Question 1

Exhibit 19-5  Balance sheet of Tucker National Bank  If all banks in the system shown in Exhibit 19-5 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) All of the above
F) B) and C)

Question 2

The interest rate which the Fed charges banks that borrow reserves from it is the:

Accepted Answer

A)   federal funds rate.
B)   discount rate.
C)   reserved rate.
D)   investment rate.
E)   check rateF) A) and C)
G) A) and B)

Question 3

Which of the following is the most frequently used tool the Fed uses to control the supply of money?

Accepted Answer

A)   The discount rate.
B)   The reserve requirements.
C)   Open market operations.
D)   The 30-year home-mortgage interest rate.E) B) and C)
F) All of the above

Question 4

In a simplified system where all banks have uniform reserve requirements and checkable deposits are the only form of money, the money multiplier is equal to 1 over the required reserve ratio.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following will make the real-world money multiplier smaller than the theoretical formula?

Accepted Answer

A)   Banks actually hold fewer reserves than technically required by the Fed.
B)   Banks actually make loans for more money than they have in excess reserves.
C)   Banks may keep some excess reserves rather than loan it all out.
D)   Both a. and b. above are correct.E) C) and D)
F) A) and B)

Question 6

If a bank that is subject to a 10 percent required reserve ratio has $20,000 in excess reserves, it can make new loans of:

Accepted Answer

A)   $2,000.
B)   $18,000.
C)   $20,000.
D)   $200,000.E) A) and B)
F) A) and C)

Question 7

How can the Fed increase the money supply? How can the Fed decrease the money supply? Be specific.

Accepted Answer

To increase the money supply the Fed sho...

Question 8

Bank reserves will increase over time when:

Accepted Answer

A)   the Fed sells government securities on the open market.
B)   the Treasury sells government securities on the open market.
C)   depositors take funds out of their checkable deposit accounts.
D)   the Fed buys government securities on the open market.
E)   the Fed lowers the discount rate.F) D) and E)
G) A) and E)

Question 9

Which of the following directs open market operations?

Accepted Answer

A)   Board of Governors.
B)   Federal Reserve Banks.
C)   Federal Open Market Committee
D)   Federal Advisory Council.
E)   Member banks.F) C) and E)
G) A) and D)

Question 10

A decrease in the discount rate by the Federal Reserve causes the money stock to expand.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

The required reserves of a bank are:

Accepted Answer

A)   held as deposits with the Federal Reserve System.
B)   equal to its loans.
C)   equal to its checkable deposits.
D)   none of the above.E) None of the above
F) C) and D)

Question 13

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

Accepted Answer

A)   An open market sale of government securities.
B)   An increase in required reserve ratios.
C)   An increase in the discount rate.
D)   An open-market purchase of government securities.E) B) and D)
F) A) and D)

Question 14

In a simplified banking system subject to a 25 percent required reserve ratio, a $1,000 open-market purchase by the Fed would cause the money supply to:

Accepted Answer

A)   increase by $1,000.
B)   decrease by $1,000.
C)   decrease by $4,000.
D)   increase by $4,000.E) C) and D)
F) A) and C)

Question 15

In the banking system of the United States, banks that wish to borrow to make up reserve deficiencies must turn to the federal funds market.

Accepted Answer

A) True 
 B)False

Question 16

Assume a bank has total deposits of $100,000 and $20,000 is set aside to meet reserve requirements of the Fed. Its required reserve ratio is:

Accepted Answer

A)   $20,000.
B)   20 percent.
C)   0.2 percent.
D)   1 percent.E) A) and B)
F) B) and D)

Question 17

Most of the Fed's assets are held in the form of loans to its member banks.

Accepted Answer

A) True 
 B)False

Question 18

A decrease in the required reserve ratio will:

Accepted Answer

A)   reduce 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 19

If your bank faces a 20 percent required reserve ratio and receives a checkable deposit of $4,000, it can make additional loans worth a maximum of:

Accepted Answer

A)   $800.
B)   $3,200.
C)   $4,000.
D)   $16,000.
E)   $20,000.F) B) and D)
G) B) and C)

Question 20

Which of the following does not appear on the asset side of a bank's balance sheet?

Accepted Answer

A)   Required reserves.
B)   Checkable deposits.
C)   Loans.
D)   Excess reserves.E) A) and B)
F) A) and C)

Exam 19: Money Creation

The required reserves of a bank are:

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In a simplified banking system subject to a 25 percent required reserve ratio, a $1,000 open-market purchase by the Fed would cause the money supply to:

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How can the Fed increase the money supply? How can the Fed decrease the money supply? Be specific.

Correct AnswerverifiedTo increase the money supply the Fed sho...View AnswerShow Answer

A decrease in the required reserve ratio will:

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If your bank faces a 20 percent required reserve ratio and receives a checkable deposit of $4,000, it can make additional loans worth a maximum of:

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Which of the following will make the real-world money multiplier smaller than the theoretical formula?

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The interest rate which the Fed charges banks that borrow reserves from it is the:

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Which of the following is the most frequently used tool the Fed uses to control the supply of money?

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

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Which of the following does not appear on the asset side of a bank's balance sheet?

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In a simplified system where all banks have uniform reserve requirements and checkable deposits are the only form of money, the money multiplier is equal to 1 over the required reserve ratio.

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Which of the following directs open market operations?

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A decrease in the discount rate by the Federal Reserve causes the money stock to expand.

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Most of the Fed's assets are held in the form of loans to its member banks.

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

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In the banking system of the United States, banks that wish to borrow to make up reserve deficiencies must turn to the federal funds market.

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Exhibit 19-5 Balance sheet of Tucker National Bank If all banks in the system shown in Exhibit 19-5 were identical to Tucker National Bank, the money multiplier for the system would be:

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Bank reserves will increase over time when:

Correct AnswerverifiedShow Answer

Assume a bank has total deposits of $100,000 and $20,000 is set aside to meet reserve requirements of the Fed. Its required reserve ratio is:

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If a bank that is subject to a 10 percent required reserve ratio has $20,000 in excess reserves, it can make new loans of:

Correct AnswerverifiedShow Answer

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To increase the money supply the Fed sho...
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