Exam 13: Money and the Banking System

You deposit a $1,000 scholarship check in the bank. If the required reserve ratio is 10 percent, explain how the banking system will create new money and how much money can potentially be created.

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Question 1

Correct Answer:

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Once the $1,000 is deposited, the bank is required to hold $100 (10 percent) as required reserves. The remaining $900 represents excess reserves and can be loaned out. The bank may lend the $900 to another customer who may deposit it in another bank, which will then hold 10 percent and lend out the remaining 90 percent again. This process continues until the deposits become too small to lend. In this way, banks can potentially create $10,000 in new deposits from the original $1,000 check.

Which of the following lists two things that both decrease the money supply?

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Question 2

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You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?

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Question 3

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The major overall purpose of the Federal Reserve System is to

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Question 4

Which of the following is correct?

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Question 5

In the United States, the purchasing power of money is determined by

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Question 6

If the public decides to hold less currency and more deposits in banks, bank reserves

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Question 7

If a number of people suddenly deposit into their checking accounts a great deal of cash previously kept in their pockets or at home, other things constant, their actions will

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Question 8

The federal funds rate is the interest rate paid when

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Question 9

When the monetary authorities expand the supply of money rapidly,

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Question 10

The introduction of no-load stock and bond mutual funds has made investing in stocks and bonds increasingly attractive to even the small investor. If, as a result, a large amount of money were shifted from money-market deposit funds to these stock and bond funds, how would the M1 and M2 money supply figures be affected?

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Question 11

Widespread use of credit cards

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Question 12

Compared to a barter economy, using money increases efficiency by reducing

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Question 13

Which of the following will cause the U.S. money supply to expand?

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Question 14

In defining the money supply (M1), economists exclude savings deposits because

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Question 15

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

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Question 16

When the Federal Reserve sells government bonds to the public, it directly

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Question 17

When a commercial bank borrows from a Federal Reserve bank,

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Question 18

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

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Question 19

In the United States, the money supply (M1) consists of

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Question 20

Showing 1 - 20 of 209

You deposit a $1,000 scholarship check in the bank. If the required reserve ratio is 10 percent, explain how the banking system will create new money and how much money can potentially be created.

Which of the following lists two things that both decrease the money supply?

You withdraw $100 from your checking account. How does this affect the money supply and the reserves of your bank?

The major overall purpose of the Federal Reserve System is to

Which of the following is correct?

In the United States, the purchasing power of money is determined by

If the public decides to hold less currency and more deposits in banks, bank reserves

If a number of people suddenly deposit into their checking accounts a great deal of cash previously kept in their pockets or at home, other things constant, their actions will

The federal funds rate is the interest rate paid when

When the monetary authorities expand the supply of money rapidly,

Widespread use of credit cards

Compared to a barter economy, using money increases efficiency by reducing

Which of the following will cause the U.S. money supply to expand?

In defining the money supply (M1), economists exclude savings deposits because

If the Fed wanted to expand the money supply as part of an antirecession strategy, it could

When the Federal Reserve sells government bonds to the public, it directly

When a commercial bank borrows from a Federal Reserve bank,

If you deposit $100 of currency into a demand deposit at a bank, this action by itself

In the United States, the money supply (M1) consists of

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Difficult Cases for the Market, and the Role of Government

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An Introduction to Basic Macroeconomic Markets

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