C)  decreases excess reserves.
D)  All of the above are correct.

Question 7

Suppose that the required reserve ratio is 20 percent and you deposit $50,000 of currency into Comerica Bank.What is the potential increase in deposits in the banking system brought about by your deposit? What is the potential change in the money supply?

Accepted Answer

The simple deposit multiplier is equal t...

Question 8

To increase the money supply,the Federal Reserve could

Accepted Answer

A)  lower the discount rate.
B)  decrease income taxes.
C)  raise the required reserve ratio.
D)  conduct an open market sale of Treasury securities.

Question 9

Table 14-1
 
-Refer to Table 14-1.Suppose a transaction changes a bank's balance sheet as indicated in the T-account,and the required reserve ratio is 10 percent.As a result of the transaction,the bank has excess reserves of

Accepted Answer

A)  $0.
B)  $400.
C)  $3,600.
D)  $4,000.

Question 10

Scenario 14-2
Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%.
-Refer to Scenario 14-2.As a result of Kristy's deposit,Bank A's required reserves increase by

Accepted Answer

A)  $2,000.
B)  $8,000.
C)  $10,000.
D)  $50,000.

Question 11

Banks can make additional loans when required reserves are

Accepted Answer

A)  greater than total reserves.
B)  less than total reserves.
C)  less than total deposits.
D)  less than total loans.

Question 12

The quantity theory of money predicts that,in the long run,inflation results from the

Accepted Answer

A)  velocity of money growing at a faster rate than real GDP.
B)  velocity of money growing at a lower rate than real GDP.
C)  money supply growing at a lower rate than real GDP.
D)  money supply growing at a faster rate than real GDP.

Question 13

According to the quantity theory of money,inflation is caused by

Accepted Answer

A)  the money supply growing slower than real GDP.
B)  GDP growing faster than the money supply.
C)  GDP growing at the same rate as the money supply.
D)  the money supply growing faster than real GDP.

Question 14

Money will fail to serve as a medium of exchange if it ceases to be a store of value.

Accepted Answer

A) True 
 B)False

Question 15

Suppose you transfer $2,000 from your money market mutual fund account to your checking account.What is the immediate impact of this transfer on M1 and M2?

Accepted Answer

Money market mutual fund balances are pa...

Question 16

With a required reserve ratio of 20 percent,an increase in reserves of $10,000 could lead to a maximum increase in checking account deposits in the entire banking system of

Accepted Answer

A)  $2,000.
B)  $8,000.
C)  $50,000.
D)  $100,000.

Question 17

An economy without money would have no exchanges of goods and services.

Accepted Answer

A) True 
 B)False

Question 18

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 8 percent,then the bank can make a maximum loan of

Accepted Answer

A)  $0.
B)  $2 million.
C)  $8 million.
D)  $10 million.

Question 19

If banks do not loan out all their excess reserves,then the real world multiplier is

Accepted Answer

A)  smaller than 1/RR.
B)  larger than 1/RR.
C)  equal to 1/RR.
D)  not related to 1/RR.

Question 20

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?

Accepted Answer

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

Exam 14: Money,Banks,and the Federal Reserve System

Banks can make additional loans when required reserves are

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________ sell shares to investors and use the money to buy short-term securities.

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Money will fail to serve as a medium of exchange if it ceases to be a store of value.

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With a required reserve ratio of 20 percent,an increase in reserves of $10,000 could lead to a maximum increase in checking account deposits in the entire banking system of

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To increase the money supply,the Federal Reserve could

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During World War II,prisoners of war used ________ as money.

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Open market operations refer to the buying and selling of ________ by the ________ to control the money supply.

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If banks do not loan out all their excess reserves,then the real world multiplier is

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Table 14-1 -Refer to Table 14-1.Suppose a transaction changes a bank's balance sheet as indicated in the T-account,and the required reserve ratio is 10 percent.As a result of the transaction,the bank has excess reserves of

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A cash withdrawal from the banking system

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An economy without money would have no exchanges of goods and services.

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Scenario 14-1 Consider the information above for a simple economy.Assume there are no traveler's checks. -Refer to Scenario 14-1.M2 in this simple economy equals

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Scenario 14-2 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. -Refer to Scenario 14-2.As a result of Kristy's deposit,Bank A's required reserves increase by

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Suppose you transfer $2,000 from your money market mutual fund account to your checking account.What is the immediate impact of this transfer on M1 and M2?

Correct AnswerverifiedMoney market mutual fund balances are pa...View AnswerShow Answer

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?

Correct AnswerverifiedShow Answer

Suppose a bank has $100,000 in checking account deposits with no excess reserves and the required reserve ratio is 5 percent.If the Federal Reserve lowers the required reserve ratio to 3 percent,then the bank will now have excess reserves of

Correct AnswerverifiedShow Answer

According to the quantity theory of money,inflation is caused by

Correct AnswerverifiedShow Answer

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 8 percent,then the bank can make a maximum loan of

Correct AnswerverifiedShow Answer

The quantity theory of money predicts that,in the long run,inflation results from the

Correct AnswerverifiedShow Answer

Suppose that the required reserve ratio is 20 percent and you deposit $50,000 of currency into Comerica Bank.What is the potential increase in deposits in the banking system brought about by your deposit? What is the potential change in the money supply?

Correct AnswerverifiedThe simple deposit multiplier is equal t...View AnswerShow Answer

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Open market operations refer to the buying and selling of by the to control the money supply.

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Money market mutual fund balances are pa...
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The simple deposit multiplier is equal t...
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