Q&A Hero

Q: If the currency drain ratio is 30 percent and the desired reserve ratio is 10 percent, the money multiplier is A) 0.80. B) 1.25. C) 3.25. D) 5.00. E) 10.0.

Q: Money must be ________ which includes the fact that is should ________. A) in physical form; not be transferable using electronic means B) accepted as a means of payment across countries' borders; not be fiat money C) generally accepted as a means of payment; be recognizable and divisible into small parts D) whatever is used in a barter system; transferable across countries' borders E) backed by gold; not decrease in value over time

Q: Suppose the currency drain ratio is 25 percent and the desired reserve ratio is 20 percent. The money multiplier equals A) 4.00. B) 3.00. C) 2.78. D) 2.00. E) 5.42.

Q: Money is best defined as A) anything that has value. B) anything accepted as a means of payment. C) anything that can be sold to pay for something. D) currency. E) anything that is backed by gold.

Q: If the currency drain ratio is 0.2 and the desired reserve ratio is 0.03, the money multiplier is A) 0.76. B) 6.67. C) 3.23. D) 4.46. E) 5.22.

Q: A common trait of money through history and across cultures is that money A) always had mystical properties. B) was always issued by the local government. C) was always based on gold or some other precious commodity. D) was always generally accepted as a means of payment. E) was always fiat money.

Q: Suppose the currency drain ratio is 33.33 percent and the desired reserve ratio is 10 percent. The money multiplier equals A) 4.27. B) 3.00. C) 3.08. D) 2.50. E) 6.67.

Q: For anything to be considered money it must be A) a valuable commodity, such as gold. B) a token, such as a green piece of paper. C) either a commodity or a token, as long as it is generally accepted as a means of payment. D) a mystical token, such as whale teeth. E) used in barter transactions.

Q: The Fed purchases $1 million of U.S. government securities from First Bank. The desired reserve ratio is 10 percent, the currency drain ratio is zero, and banks loan all excess reserves. The money multiplier is equal to A) 0.10. B) 1.0. C) 10.0. D) 100.0. E) $1 million.

Q: In order for any given commodity to be considered money, it has to A) have some intrinsic value. B) be generally acceptable as a means of payment. C) be issued and controlled by some governmental institution. D) be convertible into gold or silver. E) be used in barter transactions.

Q: C/D is the currency drain ratio and R/D is the desired reserve ratio. The money multiplier equals A) . B) . C) . D) . E) .

Q: Money is any commodity or token that A) is generally accepted as a means of payment. B) is backed up and controlled by the government. C) is naturally accepted by households to accumulate wealth. D) does not change in value over time. E) is backed by gold.

Q: If the money multiplier is 3.0, a $1,000 increase in the monetary base A) increases quantity of money by $3,000. B) decreases quantity of money by $3,000. C) increases the monetary base by $300. D) increases the money multiplier by 3 percent. E) decreases the quantity of money by 3 percent.

Q: Money is any commodity or token that is A) backed by gold. B) generally accepted as a means of measurement. C) generally accepted as a means of payment. D) issued by the government. E) a store of value.

Q: The number by which a change in the monetary base is multiplied to find the resulting change in the quantity of money is called the A) desired reserve ratio. B) money multiplier. C) currency multiplier. D) currency drain. E) open market operation.

Q: For a commodity or token to be money it must A) be accepted in exchange for all other goods and services. B) have a double coincidence of wants. C) be backed by government precious metals, like gold. D) be paper. E) be issued by the government or a government agency.

Q: The money multiplier is the A) fraction of the monetary base that is kept in currency. B) factor by which a change in the monetary base is multiplied to give the change in the quantity of money. C) factor by which a change in the deposits base is multiplied to give the change in the monetary base. D) proportion by which a change in the quantity of money changes the monetary base. E) number of times that the Fed conducts open market operations in a month.

Q: Which statement about money is most correct? A) Money is a new invention and only includes dollar bills and coins. B) Money is a new invention and can include anything that is accepted as a means of payment. C) Money has been around for a long time and can include anything that is accepted as a means of payment. D) Money has been around for a long time and only includes dollar bills and coins. E) Money has been around for a long time and only includes checking and savings accounts.

Q: Suppose the Federal Reserve buys $50 million worth of securities from a commercial bank. As a result, the monetary base ________, and the quantity of money will ________ $50 million due to the ________. A) increases; increase by more than; money multiplier B) decreases; decrease by more than; money multiplier C) increases; increase by more than; expenditure multiplier D) decreases; decrease by less than; expenditure multiplier E) increases; decrease by; currency drain

Q: A currency drain ________ the amount of bank reserves available to banks to make loans because ________. A) reduces; people are holding more money outside of the banks B) increases; people are holding less money outside of the banks C) reduces; people are holding less money outside of the banks D) reduces the monetary base; people are holding more money outside of the banks E) reduces; people are holding onto the money the banks could have borrowed from the Fed

Q: The currency drain reduces the amount of A) reserves available to banks to make loans. B) currency the Fed has outstanding in the economy. C) currency available for banks to borrow from the Fed. D) the monetary base. E) open market operations the Fed can make.

Q: A currency drain occurs when the A) Fed increases the required reserve ratio. B) Fed sells U.S. government securities. C) non-bank public increases its holdings of currency outside the banking system. D) banks reduce the number of loans they create with their excess reserves. E) Fed buys U.S. government securities.

Q: A currency drain is A) an increase in currency held outside banks. B) when the Fed buys securities, but it is not when the Fed sells securities. C) when the Fed sells securities, but it is not when the Fed buys securities. D) when the Fed either buys or sells securities. E) when the Fed raises the required reserve ratio.

Q: A-1 bank initially has no excess reserves. If the desired reserve ratio is 10 percent and a new deposit of $10,000 is made in A-1, then A-1 A) is required to hold the deposit in its reserves. B) can immediately loan a multiple of the $10,000. C) can immediately loan $9,000. D) can immediately loan $100,000. E) can immediately loan $10,000.

Q: If a single bank has $25,000 in excess reserves and the desired reserve ratio is 20 percent, what is the maximum this bank can loan? A) $5,000 B) $20,000 C) $25,000 D) $125,000 E) $30,000

Q: A new bank has reserves of $600,000, checkable deposits of $500,000, and government securities of $100,000. If the desired reserve ratio is 10 percent, the amount of loans this bank can make is A) $50,000. B) $60,000. C) $540,000. D) $550,000. E) $600,000.

Q: Bank One has reserves of $100,000, government securities of $200,000, loans of $700,000, and checkable deposits of $800,000. If the desired reserve ratio is 10 percent, Bank One can make additional loans totaling A) $0.00. B) $10,000. C) $20,000. D) $80,000. E) $100,000.

Q: Assume First Central Bank has a desired reserve ratio of 15 percent; $80,000 in total deposits, loans equal to $60,000, and has $20,000 in actual reserves. First Central can make additional loans totaling A) $8,000. B) $12,000. C) $20,000. D) $60,000. E) $80,000.

Q: At any point in time, a single bank can loan an amount equal to A) its excess reserves. B) its required reserves. C) its government securities. D) the amount of loans the bank made in the past. E) its total reserves.

Q: When a bank receives $100,000 in new deposits, the amount of loans the bank can make is limited by A) federal law. B) the annual federal budget. C) the Treasury Department. D) its desired reserve ratio. E) state law, with banks in different states being able to make different amounts of loans.

Q: The FUN Bank has no excess reserves when a new deposit of $20,000 is made. The desired reserve ratio is 5 percent. After the deposit, but before making any loans, how much does The FUN Bank have in excess reserves? A) $1,000 B) $20,000 C) $9,000 D) $19,000 E) $21,000

Q: When the desired reserve ratio is 10 percent, suppose the Fed buys $1,000,000 of government securities from banks. As a result, the banks' excess reserves A) increase by $900,000. B) increase by $1,000,000. C) increase by $10,000. D) decrease by $10,000. E) decrease by $1,000,000.

Q: The Fed purchases $1 million of U.S. government securities from First Bank. The desired reserve ratio is 10 percent, the currency drain ratio is zero, and banks loan all excess reserves. The Fed's purchase increases First Bank's excess reserves by how much? A) $900,000 B) $1,000,000 C) $1,100,000 D) $10,000,000 E) $100,000

Q: If the Fed buys government securities from the non-bank public, then A) reserves at banks decrease. B) loans at banks decrease. C) deposits at banks increase and banks' reserves decrease. D) deposits at banks increase and banks' reserves increase. E) deposits at banks decrease and banks' reserves increase.

Q: Comparing the effect on the monetary base between an open market purchase of government securities from a bank and the same open market operation conducted with the general public, the monetary base A) increases by a larger amount if the general public sells the securities than if a bank sells the securities. B) increases by a larger amount if a bank sells the securities than if the general public sells the securities. C) does not change if it is the general public that sells the securities. D) increases by the same amount if the general public sells the securities or if a bank sells the securities. E) decreases by the same amount if the general public sells the securities or if a bank sells the securities.

Q: If the Fed sells government securities to a member of the nonbank public, then the resulting effect on the quantity of money is A) much larger than if the securities were sold to a bank. B) much smaller than if the securities were sold to a bank. C) the same as if the securities were sold to a bank. D) that there is no change in the quantity of money. E) None of the above answers is correct.

Q: An open market purchase of securities by the Fed leads to all of the following EXCEPT A) an initial increase in excess reserves. B) an increase in bank lending. C) a decrease in the quantity of money. D) an increase in banks' reserves. E) an increase in the monetary base.

Q: When the Fed sells government securities to banks, the sale A) increases banks' reserves. B) increases the quantity of money. C) creates more excess reserves. D) decreases banks' reserves. E) increases the monetary base.

Q: The Fed sells $300 million U.S. government securities to commercial banks. This action leads to ________ in Fed assets and ________ in Fed liabilities. A) a $300 million increase; a $300 million increase B) a $300 million increase; a $300 million decrease C) no change; no change D) a $300 million decrease; a $300 million decrease in E) a $300 million decrease; a $300 million increase

Q: Suppose the Fed buys $1 million of government securities from Bank One, a large commercial bank. Bank One's reserves ________ and its deposits ________. A) increase by $1 million; do not change B) increase by $1 million; increase by $1 million C) do not change; increase by $1 million D) do not change; do not change E) decrease by $1 million; do not change

Q: The Fed purchases $100 million of U.S. government securities from First National Bank. The balance sheet for First National Bank shows ________ in its total assets and ________ in its total liabilities. A) a $100 million increase; a $100 million increase B) a $100 million decrease; a $100 million increase C) a $100 million increase; a $100 million decrease D) no change; no change E) a $100 million increase; no change

Q: If the Fed purchases securities in the amount of $100,000 from First Union Bank, then the A) assets of First Union Bank decrease by $100,000. B) assets of the Fed decrease by $100,000. C) assets of First Union Bank change in composition but not in amount. D) liabilities of the Fed change in composition but not in amount. E) liabilities of First Union decrease by $100,000.

Q: The Fed buys $100 million U.S. government securities from Bank of America. Bank of America's balance sheet shows this transaction as ________ in total assets and ________ in reserves. A) no change; a $100 million decrease B) no change; a $100 million increase C) a $100 million increase; no change D) a $100 million increase; a $100 million increase E) a $100 million decrease; a $100 million decrease

Q: When the Fed ________ securities in an open market operation, banks' reserves ________, and therefore lending ________. A) sells; increase; increases B) buys; increase; increases C) sells; decrease; increases D) buys; decrease; decreases E) buys; do not change; does not change

Q: To increase the quantity of money in the economy, the Federal Reserve can A) print more money and give it to the banks. B) increase the required reserve ratio. C) buy government bonds in an open market operation. D) sell government bonds in an open market operation. E) cut taxes.

Q: When the Fed purchases government securities ________ loans end up being made because ________. A) more; excess reserves in the banking system increase B) more; excess reserves in the banking system decrease C) fewer; excess reserves in the banking system increase D) fewer; excess reserves in the banking system decrease E) fewer; required reserves in the banking system increase but desired reserves decrease

Q: When the Fed purchases government securities, A) excess reserves in the banking system increase, leading to more loans being made. B) required reserves in the banking system increase, leading to more loans being made. C) excess reserves in the banking system decrease, leading to fewer loans being made. D) required reserves in the banking system decrease, leading to fewer loans being made. E) the monetary base does not change.

Q: When the Fed sells $100 million of securities to a commercial bank, the A) monetary base increases. B) money supply increases. C) bank's reserves decrease. D) required reserve ratio decreases. E) bank's reserves do not change.

Q: If the reserve requirement is 20 percent and the Fed buys $10,000 worth of Treasury bonds, what is the change in the banks' total reserves? A) $2,000 B) $10,000 C) $20,000 D) $8,000 E) $100,000

Q: When the Fed buys $100 million of securities from a commercial bank the A) monetary base increases. B) money supply decreases. C) bank's reserves decrease. D) required reserve ratio decreases. E) bank is risking its depositors' money.

Q: When the Fed buys government securities, the immediate effect of the purchase is that banks' A) reserves increase. B) deposits increase. C) assets increase. D) reserves decrease. E) loans decrease.

Q: When the Fed ________, the quantity of banks' reserves decreases. A) hikes taxes B) buys government securities C) sells government securities D) lowers the required reserve ratio E) raises the required reserve ratio

Q: When the Fed buys securities from the public, banks' reserves ________ and the quantity of money ________. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases E) do not change; increases

Q: Assume the desired reserve ratio is 10 percent, banks loan all excess reserves and the currency drain is zero. If the Fed sells $100 million of U.S. government securities to Boise Bank, the monetary base increases by A) $1 million. B) $10 million. C) $100 million. D) $1,000 million. E) $90 million.

Q: If the Fed makes an open market purchase of $1 million of government securities, the monetary base A) is decreased by $1 million. B) is unchanged in size, though its composition changes. C) is increased by $1 million. D) will decrease by a multiple of $1 million over time. E) will increase by a multiple of $1 million over time.

Q: Open market operations are defined as A) a bank borrowing from the Fed. B) the buying and selling of securities by the Fed. C) the buying and selling of securities between banks. D) the amount banks can lend on each deposit. E) a bank making a loan to the Fed.

Q: When the Fed buys or sells securities, it is conducting ________ operation. A) a government debt B) an open market C) a money multiplier D) a deposit E) a currency

Q: Whenever somebody deposits a check from bank A into a checkable deposit at bank B, bank A's reserves ________ and bank B's reserves ________. A) increase; decrease B) increase; increase C) decrease; decrease D) decrease; increase E) do not change; do not change

Q: The desired reserve ratio is 10 percent. Joe deposits $1,000 in Bank A. Bank A keeps its minimum desired reserves and lends the excess to Fred. Fred spends his loan at J.C. Penney. J.C. Penney deposits the check it receives from Fred in Bank B. Bank B keeps its minimum desired reserves and lends the excess to Mary. How much can Bank B lend to Mary? A) $900 B) $90 C) $810 D) $100 E) $1,000

Q: The desired reserve ratio is 3 percent. Robert deposits $3,000 in Bank America. Bank America keeps its minimum desired reserves and lends the excess to Fredrica. How much does Bank America lend to Fredrica? A) $3,000 B) $2,910 C) $300 D) $2700 E) $900

Q: The desired reserve ratio is 10 percent and banks have no excess reserves. Juliet deposits $300 in her bank. What is the maximum that Juliet's bank can now loan? A) $3,000 B) $270 C) $30 D) $330 E) $300

Q: Suppose a bank has $1,000 in deposits and $100 in reserves. If the desired reserve ratio is 5 percent, how much can this bank increase its loans? A) $0 B) $400 C) $80 D) $50 E) $100

Q: If Jose deposits $2,000 in his bank and the desired reserve ratio is 10 percent, what is the amount of new loans that the bank can make? A) $2,000 B) $200 C) $1,800 D) $1,900 E) $2,200

Q: The required reserve ratio is 20 percent and banks have no excess reserves. Katie deposits $300 in her bank. What are the bank's excess reserves immediately after Katie makes her deposit? A) $30 B) $90 C) $240 D) $60 E) $300

Q: A bank has deposits of $100,000, reserves of $20,000, and loans of $80,000. If the desired reserve ratio is 10 percent, then its excess reserves are A) 0. B) $8,000. C) $10,000. D) $2,000. E) $12,000.

Q: Suppose the desired reserve ratio is 10 percent. If the Commerce Bank has total deposits of $20,000, total assets of $10,000, and actual reserves of $8000, the amount of excess reserves is A) $2,000. B) $6,000. C) $800. D) $100. E) $0.

Q: A bank has deposits of $400, reserves of $50, and the desired reserve ratio is 7 percent. The bank's excess reserves are A) $0. B) $22. C) $28. D) $3.50 E) $50.

Q: The Commerce Bank of Beverly Hills has total deposits of $1,000,000 and total reserves of $220,000. The desired reserve ratio is 10 percent. The bank's excess reserves are A) $22,000. B) $120,000. C) $100,000. D) $80,000. E) $1,000,000.

Q: If Bulge Bank has a desired reserve ratio of 10 percent, loans of $25,000, deposits of $100,000, vault cash of $10,000, and reserves at the Fed of $65,000, then the bank A) has no remaining capacity to make loans. B) does not have enough reserves to meet its requirement. C) has excess reserves of $65,000. D) has excess reserves of $55,000. E) has excess reserves of $75,000.

Q: When Grayce deposits $4,000 cash in her checkable deposit at the Beach Bank and the Beach Bank's excess reserves increase by $3,600, the desired reserve ratio is A) 5 percent. B) 10 percent. C) 15 percent. D) 90 percent. E) $400.

Q: Actual reserves are equal to A) minimum balances plus desired reserves. B) required reserves plus fractional deposits. C) excess reserves plus liabilities. D) desired reserves plus excess reserves. E) government securities plus cash in the bank's vault.

Q: Banks can make loans as long as they have A) deposits. B) reserves. C) required reserves. D) excess reserves. E) excess government securities.

Q: The part of a commercial bank's reserves that are larger than desired are called A) additional reserves. B) required reserves. C) excess reserves. D) nonrequired reserves. E) unnecessary reserves.

Q: The Banks of the Mississippi has excess reserves of $20,000, desired reserves of $80,000 and the desired reserve ratio is 5 percent. What is the total amount of deposits in this bank? A) $5,000 B) $1,000,000 C) $1,600,000 D) $100,000 E) $180,000

Q: A bank reports reserves of $500,000, physical capital of $200,000, loans of $1,000,000, deposits of $1,000,000, and owners' equity of $500,000. If the desired reserve ratio is 5 percent, the bank's desired reserves are A) $10,000. B) $25,000. C) $50,000. D) $1,000,000. E) $500,000.

Q: When Zane deposits $20,000 cash in his checkable deposit at the Citicorp and the Citicorp's desired reserves increase by $5,000, the desired reserve ratio is A) 5 percent. B) 75 percent. C) 25 percent. D) 20 percent. E) $5,000.

Q: If the desired reserve ratio is 7 percent and a bank has $10,000 of deposits, then its desired reserves are A) $7. B) $700. C) $9,300. D) $930. E) $7,000.

Q: A bank has $200 of reserves and $4,000 of deposits. It is just meeting its desired reserves and has no excess reserves. Thus the desired reserve ratio is A) 10 percent. B) 20 percent. C) 25 percent. D) 5 percent. E) $200.

Q: Suppose the desired reserve ratio is 10 percent. If Urban Bank has total deposits of $1000 and total assets of $10,000, the amount of desired reserves is A) $100. B) $900. C) $1,000. D) $9,000. E) $1,100.

Q: Riley deposits $4,000 cash in her checkable deposit at Fershur Bank. If the desired reserve ratio is 5 percent, Fershur Bank's A) desired reserves increase by $4,000. B) assets and its liabilities change in opposite directions. C) desired reserves increase by $200 and its excess reserves increase by $3,800. D) excess reserves increase by $4,000. E) liabilities do not change but its assets increase.