Question 2 (3 points) If an individual bank receives $100,000 in new deposits and the required reserve ratio is 10 percent, the bank must keep the following amount of required reserves with the Fed?
$90,000.
$1,000,000. '
Zero.
$10,000.
Question 3 (3 points) Assume that the Fed purchases $10 million in bonds from a bank, the monetary base will:
Increase by $10 million.
Remain unchanged.
Decrease by $10 million.
Increase by $5 million.
Question 4 (3 points) When we say that money has a function as a medium of exchange, this implies that:
Money must be in the form of a precious metal such as gold.
Money must be set at a fixed exchange rate in international currency markets.
Money is backed by the gold standard.
Money is used to purchase goods and services rather than resorting to barter.
Question 5 (3 points) Which of the following is not considered an asset for a bank:
Customer deposits.
U.S. government treasury bills.
Corporate loans.
U.S. government-issued debt.
Question 2 (3 points) If an individual bank receives $100,000 in new deposits and the required reserve ratio is 10 percent, the bank must keep the following amount of required reserves with the Fed?
$90,000.
$1,000,000. '
Zero.
$10,000.
Question 3 (3 points) Assume that the Fed purchases $10 million in bonds from a bank, the monetary base will:
Increase by $10 million.
Remain unchanged.
Decrease by $10 million.
Increase by $5 million.
Question 4 (3 points) When we say that money has a function as a medium of exchange, this implies that:
Money must be in the form of a precious metal such as gold.
Money must be set at a fixed exchange rate in international currency markets.
Money is backed by the gold standard.
Money is used to purchase goods and services rather than resorting to barter.
Question 5 (3 points) Which of the following is not considered an asset for a bank:
Customer deposits.
U.S. government treasury bills.
Corporate loans.
U.S. government-issued debt.
Related textbook solutions
Related questions
A) If the Fed buys U.S. government securities,
| A. |
bank reserves will decrease. |
|
| B. |
the interest rate will rise. |
|
| C. |
the discount rate will rise. |
|
| D. |
the quantity of money will eventually increase. |
B) When the Fed buys U.S. government securities from a bank, the Fed pays for the securities by
| A. |
borrowing money from the U.S. Treasury. |
|
| B. |
crediting the bank's checking account at the Fed. |
|
| C. |
decreasing the amount of money in circulation. |
|
| D. |
giving the bank gold. |
C) If a banking system has $1,000 of reserves and the required reserve ratio is 50%, the maximum volume of checkable deposit liabilities of all depository institutions combined would be
| A. |
$5,000 |
|
| B. |
$2,000 |
|
| C. |
$1,000 |
|
| D. |
$500 |
D) Continuing with the scenario from the previous question, what would happen if the Fed reduced the reserve requirement from 50% to 10%?
| A. |
Reserves would fall and deposits would fall by ten times the decrease in reserves. |
|
| B. |
Reserves would fall and maximum deposits would rise. |
|
| C. |
Reserves would stay the same, and maximum deposits would rise to $10,000. |
|
| D. |
Reserves would stay the same, and maximum deposits would fall to $100. |
QUESTION 46
When the Fed buys a U.S. bond in the open market
| its action has no effect on the total reserves or the money supply because the check it writes increases reserves at one bank but they fall at another. | ||
| its action expands total reserves and the money supply. | ||
| its action contracts total reserves and the money supply. | ||
| total reserves increase by the amount of the purchase but the money supply stays the same. |
1.11 points
QUESTION 47
When the Fed sells government securities,
| reserves increase, leading to a decrease in the money supply by an amount more than the sale of the government securities. | ||
| reserves decrease, leading to a decrease in the money supply by an amount more than the sale of the government securities. | ||
| reserves increase, leading to a increase in the money supply by an amount more than the sale of the government securities. | ||
| reserves decrease, leading to a increase in the money supply by an amount more than the sale of the government securities. |
1.11 points
QUESTION 48
The maximum potential money multiplier is equal to
| the reserve ratio. | ||
| one minus the reserve ratio | ||
| the inverse of the required reserve ratio. | ||
| the number of dollars on reserve. |
1.11 points
QUESTION 49
The potential money multiplier gives us
| the growth in the money supply when income increases. | ||
| the growth in real national income when the money supply increases. | ||
| the maximum potential change in the money supply due to a change in income. | ||
| the maximum potential change in the money supply due to a change in reserves. |
1.11 points
QUESTION 50
An increase in the reserve ratio
| increases the money multiplier. | ||
| will cause banks to make more loans. | ||
| has an expansionary effect on the money supply. | ||
| has a contractionary effect on the money supply. |
1.11 points
QUESTION 51
The Federal Deposit Insurance Corporation insures
| banks against lawsuits. | ||
| the deposits held in member banks. | ||
| the deposits held in the Fed. | ||
| the federal funds market. |
1.11 points
QUESTION 52
Bank runs are a possibility because
| in difficult times people want currency instead of demand deposits. | ||
| the FDIC is inefficient. | ||
| banks do not keep enough reserves to cover all their depository liabilities. | ||
| bankers are often poor businesspeople. |
1.11 points
QUESTION 53
The manner in which FDIC deposit insurance is set up in the United States encourages banks to
| make riskier loans than they otherwise would. | ||
| reject some loans that probably would be profitable. | ||
| maintain excess reserves that are too great. | ||
| be too conservative in their lending practices. |
1.11 points
QUESTION 54
The Federal Deposit Insurance Corporation
| discourages banks from engaging in excessive risk taking. | ||
| was established after the Panic of 1907. | ||
| only insures deposits in money-center banks. | ||
| increases the stability of the banking system by reducing the likelihood of bank runs. |
1.11 points
QUESTION 55
What are the two features of money that distinguish it from all other goods in the economy?
| Money is government issued and it is redeemable for gold or silver. | ||
| Money is part of every barter transaction and it is divisible. | ||
| Money is accepted as a medium of exchange and it is the common unit of account used to express prices. | ||
| Money is a common unit of account and it is also can be traded for other currencies at a guaranteed exchange rate. |
1.11 points
QUESTION 56
Holding money to meet unplanned expenditures and emergencies is known as
| asset demand. | ||
| precautionary demand. | ||
| aggregate demand. | ||
| transactions demand. |
1.11 points
QUESTION 57
When people want to hold money to make regular planned expenditures, this is
| the transaction demand for money. | ||
| the spending demand for money. | ||
| the asset demand for money. | ||
| the precautionary demand for money. |
1.11 points
QUESTION 58
When interest rates rise, the transactions demand for money usually
| decreases. | ||
| increases. | ||
| decreases initially and then increases to the original position. | ||
| does not change. |
1.11 points
QUESTION 59
As nominal Gross Domestic Product (GDP) rises, the transactions demand for money
| increases, and the money demand curve shifts to the right. | ||
| remains constant, and the money demand curve remains the same. | ||
| decreases, and the money demand curve shifts to the left. | ||
| increases, and the money demand curve shifts to the left. |
1.11 points
QUESTION 60
One of the economic costs of holding currency is that
| it fulfills no precautionary role. | ||
| it fulfills no transactions role. | ||
| it earns no interest income. | ||
| its real value always increases. |
