Question 1

Suppose a commercial bank's reserves increase by $3,000 and the bank,which holds no excess reserves,makes a loan of $2,400.What is the required reserve ratio?

Accepted Answer

A)   0.10
B)   0.20
C)   0.25
D)   0.75
E)   4

Question 2

The simple money multiplier is equal to 1 minus the required reserve ratio.

Accepted Answer

A) True 
 B)False  False

Question 3

In order to meet a deficiency of excess reserves,a bank could

Accepted Answer

A)   buy securities
B)   deposit vault cash with the Fed
C)   turn some of its deposit at the Fed into cash
D)   close some checking accounts
E)   borrow from another bank in the federal funds market

Question 4

Banks in need of reserves can borrow from the Fed or in the federal funds market.

Accepted Answer

A) True 
 B)False

Question 5

In financial markets,asymmetric information exists when

Accepted Answer

A)   one party to a transaction has more knowledge of relevant details than the other does
B)   both parties to a transaction have less knowledge of relevant details than the Fed does
C)   lenders know more about the borrowers than the borrowers know about themselves
D)   all parties to a transaction have exactly the same information
E)   all the information which the parties have is inaccurate

Question 6

Liquidity refers to the ease with which an asset can be converted into the medium of exchange without a significant loss of value.The least liquid of the assets below is

Accepted Answer

A)   real estate
B)   currency
C)   traveler's checks
D)   oil
E)   checkable deposits

Question 7

The distinction between M1 and M2 has blurred over time because

Accepted Answer

A)   M1 is now larger than M2
B)   depositors can transfer funds between accounts so easily
C)   the Federal Reserve has defined them less precisely
D)   M1 is becoming less liquid
E)   banks are offering time deposits

Question 8

If the Fed decreases the required reserve ratio at a time when banks are holding no excess reserves,the Fed is

Accepted Answer

A)   forcing banks to increase the money supply
B)   forcing banks to decrease the money supply
C)   making it possible for banks to increase the money supply but not forcing them to do so
D)   making it possible for banks to decrease the money supply but not forcing them to do so
E)   conducting open market operations but not changing the money supply

Question 9

Usually,a commercial bank's depositors and its owners are the same individuals.

Accepted Answer

A) True 
 B)False  False

Question 10

The Fed operates

Accepted Answer

A)   on a balanced budget
B)   at a loss,since Federal Reserve notes and member bank deposits earn no interest
C)   at a profit,since Federal Reserve notes and bank deposits earn no interest,but government securities and loans to commercial banks do
D)   at a profit,since Federal Reserve notes and member bank deposits earn interest
E)   at a loss,since Federal Reserve notes and member bank deposits earn interest,but government securities and loans to commercial banks do not

Question 11

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 20 percent,

Accepted Answer

A)   the bank has $1,000 in additional excess reserves,of which it can lend $800
B)   the bank has $1,000 in additional excess reserves,all of which it can lend out
C)   the bank has lost an asset and must reduce its loans
D)   the bank has lost a liability
E)   there is no change in excess reserves,since net assets do not change

Question 12

The simple money multiplier

Accepted Answer

A)   equals the reciprocal of the required reserve ratio
B)   assumes banks hold excess reserves
C)   is larger as the required reserve ratio increases
D)   equals required reserves plus excess reserves
E)   equals total reserves minus required reserves

Question 13

If the Fed increases the required reserve ratio at a time when banks are holding excess reserves,

Accepted Answer

A)   it forces banks to increase the money supply
B)   it forces banks to decrease the money supply
C)   it makes it possible for banks to increase the money supply but does not force them to do so
D)   the money supply will not increase as much as if the Fed left the reserve ratio alone
E)   it is conducting open market operations but not changing the money supply D

Question 14

Which of the following are the two forms in which a bank can legally hold reserves?

Accepted Answer

A)   gold and coins
B)   gold and checks
C)   cash in its vault and non-interest-bearing reserve deposits at the Fed
D)   gold and non-interest-bearing reserve deposits at the Fed
E)   U.S.government securities and coins

Question 15

Narrowly defined,the M1 money supply consists primarily of

Accepted Answer

A)   coins and currency
B)   gold
C)   gold and silver
D)   certificates of deposit
E)   checkable deposits

Question 16

Exhibit 14-1
 
-Refer to Exhibit 14-1.If Eubank is holding no excess reserves,what must the required reserve ratio be?

Accepted Answer

A)   5 percent
B)   4 percent
C)   10 percent
D)   20 percent
E)   2 percent

Question 17

The primary tool the Fed uses to control the money supply today is

Accepted Answer

A)   the discount rate
B)   the required reserve ratio
C)   the discount window
D)   chartering
E)   open market operations

Question 18

The immediate effect of a bank's purchase of U.S.government securities from the Fed is a(n)

Accepted Answer

A)   decrease in the bank's assets
B)   increase in the bank's assets
C)   decrease in the Fed's assets
D)   increase in the Fed's assets
E)   decrease in both the bank's and the Fed's assets

Question 19

On a bank's balance sheet,

Accepted Answer

A)   assets = liabilities - net worth
B)   assets = liabilities + net worth
C)   assets = liabilities
D)   assets = net worth
E)   net worth = liabilities

Question 20

Lowering the discount rate is a way to expand the money supply because

Accepted Answer

A)   it encourages banks to borrow from the Fed so they can more easily accommodate their customers' needs for loans
B)   it encourages business customers to borrow directly from the Fed
C)   a lower discount rate reduces the amount of reserves banks are required to keep
D)   a lower discount rate automatically reduces excess reserves
E)   it encourages banks to sell U.S.government securities and increase their cash reserves

Exam 15: Banking and the Money Supply

Suppose a commercial bank's reserves increase by $3,000 and the bank,which holds no excess reserves,makes a loan of $2,400.What is the required reserve ratio?

Correct AnswerverifiedShow Answer

The simple money multiplier is equal to 1 minus the required reserve ratio.

Correct AnswerverifiedFalse

In order to meet a deficiency of excess reserves,a bank could

Correct AnswerverifiedShow Answer

Banks in need of reserves can borrow from the Fed or in the federal funds market.

Correct AnswerverifiedShow Answer

In financial markets,asymmetric information exists when

Correct AnswerverifiedShow Answer

Liquidity refers to the ease with which an asset can be converted into the medium of exchange without a significant loss of value.The least liquid of the assets below is

Correct AnswerverifiedShow Answer

The distinction between M1 and M2 has blurred over time because

Correct AnswerverifiedShow Answer

If the Fed decreases the required reserve ratio at a time when banks are holding no excess reserves,the Fed is

Correct AnswerverifiedShow Answer

Usually,a commercial bank's depositors and its owners are the same individuals.

Correct AnswerverifiedFalse

The Fed operates

Correct AnswerverifiedShow Answer

If a bank sells a $1,000 security to the Fed and the required reserve ratio is 20 percent,

Correct AnswerverifiedShow Answer

The simple money multiplier

Correct AnswerverifiedShow Answer

If the Fed increases the required reserve ratio at a time when banks are holding excess reserves,

Correct AnswerverifiedD

Which of the following are the two forms in which a bank can legally hold reserves?

Correct AnswerverifiedShow Answer

Narrowly defined,the M1 money supply consists primarily of

Correct AnswerverifiedShow Answer

Exhibit 14-1 -Refer to Exhibit 14-1.If Eubank is holding no excess reserves,what must the required reserve ratio be?

Correct AnswerverifiedShow Answer

The primary tool the Fed uses to control the money supply today is

Correct AnswerverifiedShow Answer

The immediate effect of a bank's purchase of U.S.government securities from the Fed is a(n)

Correct AnswerverifiedShow Answer

On a bank's balance sheet,

Correct AnswerverifiedShow Answer

Lowering the discount rate is a way to expand the money supply because

Correct AnswerverifiedShow Answer

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False

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False

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D

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