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Exam 13: Money and the Banking System

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Question 81

Multiple Choice

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Logan finds $10 in his jacket pocket and deposits it into a bank. As a result of this single transaction, M1 has

A) increased by $10.
B) increased by more than $10.
C) increased by less than $10.
D) not changed.

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Question 82

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If the reserve ratio is designated by "r," how much of a deposit can banks lend out?

A) 1 / r
B) (1 - r)
C) 1 / (1 - r)
D) r / (1 - r)

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Question 83

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Which of the following are examples of "mediums of exchange"?

Recall the Application about the Fed increasing bank reserves during the financial crisis in 2008 to answer the following question(s) . During the height of the financial crisis in September 2008, The Fed injected large amounts of reserves into banks, and in the next month, they started paying interest to banks on these reserves. Prior to this time, banks earned no interest on either required or excess reserves. -According to this Application, the Fed started paying interest to banks on reserves. All else equal, this would tend to ________ on a bank's balance sheet.

M1 is larger than M2.

If the banking system has a required reserve ratio of 25 percent, then the money multiplier is

Recall the Application about the Fed increasing bank reserves during the financial crisis in 2008 to answer the following question(s) . During the height of the financial crisis in September 2008, The Fed injected large amounts of reserves into banks, and in the next month, they started paying interest to banks on these reserves. Prior to this time, banks earned no interest on either required or excess reserves. -According to the Application, the Fed started paying interest to banks on reserves. Since this change has occurred,

If the reserve ratio is 10 percent, the money multiplier is equal to 10.

The Federal Reserve is a branch of the Treasury Department, and is therefore subject to significant government control.

When money is used to express the value of goods and services, it is functioning as a

A bank may make loans until its

Explain why depositing cash into a checking account does not change the money supply.

Suppose that someone deposits $10,000 into a bank. Assuming a reserve requirement ratio of 20 percent, what will be the eventual increase in checking account balances?

A bank's excess reserves are the fraction of a bank's deposits held at the Federal Reserve.

Deposits in savings accounts are included in

Credit cards are regularly used in economic exchanges, so credit card balances are included in the definition of money.

Suppose a bank has $200,000 in deposits, a reserve ratio of 10 percent, and reserves of $45,000. This bank has excess reserves of

A reason that economists keep an eye on both M2 and M1 is because

Assuming all excess reserves are loaned out, currency holdings by the public are zero, and a reserve ratio of 5 percent, an initial deposit of $10,000 will lead to a total increase in deposits of

Headquartered in Washington, D.C., the Board of Governors of the Federal Reserve determines monetary policies and strategies based on the state of the economy.