Question 1

Which of the following policy actions by the Fed would cause the money supply to decrease?

Accepted Answer

A)   an open-market purchase of government securities
B)   a decrease in required reserve ratios
C)   an increase in the discount rate
D)   a decrease in the discount rateE) C) and D)
F) A) and B)

Question 2

A bank faces a required reserve ratio of 5 percent. If the bank has $200 million of checkable deposits and $15 million of total reserves, then how large are the bank's excess reserves?

Accepted Answer

A)   $0
B)   $5 million
C)   $10 million
D)   $15 millionE) B) and D)
F) B) and C)

Question 3

Assume a simplified banking system subject to a 20 percent required reserve ratio. If there is an initial increase in excess reserves of $100,000, the money supply:

Accepted Answer

A)   increases $100,000.
B)   increases $500,000.
C)   increases $600,000.
D)   decreases $500,000.E) B) and C)
F) C) and D)

Question 4

Which of the following events would reduce the size of the "real-world" money multiplier?

Accepted Answer

A)   Banks hold more excess reserves.
B)   Households hold less currency.
C)   The Fed increases the discount rate.
D)   The Fed reduces the required reserve ratio.E) C) and D)
F) A) and B)

Question 5

When the Fed lowers the discount rate, it makes it:

Accepted Answer

A)   cheaper for banks to borrow from each other.
B)   cheaper for banks to obtain additional reserves by borrowing from the Fed.
C)   more difficult for banks to accept deposits.
D)   more difficult for banks to extend loans.E) C) and D)
F) B) and D)

Question 6

Which of the following would cause the money supply in the United States to expand?

Accepted Answer

A)   a decrease in reserve requirements
B)   an increase in the discount rate
C)   the sale of U.S. government bonds by a Federal Reserve bank
D)   an increase in the world supply of goldE) A) and C)
F) A) and D)

Question 7

If the Fed buys $10 million dollars in government securities, and the required reserve ratio is 20 percent, the banking system is able to expand the money supply by:

Accepted Answer

A)   $10 million.
B)   $50 million.
C)   $2 million.
D)   $40 million.E) A) and D)
F) B) and C)

Question 8

If the required reserve ratio decreases, the:

Accepted Answer

A)   money multiplier increases.
B)   money multiplier decreases.
C)   amount of excess reserves the bank has decreases.
D)   money multiplier stays the same.E) A) and B)
F) All of the above

Question 9

A decrease in the required reserve ratio will:

Accepted Answer

A)   decrease commercial bank loans and reduce the money supply.
B)   increase commercial bank loans and reduce the money supply.
C)   increase commercial bank loans and increase the money supply.
D)   decrease commercial bank loans and increase the money supply.E) A) and B)
F) A) and C)

Question 10

When the Fed buys government securities, it:

Accepted Answer

A)   lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public.
B)   raises the cost of borrowing from the Fed, discouraging banks from making loans to the general public.
C)   increases the amount of excess reserves that banks hold, encouraging them to make loans to the general public.
D)   increases the amount of excess reserves that banks hold, discouraging them from making loans to the general public.E) A) and C)
F) B) and C)

Question 11

Exhibit 15-5 Balance sheet of Tucker National Bank

If all banks in the system shown in Exhibit 15-5 were identical to Tucker National Bank, the money multiplier for the system would be:

Accepted Answer

A)   4.
B)   5.
C)   10.
D)   25.E) None of the above
F) A) and B)

Question 12

When the economy is at full employment and inflation is present, the government could create a surplus budget by cutting its own spending and raising taxes. The Fed would be expected to:

Accepted Answer

A)   reduce the required reserve ratio, increase the discount rate, and buy securities on the open market.
B)   reduce the required reserve ratio, reduce the discount rate, and sell securities on the open market.
C)   reduce the required reserve ratio, reduce the discount rate, and buy securities on the open market.
D)   increase the required reserve ratio, increase the discount rate, and sell securities on the open market.E) None of the above
F) C) and D)

Question 13

When the required reserve ratio is 20 percent, the money multiplier is:

Accepted Answer

A)   0.2.
B)   2.
C)   2.5.
D)   5.E) All of the above
F) A) and D)

Question 14

Exhibit 15-4 Balance sheet of Tucker National Bank

Assume all banks in the system started with the balance sheet shown in Exhibit 15-4 and the Fed makes a $1,000 open market purchase. The result would be a(n) :

Accepted Answer

A)   infinite contraction of the money supply.
B)   infinite expansion of the money supply.
C)   $1,000 expansion of the money supply.
D)   $5,000 expansion of the money supply.E) B) and C)
F) A) and D)

Question 15

Real-world accuracy of the money multiplier can be affected by:

Accepted Answer

A)   the income tax rate set by the government.
B)   the way the public divides its holding of M1 between currency and certificates of deposit.
C)   an increase in government spending.
D)   the President's decision to alter the money multiplier.E) None of the above
F) All of the above

Question 16

The Fed's power to set the required reserves of commercial banks:

Accepted Answer

A)   provides a certain source of interest income for commercial banks.
B)   allows the Fed to control the lending ability of commercial banks and, thereby, control the money supply.
C)   prevents banks from hoarding too much vault cash.
D)   prevents commercial banks from earning excess profits.E) A) and C)
F) A) and D)

Question 17

When the Fed sells government securities, it:

Accepted Answer

A)   lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public.
B)   raises the cost of borrowing from the Fed, discouraging banks from making loans to the general public.
C)   decreases the amount of excess reserves that banks hold, discouraging them from making loans to the general public.
D)   increases the amount of excess reserves that banks hold, encouraging them to make loans to the general public.E) B) and C)
F) A) and D)

Exam 25: Money Creation

Exhibit 15-4 Balance sheet of Tucker National Bank Assume all banks in the system started with the balance sheet shown in Exhibit 15-4 and the Fed makes a $1,000 open market purchase. The result would be a(n) :

Correct Answer
verified

Which of the following would cause the money supply in the United States to expand?

Correct Answer
verified

A bank faces a required reserve ratio of 5 percent. If the bank has $200 million of checkable deposits and $15 million of total reserves, then how large are the bank's excess reserves?

Correct Answer
verified

When the Fed sells government securities, it:

Correct Answer
verified

Assume a simplified banking system subject to a 20 percent required reserve ratio. If there is an initial increase in excess reserves of $100,000, the money supply:

Correct Answer
verified

If the required reserve ratio decreases, the:

Correct Answer
verified

Real-world accuracy of the money multiplier can be affected by:

Correct Answer
verified

When the Fed buys government securities, it:

Correct Answer
verified

A decrease in the required reserve ratio will:

Correct Answer
verified

When the Fed lowers the discount rate, it makes it:

Correct Answer
verified

If the Fed buys $10 million dollars in government securities, and the required reserve ratio is 20 percent, the banking system is able to expand the money supply by:

Correct Answer
verified

Which of the following policy actions by the Fed would cause the money supply to decrease?

Correct Answer
verified

Exhibit 15-5 Balance sheet of Tucker National Bank If all banks in the system shown in Exhibit 15-5 were identical to Tucker National Bank, the money multiplier for the system would be:

Correct Answer
verified

When the economy is at full employment and inflation is present, the government could create a surplus budget by cutting its own spending and raising taxes. The Fed would be expected to:

Correct Answer
verified

The Fed's power to set the required reserves of commercial banks:

Correct Answer
verified

Which of the following events would reduce the size of the "real-world" money multiplier?

Correct Answer
verified

When the required reserve ratio is 20 percent, the money multiplier is:

Correct Answer
verified

Exam 25: Money Creation

Exhibit 15-4 Balance sheet of Tucker National Bank Assume all banks in the system started with the balance sheet shown in Exhibit 15-4 and the Fed makes a $1,000 open market purchase. The result would be a(n) :

Correct AnswerverifiedShow Answer

Which of the following would cause the money supply in the United States to expand?

Correct AnswerverifiedShow Answer

A bank faces a required reserve ratio of 5 percent. If the bank has $200 million of checkable deposits and $15 million of total reserves, then how large are the bank's excess reserves?

Correct AnswerverifiedShow Answer

When the Fed sells government securities, it:

Correct AnswerverifiedShow Answer

Assume a simplified banking system subject to a 20 percent required reserve ratio. If there is an initial increase in excess reserves of $100,000, the money supply:

Correct AnswerverifiedShow Answer

If the required reserve ratio decreases, the:

Correct AnswerverifiedShow Answer

Real-world accuracy of the money multiplier can be affected by:

Correct AnswerverifiedShow Answer

When the Fed buys government securities, it:

Correct AnswerverifiedShow Answer

A decrease in the required reserve ratio will:

Correct AnswerverifiedShow Answer

When the Fed lowers the discount rate, it makes it:

Correct AnswerverifiedShow Answer

If the Fed buys $10 million dollars in government securities, and the required reserve ratio is 20 percent, the banking system is able to expand the money supply by:

Correct AnswerverifiedShow Answer

Which of the following policy actions by the Fed would cause the money supply to decrease?

Correct AnswerverifiedShow Answer

Exhibit 15-5 Balance sheet of Tucker National Bank If all banks in the system shown in Exhibit 15-5 were identical to Tucker National Bank, the money multiplier for the system would be:

Correct AnswerverifiedShow Answer

When the economy is at full employment and inflation is present, the government could create a surplus budget by cutting its own spending and raising taxes. The Fed would be expected to:

Correct AnswerverifiedShow Answer

The Fed's power to set the required reserves of commercial banks:

Correct AnswerverifiedShow Answer

Which of the following events would reduce the size of the "real-world" money multiplier?

Correct AnswerverifiedShow Answer

When the required reserve ratio is 20 percent, the money multiplier is:

Correct AnswerverifiedShow Answer

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