Question 1

The money multiplier equals:

Accepted Answer

A)   1/excess reserves.
B)   excess reserves/loans.
C)   required reserve ratio/excess reserves.
D)   1/actual reserves.
E)   1/required reserve ratio.

Question 2

Assume a simplified banking system subject to a 10 percent required reserve ratio. If there is an initial increase in excess reserves of $90,000 and all possible loans are made, the money supply:

Accepted Answer

A)   increases $90,000.
B)   increases $900,000.
C)   increases $990,000.
D)   decreases $90,000.

Question 3

Exhibit 19-6  Balance sheet of Tucker National Bank  Suppose Connie Rich deposits $100,000 into her checking account in the bank shown in Exhibit 19-6. The result would be a:

Accepted Answer

A)   zero change in required reserves.
B)   $10,000 increase in required reserves.
C)   $100,000 increase in required reserves.
D)   $20,000 increase in excess reserves.

Question 4

Suppose the Fed bought $150 million of U.S. securities from security dealers. The reserve requirement is 20 percent, and there are no initial excess reserves. A few weeks later, if the public's holdings of currency are constant and the banks have loaned all excess reserves, the money supply will increase by:

Accepted Answer

A)   $150 million.
B)   $300 million.
C)   $600 million.
D)   $750 million.

Question 5

As discussed in the text, a bank can extend new loans equal to the amount by which its excess reserves increase.

Accepted Answer

A) True 
 B)False

Question 6

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)   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)   decreases the amount of excess reserves that banks hold, discouraging them from making loans to the general public.

Question 7

European banks began with which of the following?

Accepted Answer

A)   Monarchs were the first bankers, lending out cash to help the poor learn a craft.
B)   Churches were the first bankers, lending out cash to help the poor learn a craft.
C)   Goldsmiths were the first bankers, and the paper receipts they issued for gold held on deposit became valued as money.
D)   Fishermen were the first bankers, and the paper receipts they issued for the fish they stored in the hulls of their ships became valued as money.

Question 8

Which of the following is a valid statement?

Accepted Answer

A)   Excess reserves = total reserves minus required reserves.
B)   Required reserves = the minimum reserves required by the Fed.
C)   Required reserve ratio = required reserves as a percentage to total deposits.
D)   All of the above.

Question 9

The total lag for fiscal policy tends to be shorter than the total lag for monetary policy.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following actions by the Fed would increase the money supply?

Accepted Answer

A)   Reducing the required reserve ratio.
B)   Selling government bonds in the open market.
C)   Increasing the discount rate.
D)   None of the above.

Question 11

The federal funds rate is the interest rate charged by:

Accepted Answer

A)   banks for loans to other banks.
B)   the Fed for overnight loans.
C)   the Fed for borrowed reserves.
D)   the federal government on loans to member banks.

Question 12

Exhibit 19-2  Balance Sheet of Springfield National Bank  In Exhibit 19-2, if Springfield National has excess reserves equal to $300, and the required reserve ratio increases to 35 percent, it will:

Accepted Answer

A)   be able to cover its increased reserve requirements from its excess reserves.
B)   have to call in loans worth $350.
C)   have to call in loans worth $250.
D)   have to call in loans worth $200.
E)   have to call in loans worth $150.

Question 13

When the Fed wishes to reduce the economy's money supply, it:

Accepted Answer

A)   lowers the discount rate.
B)   lowers the required reserve ratio.
C)   reduces the margin requirement.
D)   sells some of its government securities.
E)   prints more money.

Question 14

Reserve of banks appears on their balance sheet as liabilities.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 19-2  Balance Sheet of Springfield National Bank  In Exhibit 19-2, if Springfield National finds that it has excess reserves of $300, then the required reserve ratio must be:

Accepted Answer

A)   30 percent.
B)   0.30 percent.
C)   0.80 percent.
D)   0.20 percent.
E)   20 percent.

Question 16

If the Fed decides to engage in an open market operation to increase the money supply, what will it do?

Accepted Answer

A)   Sell Treasury bonds, bills, or notes on the bond market.
B)   Buy Treasury bonds, bills, or notes on the bond market.
C)   Increase the required reserve ratio.
D)   Increase the fed funds rate.

Question 17

Economists estimate that the total lag for monetary policy is about:

Accepted Answer

A)   1-2 days.
B)   2 weeks to 1 month.
C)   3-12 months.
D)   2-4 years.

Question 18

Exhibit 19-3  Balance sheet of Tucker National Bank  Assume all banks in the system started with balance sheets as shown in Exhibit 19-3 and the Fed made a $100,000 open market purchase. The result would be a(n) :

Accepted Answer

A)   $500,000 expansion of the money supply.
B)   $100,000 expansion of the money supply.
C)   $20,000 contraction of the money supply.
D)   infinite contraction of the money supply.
E)   infinite expansion of the money supply.

Question 19

In a simplified banking system, the money multiplier falls as the required reserve ratio decreases.

Accepted Answer

A) True 
 B)False

Question 20

When the Federal Reserve System wants to increase the money supply, which of the following actions would the Fed choose?

Accepted Answer

A)   It purchases U.S. government securities.
B)   It increases the discount rate.
C)   It increases the required reserve ratio.
D)   It sells bonds on the open market.

Exam 19: Money Creation

Which of the following is a valid statement?

Correct Answer
verified

When the Federal Reserve System wants to increase the money supply, which of the following actions would the Fed choose?

Correct Answer
verified

Exhibit 19-6 Balance sheet of Tucker National Bank Suppose Connie Rich deposits $100,000 into her checking account in the bank shown in Exhibit 19-6. The result would be a:

Correct Answer
verified

Exhibit 19-2 Balance Sheet of Springfield National Bank In Exhibit 19-2, if Springfield National has excess reserves equal to $300, and the required reserve ratio increases to 35 percent, it will:

Correct Answer
verified

Reserve of banks appears on their balance sheet as liabilities.

Correct Answer
verified

The money multiplier equals:

Correct Answer
verified

Exhibit 19-2 Balance Sheet of Springfield National Bank In Exhibit 19-2, if Springfield National finds that it has excess reserves of $300, then the required reserve ratio must be:

Correct Answer
verified

Correct Answer
verified

Exhibit 19-3 Balance sheet of Tucker National Bank Assume all banks in the system started with balance sheets as shown in Exhibit 19-3 and the Fed made a $100,000 open market purchase. The result would be a(n) :

Correct Answer
verified

Economists estimate that the total lag for monetary policy is about:

Correct Answer
verified

Which of the following actions by the Fed would increase the money supply?

Correct Answer
verified

The federal funds rate is the interest rate charged by:

Correct Answer
verified

If the Fed decides to engage in an open market operation to increase the money supply, what will it do?

Correct Answer
verified

As discussed in the text, a bank can extend new loans equal to the amount by which its excess reserves increase.

Correct Answer
verified

The total lag for fiscal policy tends to be shorter than the total lag for monetary policy.

Correct Answer
verified

When the Fed sells government securities, it:

Correct Answer
verified

In a simplified banking system, the money multiplier falls as the required reserve ratio decreases.

Correct Answer
verified

When the Fed wishes to reduce the economy's money supply, it:

Correct Answer
verified

Assume a simplified banking system subject to a 10 percent required reserve ratio. If there is an initial increase in excess reserves of $90,000 and all possible loans are made, the money supply:

Correct Answer
verified

European banks began with which of the following?

Correct Answer
verified

Exam 19: Money Creation

Which of the following is a valid statement?

Correct AnswerverifiedShow Answer

When the Federal Reserve System wants to increase the money supply, which of the following actions would the Fed choose?

Correct AnswerverifiedShow Answer

Exhibit 19-6 Balance sheet of Tucker National Bank Suppose Connie Rich deposits $100,000 into her checking account in the bank shown in Exhibit 19-6. The result would be a:

Correct AnswerverifiedShow Answer

Exhibit 19-2 Balance Sheet of Springfield National Bank In Exhibit 19-2, if Springfield National has excess reserves equal to $300, and the required reserve ratio increases to 35 percent, it will:

Correct AnswerverifiedShow Answer

Reserve of banks appears on their balance sheet as liabilities.

Correct AnswerverifiedShow Answer

The money multiplier equals:

Correct AnswerverifiedShow Answer

Exhibit 19-2 Balance Sheet of Springfield National Bank In Exhibit 19-2, if Springfield National finds that it has excess reserves of $300, then the required reserve ratio must be:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Exhibit 19-3 Balance sheet of Tucker National Bank Assume all banks in the system started with balance sheets as shown in Exhibit 19-3 and the Fed made a $100,000 open market purchase. The result would be a(n) :

Correct AnswerverifiedShow Answer

Economists estimate that the total lag for monetary policy is about:

Correct AnswerverifiedShow Answer

Which of the following actions by the Fed would increase the money supply?

Correct AnswerverifiedShow Answer

The federal funds rate is the interest rate charged by:

Correct AnswerverifiedShow Answer

If the Fed decides to engage in an open market operation to increase the money supply, what will it do?

Correct AnswerverifiedShow Answer

As discussed in the text, a bank can extend new loans equal to the amount by which its excess reserves increase.

Correct AnswerverifiedShow Answer

The total lag for fiscal policy tends to be shorter than the total lag for monetary policy.

Correct AnswerverifiedShow Answer

When the Fed sells government securities, it:

Correct AnswerverifiedShow Answer

In a simplified banking system, the money multiplier falls as the required reserve ratio decreases.

Correct AnswerverifiedShow Answer

When the Fed wishes to reduce the economy's money supply, it:

Correct AnswerverifiedShow Answer

Assume a simplified banking system subject to a 10 percent required reserve ratio. If there is an initial increase in excess reserves of $90,000 and all possible loans are made, the money supply:

Correct AnswerverifiedShow Answer

European banks began with which of the following?

Correct AnswerverifiedShow Answer

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