Question 1

Since the Federal Reserve sets the required reserve ratio to less than one,one dollar of reserves can support ________ of checkable deposits.

Accepted Answer

A)  exactly one dollar
B)  less than one dollar
C)  more than one dollar
D)  exactly twice the amountE) C) and D)
F) B) and D)

Question 2

If the required reserve ratio is one-third,currency in circulation is $300 billion,and checkable deposits are $900 billion,then the currency-deposit ratio is

Accepted Answer

A)  0.25.
B)  0.33.
C)  0.67.
D)  0.375.E) A) and C)
F) None of the above

Question 3

The factor accounting for the steepest rise in the currency ratio since 1892 is

Accepted Answer

A)  taxes.
B)  bank panics.
C)  illegal activity.
D)  an increase in wealth.E) A) and B)
F) A) and C)

Question 4

The increase in the availability of ATMs has caused the cost of acquiring currency to ________ which will cause the currency ratio to ________,everything else held constant.

Accepted Answer

A)  increase;increase
B)  increase;decrease
C)  decrease;increase
D)  decrease;decreaseE) A) and D)
F) B) and C)

Question 5

Which of the following are NOT assets on the Fed's balance sheet?

Accepted Answer

A)  discount loans
B)  U.S.Treasury deposits
C)  cash items in the process of collection
D)  U.S.Treasury billsE) B) and D)
F) B) and C)

Question 6

If reserves in the banking system increase by $100,then checkable deposits will increase by $400 in the simple model of deposit creation when the required reserve ratio is

Accepted Answer

A)  0.01.
B)  0.10.
C)  0.20.
D)  0.25.E) A) and B)
F) A) and C)

Question 7

The volume of loans that the Fed makes to banks is affected by the Fed's setting of the interest rate on these loans,called the

Accepted Answer

A)  federal funds rate.
B)  prime rate.
C)  discount rate.
D)  interbank rate.E) A) and B)
F) B) and C) C

Question 8

Everything else held constant,an increase in the time deposit ratio will result in ________ in the M1 money multiplier and ________ in the M2 money multiplier.

Accepted Answer

A)  an increase;an increase
B)  no change;an increase
C)  a decrease;a decrease
D)  no change;a decreaseE) All of the above
F) A) and B)

Question 9

If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $1000 billion,and excess reserves total $1 billion,then the M1 money multiplier is

Accepted Answer

A)  2.5.
B)  2.8.
C)  2.0.
D)  0.7.E) None of the above
F) B) and C)

Question 10

In the simple deposit expansion model,if the Fed extends a $100 discount loan to a bank that previously had no excess reserves,deposits in the banking system can potentially increase by

Accepted Answer

A)  $10.
B)  $100.
C)  $100 times the reciprocal of the required reserve ratio.
D)  $100 times the required reserve ratio.E) None of the above
F) A) and B)

Question 11

If reserves in the banking system increase by $100,then checkable deposits will increase by $1000 in the simple model of deposit creation when the required reserve ratio is

Accepted Answer

A)  0.01.
B)  0.10.
C)  0.05.
D)  0.20.E) A) and C)
F) None of the above

Question 12

A bank has excess reserves of $4,000 and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be

Accepted Answer

A)  -$5,000.
B)  -$1,000.
C)  $1,000.
D)  $5,000.E) None of the above
F) All of the above

Question 13

The simple deposit multiplier can be expressed as the ratio of the

Accepted Answer

A)  change in reserves in the banking system divided by the change in deposits.
B)  change in deposits divided by the change in reserves in the banking system.
C)  required reserve ratio divided by the change in reserves in the banking system.
D)  change in deposits divided by the required reserve ratio.E) C) and D)
F) All of the above B

Question 14

In the model of the money supply process,the bank's role in influencing the money supply process is represented by

Accepted Answer

A)  the excess reserve.
B)  both the excess reserve and the market interest rate.
C)  the currency ratio.
D)  only borrowed reserves.E) A) and B)
F) A) and C)

Question 15

Assuming initially that the required reserve ratio = 10%,the currency-deposit ratio = 75%,and the excess reserve ratio = 156%,an increase in the excess reserve ratio to 200% causes the M1 money multiplier to ________,everything else held constant.

Accepted Answer

A)  increase from 0.15 to 0.33
B)  decrease from 0.73 to 0.61
C)  increase from 0.54 to 0.67
D)  decrease from 1.67 to 1.54E) B) and D)
F) A) and B)

Question 16

Everything else held constant,an increase in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________.

Accepted Answer

A)  decrease;increase
B)  increase;increase
C)  decrease;decrease
D)  increase;decreaseE) None of the above
F) A) and B)

Question 17

An assumption in the model of the money supply process is that the desired levels of currency and excess reserves

Accepted Answer

A)  are given as constants.
B)  grow proportionally with checkable deposits.
C)  grow proportionally with high-powered money.
D)  grow proportionally over time.E) All of the above
F) A) and C) B

Question 18

The amount of borrowed reserves is ________ related to the discount rate,and is ________ related to the market interest rate.

Accepted Answer

A)  negatively;negatively
B)  negatively;positively
C)  positively;negatively
D)  positively;positivelyE) None of the above
F) B) and C)

Question 19

An increase in the monetary base that goes into currency is ________,while an increase that goes into deposits is ________.

Accepted Answer

A)  multiplied;multiplied
B)  not multiplied;multiplied
C)  multiplied;not multiplied
D)  not multiplied;not multipliedE) B) and C)
F) B) and D)

Question 20

When a primary dealer buys a government bond from the Federal Reserve,reserves in the banking system ________ and the monetary base ________,everything else held constant.

Accepted Answer

A)  increase;increases
B)  increase;decreases
C)  decrease;increases
D)  decrease;decreasesE) C) and D)
F) B) and D)

Exam 17: The Money Supply Process

Since the Federal Reserve sets the required reserve ratio to less than one,one dollar of reserves can support ________ of checkable deposits.

Correct AnswerverifiedShow Answer

If the required reserve ratio is one-third,currency in circulation is $300 billion,and checkable deposits are $900 billion,then the currency-deposit ratio is

Correct AnswerverifiedShow Answer

The factor accounting for the steepest rise in the currency ratio since 1892 is

Correct AnswerverifiedShow Answer

The increase in the availability of ATMs has caused the cost of acquiring currency to ________ which will cause the currency ratio to ________,everything else held constant.

Correct AnswerverifiedShow Answer

Which of the following are NOT assets on the Fed's balance sheet?

Correct AnswerverifiedShow Answer

If reserves in the banking system increase by $100,then checkable deposits will increase by $400 in the simple model of deposit creation when the required reserve ratio is

Correct AnswerverifiedShow Answer

The volume of loans that the Fed makes to banks is affected by the Fed's setting of the interest rate on these loans,called the

Correct AnswerverifiedC

Everything else held constant,an increase in the time deposit ratio will result in ________ in the M1 money multiplier and ________ in the M2 money multiplier.

Correct AnswerverifiedShow Answer

If the required reserve ratio is 10 percent,currency in circulation is $400 billion,checkable deposits are $1000 billion,and excess reserves total $1 billion,then the M1 money multiplier is

Correct AnswerverifiedShow Answer

In the simple deposit expansion model,if the Fed extends a $100 discount loan to a bank that previously had no excess reserves,deposits in the banking system can potentially increase by

Correct AnswerverifiedShow Answer

If reserves in the banking system increase by $100,then checkable deposits will increase by $1000 in the simple model of deposit creation when the required reserve ratio is

Correct AnswerverifiedShow Answer

A bank has excess reserves of $4,000 and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be

Correct AnswerverifiedShow Answer

The simple deposit multiplier can be expressed as the ratio of the

Correct AnswerverifiedB

In the model of the money supply process,the bank's role in influencing the money supply process is represented by

Correct AnswerverifiedShow Answer

Assuming initially that the required reserve ratio = 10%,the currency-deposit ratio = 75%,and the excess reserve ratio = 156%,an increase in the excess reserve ratio to 200% causes the M1 money multiplier to ________,everything else held constant.

Correct AnswerverifiedShow Answer

Everything else held constant,an increase in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________.

Correct AnswerverifiedShow Answer

An assumption in the model of the money supply process is that the desired levels of currency and excess reserves

Correct AnswerverifiedB

The amount of borrowed reserves is ________ related to the discount rate,and is ________ related to the market interest rate.

Correct AnswerverifiedShow Answer

An increase in the monetary base that goes into currency is ________,while an increase that goes into deposits is ________.

Correct AnswerverifiedShow Answer

When a primary dealer buys a government bond from the Federal Reserve,reserves in the banking system ________ and the monetary base ________,everything else held constant.

Correct AnswerverifiedShow Answer

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The increase in the availability of ATMs has caused the cost of acquiring currency to which will cause the currency ratio to ,everything else held constant.

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C

Everything else held constant,an increase in the time deposit ratio will result in in the M1 money multiplier and in the M2 money multiplier.

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B

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Everything else held constant,an increase in the excess reserves ratio causes the M1 money multiplier to and the money supply to .

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B

The amount of borrowed reserves is related to the discount rate,and is related to the market interest rate.

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An increase in the monetary base that goes into currency is ,while an increase that goes into deposits is .

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When a primary dealer buys a government bond from the Federal Reserve,reserves in the banking system and the monetary base ,everything else held constant.

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