Q&A Hero

Q: The Fed purchases $100,000 of U.S. government securities from One Bank. Assuming the desired reserve ratio is 10 percent, banks loan all excess reserves, and the currency drain is 20 percent, how much does the quantity of money increase?

Q: Which of the following lists includes only banks' assets? A) liquid assets, loans, securities, and reserves B) reserves, savings deposits, securities, and loans C) reserves, securities, liquid assets, and savings deposits D) securities, reserves, checkable deposits, and liquid assets E) reserves, checkable deposits, securities, and loans

Q: Suppose the currency drain is 20 ratio percent and the desired reserve ratio is 10 percent. a. What does the money multiplier equal? b. If the Fed purchases $10 million of U.S. government securities, by how much will the quantity of money increase or decrease?

Q: A commercial bank's main goal is to A) provide loans to its customers. B) maximize the wealth of its stockholders. C) help the government when it needs money. D) lend money to the Federal Reserve Banks. E) open checking accounts.

Q: If the currency drain ratio is 40 percent and the desired reserve ratio is 15 percent, what does the money multiplier equal?

Q: Which of the following is a thrift institution? i. a credit union ii. the Fed iii. a savings bank A) i only B) ii only C) iii only D) Both i and iii E) i, ii, and iii

Q: Suppose the Fed conducts an open market operation in which it buys government securities from a commercial bank. Why is there a multiplier effect on the quantity of money?

Q: Cisco is considering opening a financial institution that accepts savings deposits from only its employees and makes loans to only its employees. The best description of this financial institution is that it is a A) credit union. B) commercial bank. C) savings and loan association. D) savings bank. E) federal government chartered credit bank.

Q: If the currency drain ratio increases, how can the Fed adjust the monetary base to offset the effect on the quantity of money?

Q: The above table gives assets and deposits for a (small) bank. The bank's reserves are equal to A) $20. B) $30. C) $600. D) $630. E) $620.

Q: Explain how the currency drain ratio affects the size of the money multiplier. In your explanation, suppose that in one round of the money creation process a bank gains $1 million in new deposits and reserves. Further suppose that the desired reserve ratio is 10 percent and the currency drain ratio is 50 percent.

Q: The above table gives assets and deposits for a (small) bank. The bank's deposits that are part of M2 are equal to A) $600. B) $1600. C) $3,100. D) $30. E) $5,100.

Q: How does a currency drain affect the money multiplier?

Q: The above table gives assets and deposits for a (small) bank. The bank's deposits that are part of M1 are equal to A) $1,600. B) $600. C) $3,100. D) $3,130. E) $30.

Q: What is a "currency drain"? How and why does it affect the money multiplier?

Q: A bank has $250 in checking deposits, $1,000 in savings deposits, $1,200 in time deposits, $1,000 in loans to businesses, $400 in outstanding credit card balances, $800 in government securities, $25 in currency in its vault, and $25 in deposits at the Fed. The bank's reserves are equal to A) $25. B) $275. C) $2,225 D) $50. E) $350.

Q: "If the currency drain ratio increases, the monetary base decreases." Explain whether the previous statement is correct or incorrect.

Q: A bank has $250 in checking deposits, $1,000 in savings deposits, $1,200 in time deposits, $1,000 in loans to businesses, $400 in outstanding credit card balances, $800 in government securities, $25 in currency in its vault, and $25 in deposits at the Fed. Of these, ________ are part of M2. A) $3,450 B) $2,450 C) $2,850 D) $2,200 E) $2,600

Q: The Fed conducts an open market operation and increases a bank's excess reserves by $2,000. Explain the first five rounds of the money creation process if the desired reserve ratio is 25 percent and if people keep no currency outside of the banking system.

Q: A bank has checkable deposits of $1,000,000, loans of $600,000, and government securities of $400,000. If the required reserve ratio is 5 percent, the amount of required reserves is A) $100,000. B) $30,000. C) $50,000. D) $80,000. E) $20,000.

Q: How can a new deposit of $10,000 at one bank create other new deposits at other banks? Suppose the desired reserve ratio is 10 percent and people keep no currency outside of the banks. What will be the new amount of deposits in the second and third rounds?

Q: When a commercial bank receives a deposit, it must keep part of the deposit as cash reserves to satisfy its A) securities and loans. B) required reserves. C) excess reserves. D) interbank loans. E) loan requirements.

Q: If a bank receives an additional deposit of $50,000 and the desired reserve ratio is 20 percent, what is the amount of new loans the bank can make?

Q: Commercial bank reserves are typically less than 1 percent of total assets, however in 2013 bank reserves ________ because of ________. A) rose to around 88 percent; the financial crisis of 2008-2009 B) dropped drastically to near zero; the financial crisis of 2008-2009 C) rose to around 18 percent; the financial crisis of 2008-2009 D) dropped drastically to near zero; the wave of natural disasters experienced in the nation and around the world E) rose drastically to around 18 percent; the wave of natural disasters experienced in the nation and around the world

Q: "When the Fed makes an open market purchase of government securities, the quantity of money will eventually decrease by a fraction of the initial change in the monetary base." Is the previous statement correct or incorrect? Explain your answer.

Q: In 2013 banks kept reserves equal to about ________ of their assets. A) 75 percent B) 25 percent C) 18 percent D) 50 percent E) 37 percent

Q: When the Fed buys a government security, what happens to the monetary base and the quantity of money? Which changes by more or do both change by the same amount?

Q: A commercial bank's reserves are equal to the amount of A) the bank's deposits. B) the bank's government securities. C) the bank's loans. D) currency in the bank's vault plus the balance on its reserve account at a Federal Reserve Bank. E) only the currency in its vault.

Q: If the Fed sells $100 million of U.S. government securities, what happens to the quantity of money?

Q: When goldsmiths issued receipts to gold owners, and those gold receipts circulated while gold stayed in the goldsmiths' safes, A) the gold receipts were considered money because they were used as a means of payment. B) an infant banking system developed in sixteenth century Europe. C) fiat money was created. D) money was invented. E) Both A and B are correct.

Q: The Fed conducts an open market operation and buys $50,000 of government securities from Commerce Bank. The desired reserve ratio is 25 percent. What is the change in Commerce Bank's total reserves and its excess reserves?

Q: Which of the following describes the "invention" of banking? A) The British Empire created a banking system to fund its exploration of the New World. B) Members of the New York Stock Exchange founded the Bank of America in the 1700s. C) Goldsmiths in the sixteenth century issued gold receipts which entitled its owners to reclaim their gold on demand. D) Clergy in the Renaissance created the banking system to help further the growth of the church. E) The United States government founded the Federal Reserve in 1913.

Q: Does an open market operation in which the Fed buys securities from the general public decrease or increase the banking system's reserves?

Q: Which of the following is NOT held as an asset by banks? A) reserves B) loans C) securities D) currency in the banks' vaults E) checkable deposits

Q: Explain the process by which the banking system creates money.

Q: The largest category of commercial banks' assets is A) loans. B) reserves. C) currency. D) securities. E) checkable deposits.

Q: A bank has reserves of $50, deposits of $100, loans of $20, and government securities of $30. Assume the desired reserve ratio is 20 percent. a. What are the bank's assets and what are its liabilities? b. How much does the bank have in excess reserves? c. What can the bank do with its excess reserves that will affect the quantity of money?

Q: Banks generally earn the highest interest rate A) on service charges on individuals' checking accounts. B) by making loans to business firms. C) by making mortgage loans to individuals. D) by making credit card loans. E) by buying government securities.

Q: The desired reserve ratio is 10 percent. Fly By Night Bank has deposits of $250,000 and reserves of $25,000. What is the amount of its excess reserves?

Q: Which of the following are assets of commercial banks? i. reserves ii. loans iii. deposits A) i only B) ii only C) i and ii D) ii and iii E) i, ii, and iii

Q: A bank reports reserves of $100,000, government securities of $250,000, loans of $750,000, checkable deposits of $900,000, and owners' equity of $200,000. The desired reserve ratio is 10 percent and the bank wants to hold as reserves only the amount it is required to hold. What is the amount of excess reserves for this bank? Show your work.

Q: Banks earn a profit by A) keeping as many reserves on hand as possible. B) making loans at a lower interest rate than the rate that they offer on their deposits. C) charging an interest rate on their depositors' accounts. D) making loans at a higher interest rate than the rates that they offer on their deposits. E) not paying interest on their reserves.

Q: "A bank can only use its excess reserves to make loans, while required reserves can only be used to buy U.S. government securities." Explain whether the previous statement is correct or incorrect.

Q: The goal of a commercial bank is to A) establish good regulations for commercial activities. B) make only safe, no-risk loans. C) maximize its stockholders' wealth. D) minimize its taxes paid to state governments. E) accept only deposits made in money.

Q: Describe how actual reserves are calculated. Explain the difference between required reserves and excess reserves. How do reserves affect the amount of loans a bank can make?

Q: Which statement is most correct about the types of deposits a commercial bank can accept? A) A commercial bank accepts checking, savings and time deposits. B) A commercial bank can only accept checking deposits from commercial enterprises. C) A commercial bank accepts savings and time deposits, but not checking deposits. D) A commercial bank does not accept deposits but sells shares. E) A commercial bank can accept loan deposits, reserve deposits, and checkable deposits.

Q: The Federal Reserve reports that it has coins valued at $10 billion, bank reserves at the Fed of $15 billion, gold valued at $10 billion, Federal Reserve notes of $400 billion, and U.S. government securities of $300 billion. What is the size of the monetary base?

Q: A commercial bank is defined as A) any institution that accepts deposits. B) a firm that is chartered to accept deposits and make loans. C) the institution that sets regulations for commercial activities. D) a firm that obtains funds by selling shares and then buys U.S. Treasury bills. E) any institution that makes loans.

Q: What is the discount rate?

Q: If currency outside of banks is $800 billion; traveler's checks are $10 billion; checkable deposits owned by individuals and businesses are $700 billion; savings deposits are $4,000 billion; small time deposits are $1,000 billion; and money market funds and other deposits are $800 billion, then M1 equals ________ billion. A) $7,310 B) $5,800 C) $2,510 D) $1,510 E) $710

Q: List the Fed's main policy tools and briefly explain each one.

Q: M2 equals A) M1 and is just another name for currency outside of banks. B) M1 plus savings deposits, small time deposits, and money market fund deposits. C) M1 minus traveler's checks because they are not really money. D) currency plus savings deposits, all time deposits, and money market funds and other deposits. E) M1 plus savings deposits and small time deposits minus money market fund deposits.

Q: Briefly describe the Federal Reserve System, how it is governed, and its roles in the economy.

Q: Which of the following counts as part of M1? A) $5,000 worth of gold B) $5,000 worth of government bonds C) $5,000 in a checking account D) $5,000 credit line on a credit card E) $5,000 of real estate

Q: What is the structure of the Federal Reserve Bank System?

Q: Credit cards, debit cards, and e-checks are A) always counted as money. B) not money. C) sometimes counted as money, depending on how they are used. D) sometimes counted as money, depending on what is purchased. E) sometimes counted as money, depending on what measure of money is being used.

Q: What is the interaction between the Federal Reserve districts and the Board of Governors of the Federal Reserve System?

Q: If someone buries money in a tin can beneath a tree, the money is functioning as a A) medium of exchange. B) unit of account. C) means of payment. D) store of value. E) bartering tool.

Q: "Because monetary policy must be approved by the president of the United States, the president is chair of the Federal Open Market Committee." Analyze the previous statementis it correct or incorrect?

Q: Barter is A) the exchange of goods and services for money. B) the pricing of goods and services with one agreed upon standard. C) the exchange of goods and services directly for other goods and services. D) a generally accepted means of payment. E) storing money for use at a later date.

Q: What is the FOMC? Who are the members of the FOMC? What policy does the FOMC decide?

Q: Which of the following is NOT a function of money? i. unit of account ii. store of value iii. unit of debt A) i only B) ii only C) iii only D) both ii and iii E) both i and ii

Q: The president of which Federal Reserve Bank is always a voting member of the FOMC? Why?

Q: Which of the following best defines what money is now and what it has been in the past? A) currency B) currency plus checking deposits C) currency plus credit cards D) anything accepted as a means of payment E) anything used as a store of value

Q: Are the members of the Board of Governors of the Federal Reserve System elected officials?

Q: ________ like a check and ________ considered money. A) Debit cards work; are not B) Debit cards work; are C) E-checks work; are D) E-cash works; is not E) E-cash works; is

Q: Does the Federal Reserve conduct both the nation's monetary policy and its fiscal policy?

Q: Physical currency is ________ popular than e-cash, ________. A) less; and both are portable and recognizable B) more; and both are portable and recognizable C) more; but only physical currency is portable and recognizable D) more; and both are portable, untraceable and anonymous E) less; but both are portable, untraceable and anonymous

Q: The Federal Reserve is the nation's central bank. Therefore, does it provide banking services to individual citizens?

Q: The above table has information about the hypothetical economy of Robotica. Based on the data, the size of M2 is A) $2,600 billion. B) $2,610 billion. C) $610 billion. D) $600 billion. E) $1,710 billion.

Q: A bank has checking deposits of $400, saving deposits of $900, time deposits of $900, loans of $950, government securities of $900, outstanding credit card balances of $400, currency in its vault of $40, and deposits in its reserve account at the Fed of $40. a. What is the amount of this bank's deposits that are in M1? b. What is the amount of this bank's deposits that are in M2? c. What is the amount of this bank's reserves?

Q: The above table has information about the hypothetical economy of Robotica. Based on the data, the size of M1 is A) $610 billion. B) $1,510 billion. C) $600 billion. D) $1,110 billion. E) $2,600 billion.

Q: The Second National Bank of Townville has $400,000 in checking deposits, $125,000 in savings deposits, $500,000 in loans, $20,000 in its reserve account at the Fed, and $5,000 of currency in its vault. What is the amount of these assets and liabilities that is in M1?

Q: If currency outside of banks is $800 billion; traveler's checks are $10 billion; checkable deposits owned by individuals and businesses are $700 billion; savings deposits are $4,000 billion; small time deposits are $1,000 billion; and money market funds and other deposits are $800 billion, then M2 equals ________ billion. A) $7,310 B) $5,800 C) $2,510 D) $1,510 E) $710

Q: The Second National Bank of Townville has $400,000 in checking deposits, $125,000 in savings deposits, $500,000 in loans, $20,000 in its reserve account at the Fed, and $5,000 of currency in its vault. What is the amount of its reserves?

Q: In December 2009, currency outside of banks was $400 billion, traveler's checks were $5 billion; checkable deposits owned by individuals and businesses were $600 billion, saving deposits were $2,000 billion, time deposits were $1,500 billion; and money market funds were $1,200 billion. What was the M2 in December 2009? A) M2 = $5,705 billion B) M2 = $3705 billion C) M2 = $1,005 billion D) M2 = $2,505 billion E) M2 = $5,700 billion

Q: The First National Bank of Townville has $125,000 in U.S. government securities, $200,000 in savings accounts, $300,000 in checking accounts, $50,000 in its reserve account at the Fed, $10,000 of currency in its vault, and loans of $250,000. What is the amount of its reserves?

Q: If we look at the components of M2, we find that A) money market funds are the largest component. B) savings deposits are the largest component. C) currency is the largest component. D) banks' reserves are the largest component. E) loans are the largest component.

Q: "To count as required reserves, the reserves must be on deposit at the bank's district Federal Reserve Bank." Is the previous statement correct or incorrect?

Q: Which of the following are included in the M2 definition of money? A) currency outside of banks and checkable deposits B) currency outside of banks and credit lines on credit cards C) time deposits and the value of prime grade bonds D) currency both inside and outside of banks E) currency inside of banks and banks' reserves