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Banking
Q:
The Fed's holdings of securities consist primarily of ________, but also in the past have included ________.
a. Treasury securities; bankers' acceptances
b. municipal securities; bankers' acceptances
c. bankers' acceptances; Treasury securities
d. Treasury securities; municipal securities
Q:
The two most important categories of assets on the Fed's balance sheet are ________ and ________ because they earn interest.
a. discount loans; coins
b. securities; discount loans
c. gold; coins
d. cash items in the process of collection; SDR certificate accounts
Q:
Which is the most important category of Fed assets?
a. securities
b. discount loans
c. gold and SDR certificates
d. cash items in the process of collection
Q:
Explain the complete formula for the M1 money supply, and explain how changes in required reserves, excess reserves, the currency ratio, the nonborrowed base, and borrowed reserves affect the money supply.
Q:
During the 2007-2009 financial crisis the excess reserve ratio
a. increased sharply.
b. decreased sharply.
c. increased slightly.
d. decreased slightly.
Q:
During the 2007-2009 financial crisis the currency ratio
a. increased sharply.
b. decreased sharply.
c. increased slightly.
d. decreased slightly.
Q:
The money multiplier is
a. negatively related to high-powered money.
b. positively related to the excess reserves ratio.
c. negatively related to the required reserve ratio.
d. positively related to holdings of excess reserves.
Q:
The money supply is ________ related to expected deposit outflows, and is ________ related to the market interest rate.
a. negatively; negatively
b. negatively; positively
c. positively; negatively
d. positively; positively
Q:
The excess reserves ratio is ________ related to expected deposit outflows, and is ________ related to the market interest rate.
a. negatively; negatively
b. negatively; positively
c. positively; negatively
d. positively; positively
Q:
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 75%, and the excess reserve ratio = 156%, an increase in the currency-deposit ratio to 150% causes the M1 money multiplier to ________, everything else held constant.
a. increase from 0.73 to 0.78
b. decrease from 0.73 to 0.61
c. increase from 1.54 to 1.67
d. decrease from 1.67 to 1.54
Q:
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 75%, and the excess reserve ratio = 156%, an increase in the required reserve ratio to 15% causes the M1 money multiplier to ________, everything else held constant.
a. increase from 0.15 to 0.33
b. increase from 0.54 to 0.67
c. decrease from 0.73 to 0.71
d. decrease from 1.67 to 1.54
Q:
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.
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 1.54
Q:
Assuming initially that the required reserve ratio = 15%, the currency-deposit ratio = 40%, and the excess reserve ratio = 5%, an increase in the excess reserve ratio to 10% causes the M1 money multiplier to ________, everything else held constant.
a. increase from 2.15 to 2.33
b. decrease from 2.33 to 2.15
c. increase from 1.54 to 1.67
d. decrease from 1.67 to 1.54
Q:
Assuming initially that the required reserve ratio = 15%, the currency-deposit ratio = 40%, and the excess reserve ratio = 5%, a decrease in the excess reserve ratio to 0% causes the M1 money multiplier to ________, everything else held constant.
a. increase from 2.33 to 2.55
b. decrease from 2.55 to 2.33
c. increase from 1.67 to 1.82
d. decrease from 1.82 to 1.67
Q:
Everything else held constant, an increase in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________.
a. decrease; increase
b. increase; increase
c. decrease; decrease
d. increase; decrease
Q:
Everything else held constant, a decrease in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________.
a. decrease; increase
b. increase; increase
c. decrease; decrease
d. increase; decrease
Q:
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 40%, and the excess reserve ratio = 0, an decrease in the currency-deposit ratio to 30% causes the M1 money multiplier to ________, everything else held constant.
a. increase from 2.8 to 3.25
b. decrease from 3.25 to 2.8
c. increase from 2.8 to 3.5
d. decrease from 3.5 to 2.8
Q:
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 40%, and the excess reserve ratio = 0, an increase in the currency-deposit ratio to 50% causes the M1 money multiplier to ________, everything else held constant.
a. increase from 2.5 to 2.8
b. decrease from 2.8 to 2.5
c. increase from 2.33 to 2.8
d. decrease from 2.8 to 2.33
Q:
Everything else held constant, if the sum of the required reserve ratio and the excess reserve ratio is greater than one, an increase in the currency-deposit ratio causes the M1 money multiplier to ________ and the money supply to ________.
a. decrease; increase
b. increase; increase
c. decrease; decrease
d. increase; decrease
Q:
Everything else held constant, if the sum of the required reserve ratio and the excess reserve ratio is less than one, a decrease in the currency-deposit ratio causes the M1 money multiplier to ________ and the money supply to ________.
a. decrease; increase
b. increase; increase
c. decrease; decrease
d. increase; decrease
Q:
Everything else held constant, if the sum of the required reserve ratio and the excess reserve ratio is less than one, an increase in the currency-deposit ratio causes the M1 money multiplier to ________ and the money supply to ________.
a. decrease; increase
b. increase; decrease
c. decrease; decrease
d. increase; increase
Q:
Everything else held constant, if the sum of the required reserve ratio and the excess reserve ratio is less than one, a decrease in the currency-checkable deposit ratio will mean
a. an increase in currency in circulation and an increase in the money supply.
b. an increase in money supply.
c. a decrease in the money supply.
d. an increase in currency in circulation but no change in the money supply.
Q:
Everything else held constant, if the sum of the required reserve ratio and the excess reserve ratio is less than one, an increase in the currency-checkable deposit ratio will mean
a. an increase in currency in circulation and an increase in the money supply.
b. an increase in money supply but no change in reserves.
c. a decrease in the money supply.
d. an increase in currency in circulation but no change in the money supply.
Q:
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 40%, and the excess reserve ratio = 0, a decrease in the required reserve ratio to 5% causes the M1 money multiplier to ________, everything else held constant.
a. increase from 2.8 to 3.11
b. decrease from 3.11 to 2.8
c. increase from 2 to 2.22
d. decrease from 2.22 to 2
Q:
Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 40%, and the excess reserve ratio = 0, an increase in the required reserve ratio to 15% causes the M1 money multiplier to ________, everything else held constant.
a. increase from 2.55 to 2.8
b. decrease from 2.8 to 2.55
c. increase from 1.82 to 2
d. decrease from 2 to 1.82
Q:
Everything else held constant, a decrease in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.
a. decrease; increase
b. increase; increase
c. decrease; decrease
d. increase; decrease
Q:
Everything else held constant, an increase in the required reserve ratio on checkable deposits causes the M1 money multiplier to ________ and the money supply to ________.
a. decrease; increase
b. increase; increase
c. decrease; decrease
d. increase; decrease
Q:
Everything else held constant, a decrease in the required reserve ratio on checkable deposits will mean
a. a decrease in the money supply.
b. an increase in the money supply.
c. a decrease in checkable deposits.
d. an increase in discount loans.
Q:
Everything else held constant, an increase in the required reserve ratio on checkable deposits will cause
a. the money supply to rise.
b. the money supply to remain constant.
c. the money supply to fall.
d. checkable deposits to rise.
Q:
If the required reserve ratio is one-third, currency in circulation is $300 billion, checkable deposits are $900 billion, and there is no excess reserve, then the monetary base is
a. $300 billion.
b. $600 billion.
c. $333 billion.
d. $667 billion.
Q:
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
a. 0.25.
b. 0.33.
c. 0.67.
d. 0.375.
Q:
If the required reserve ratio is one-third, currency in circulation is $300 billion, checkable deposits are $900 billion, and there is no excess reserve, then the M1 money multiplier is
a. 2.5.
b. 2.8.
c. 2.0.
d. 0.67.
Q:
If the required reserve ratio is one-third, currency in circulation is $300 billion, and checkable deposits are $900 billion, then the money supply is ________ billion.
a. $2700
b. $3000
c. $1200
d. $1800
Q:
If the required reserve ratio is 15 percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the M1 money multiplier is
a. 2.54.
b. 2.67.
c. 2.35.
d. 0.551.
Q:
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 monetary base is
a. $400 billion.
b. $401 billion.
c. $500 billion.
d. $501 billion.
Q:
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 excess reserves-checkable deposit ratio is
a. 0.01.
b. 0.10.
c. 0.001.
d. 0.05.
Q:
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 currency-deposit ratio is
a. 0.25.
b. 0.50.
c. 0.40.
d. 0.05.
Q:
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
a. 2.5.
b. 2.8.
c. 2.0.
d. 0.7.
Q:
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 money supply is ________ billion.
a. $10,000
b. $4000
c. $1400
d. $10,400
Q:
If the required reserve ratio is 5 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is
a. 2.5.
b. 2.72.
c. 2.3.
d. 0.551.
Q:
If the required reserve ratio is 15 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is
a. 2.5.
b. 1.67.
c. 2.3.
d. 0.651.
Q:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is
a. $480 billion.
b. $480.8 billion.
c. $80 billion.
d. $80.8 billion.
Q:
If the required reserve ratio is 10 percent, currency in circulation is $1,200 billion, checkable deposits are $1,600 billion, and excess reserves total $2,500 billion, then the excess reserves-checkable deposit ratio is
a. 1.56.
b. 0.48.
c. 0.72.
d. 0.56.
Q:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the excess reserves-checkable deposit ratio is
a. 0.001.
b. 0.10.
c. 0.01.
d. 0.05.
Q:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the currency-deposit ratio is
a. 0.25.
b. 0.50.
c. 0.40.
d. 0.05.
Q:
If the required reserve ratio is 10 percent, currency in circulation is $1,200 billion, checkable deposits are $1,600 billion, and excess reserves total $2,500 billion, then the M1 money multiplier is
a. 2.5.
b. 1.7.
c. 7.3.
d. 0.73.
Q:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the M1 money multiplier is
a. 2.5.
b. 1.67.
c. 2.0.
d. 0.601.
Q:
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is ________ billion.
a. $8000
b. $1200
c. $1200.8
d. $8400
Q:
If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base ________ and the money supply ________.
a. remains unchanged; remains unchanged
b. remains unchanged; increases
c. increases; increases
d. increases; remains unchanged
Q:
If the Fed injects reserves into the banking system and they are held as excess reserves, then the money supply
a. increases by only the initial increase in reserves.
b. increases by only one-half the initial increase in reserves.
c. increases by a multiple of the initial increase in reserves.
d. does not change.
Q:
An increase in the monetary base that goes into currency is ________, while an increase that goes into deposits is ________.
a. multiplied; multiplied
b. not multiplied; multiplied
c. multiplied; not multiplied
d. not multiplied; not multiplied
Q:
An increase in the monetary base that goes into ________ is not multiplied, while an increase that goes into ________ is multiplied.
a. deposits; currency
b. excess reserves; currency
c. currency; excess reserves
d. currency; deposits
Q:
Since the Federal Reserve sets the required reserve ratio to less than one, one dollar of reserves can support ________ of checkable deposits.
a. exactly one dollar
b. less than one dollar
c. more than one dollar
d. exactly twice the amount
Q:
The total amount of required reserves in the banking system is equal to the ________ the required reserve ratio and checkable deposits.
a. sum of
b. difference between
c. product of
d. ratio between
Q:
The total amount of reserves in the banking system is equal to the ________ required reserves and excess reserves.
A. sum of
B. difference between
C. product of
D. ratio between
Q:
An assumption in the model of the money supply process is that the desired levels of currency and excess reserves
A. are given as constants.
B. grow proportionally with checkable deposits.
C. grow proportionally with high-powered money.
D. grow proportionally over time.
Q:
The ratio that relates the change in the money supply to a given change in the monetary base is called the
A. money multiplier.
B. required reserve ratio.
C. deposit ratio.
D. discount rate.
Q:
The Fed can exert more precise control over ________ than it can over ________.
a. high-powered money; reserves
b. high-powered money; the monetary base
c. the monetary base; high-powered money
d. reserves; high-powered money
Q:
Models describing the determination of the money supply and the Fed's role in this process normally focus on ________ rather than ________, since Fed actions have a more predictable effect on the former.
a. reserves; the monetary base
b. reserves; high-powered money
c. the monetary base; high-powered money
d. the monetary base; reserves
Q:
In the model of the money supply process, the bank's role in influencing the money supply process is represented by
a. the excess reserve.
b. both the excess reserve and the market interest rate.
c. the currency ratio.
d. only borrowed reserves.
Q:
In the model of the money supply process, the depositor's role in influencing the money supply is represented by
a. the currency holdings.
b. the currency holdings and excess reserve.
c. the currency holdings and borrowed reserve.
d. the market interest rate.
Q:
In the model of the money supply process, the Federal Reserve's role in influencing the money supply is represented by
a. both the required reserve ratio and the market interest rate.
b. the required reserve ratio, nonborrowed reserves, and borrowed reserves.
c. only borrowed reserves.
d. only nonborrowed reserves.
Q:
Everything else held constant, a decrease in holdings of excess reserves will mean
a. a decrease in the money supply.
b. an increase in the money supply.
c. a decrease in checkable deposits.
d. an increase in discount loans.
Q:
Everything else held constant, an increase in currency holdings will cause
a. the money supply to rise.
b. the money supply to remain constant.
c. the money supply to fall.
d. checkable deposits to rise.
Q:
A ________ in market interest rates relative to the discount rate will cause discount borrowing to_______.
a. fall; increase
b. rise; decrease
c. rise; increase
d. fall; remain unchanged
Q:
The amount of borrowed reserves is ________ related to the discount rate, and is ________ related to the market interest rate.
a. negatively; negatively
b. negatively; positively
c. positively; negatively
d. positively; positively
Q:
The money supply is ________ related to the nonborrowed monetary base, and ________ related to the level of borrowed reserves.
a. positively; negatively
b. negatively; not
c. positively; positively
d. negatively; negatively
Q:
An increase in the nonborrowed monetary base, everything else held constant, will cause
a. the money supply to fall.
b. the money supply to rise.
c. no change in the money supply.
d. demand deposits to fall.
Q:
Explain why the simple deposit multiplier overstates the true deposit multiplier.
Q:
Explain two reasons why the Fed does not have complete control over the level of bank deposits and loans. Explain how a change in either factor affects the deposit expansion process.
Q:
Assume that no banks hold excess reserves, and the public holds no currency. If a bank sells a $100 security to the Fed, explain what happens to this bank and two additional steps in the deposit expansion process, assuming a 10% reserve requirement. How much do deposits and loans increase for the banking system when the process is completed?
Q:
Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply.
A. borrowers; depositors
B. banks; depositors
C. depositors; borrowers
D. depositors; banks
Q:
Decisions by depositors to increase their holdings of ________, or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts.
A. deposits; smaller
B. deposits; larger
C. currency; smaller
D. currency; larger
Q:
Decisions by depositors to increase their holdings of ________, or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts.
A. deposits; required reserves
B. deposits; excess reserves
C. currency; required reserves
A) currency; excess reserves
Q:
A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent, the bank's excess reserves will be
A. $1,000.
B. $5,000.
C. $8,000.
D. $9,000.
Q:
A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 20 percent. If the reserve requirement is lowered to 10 percent, the bank's excess reserves will be
A. $1,000.
B. $8,000.
C. $9,000.
D. $17,000.
Q:
A bank has no excess reserves 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 now be
A. -$5,000.
B. -$1,000.
C. $1,000.
D. $5,000.
Q:
A bank has excess reserves of $10,000 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
A. -$5,000.
B. -$1,000.
C. $1,000.
D. $5,000.
Q:
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
A. -$5,000.
B. -$1,000.
C. $1,000.
D. $5,000.
Q:
A bank has excess reserves of $6,000 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
A. -$5,000.
B. -$1,000.
C. $1,000.
D. $5,000.