Question 1

If the Fed buys U.S. government securities from a bank and credits the bank's reserve account,

Accepted Answer

A) the Fed's assets decrease 
B) the Fed's assets increase 
C) the Fed's liabilities decrease 
D) the member bank's assets decrease 
E) the member bank's liabilities decrease 
A) the Fed's assets decrease 
B) the Fed's assets increase 
C) the Fed's liabilities decrease 
D) the member bank's assets decrease 
E) the member bank's liabilities decrease B

Question 2

Exhibit 15-3
  
-Refer to Exhibit 15-3. What kind of transaction just took place at Leftbank?

Accepted Answer

A) The bank received a shipment of cash from the Fed. 
B) A customer deposited $10,000 cash in his account. 
C) The bank sold a security to the Fed. 
D) The Fed sold a security to the bank. 
E) The bank borrowed $10,000 from the Fed. 
A) The bank received a shipment of cash from the Fed. 
B) A customer deposited $10,000 cash in his account. 
C) The bank sold a security to the Fed. 
D) The Fed sold a security to the bank. 
E) The bank borrowed $10,000 from the Fed. D

Question 3

In banking, Assets plus Liabilities must equal Net Worth.

Accepted Answer

A) True 
 B)False  False

Question 4

A bank with $1 million in deposits and $50,000 in excess reserves, facing a required reserve ratio of 20 percent, holds total reserves of $250,000.

Accepted Answer

A) True 
 B)False

Question 5

Suppose that a bank has $100 million in checkable deposits and the required reserve ratio is 0.1. If the bank has $5 million in excess reserves, then it would be able to lend out

Accepted Answer

A) $0 
B) $5 million 
C) $10 million 
D) $15 million 
E) $20 million 
A) $0 
B) $5 million 
C) $10 million 
D) $15 million 
E) $20 million

Question 6

Exhibit 15-2
  
-Refer to Exhibit 15-2. By how much can this bank alone now increase its lending? Assume a required reserve ratio of 10 percent.

Accepted Answer

A) $1,000 
B) $10,000 
C) $0 
D) $90 
E) $900 
A) $1,000 
B) $10,000 
C) $0 
D) $90 
E) $900

Question 7

If a bank calls in a loan to replenish its reserves,

Accepted Answer

A) its required reserves increase 
B) its required reserves decrease 
C) another bank's required reserves increase 
D) another bank's actual reserves increase 
E) another bank's actual reserves decrease 
A) its required reserves increase 
B) its required reserves decrease 
C) another bank's required reserves increase 
D) another bank's actual reserves increase 
E) another bank's actual reserves decrease

Question 8

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is

Accepted Answer

A) zero 
B) the prime rate 
C) the discount rate 
D) the federal funds rate 
E) the required reserve ratio 
A) zero 
B) the prime rate 
C) the discount rate 
D) the federal funds rate 
E) the required reserve ratio

Question 9

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 
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 10

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 
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 11

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

Accepted Answer

A) True 
 B)False

Question 12

The Fed can reduce the money supply by

Accepted Answer

A) buying securities from a bank 
B) buying securities from a private citizen 
C) selling securities 
D) issuing new Federal Reserve notes 
E) saving failing banks 
A) buying securities from a bank 
B) buying securities from a private citizen 
C) selling securities 
D) issuing new Federal Reserve notes 
E) saving failing banks

Question 13

The M1 money supply is defined as

Accepted Answer

A) one-dollar bills 
B) currency and coins held by the nonbank public, checkable deposits, and traveler's checks 
C) M3 minus M2 
D) all currency and checkable deposits 
E) coins and currency held by the nonbank public 
A) one-dollar bills 
B) currency and coins held by the nonbank public, checkable deposits, and traveler's checks 
C) M3 minus M2 
D) all currency and checkable deposits 
E) coins and currency held by the nonbank public

Question 14

Exhibit 15-1
  
-Refer to Exhibit 15-1. If the interest rate on loans is 10 percent, the annual cost to Eubank of holding excess reserves is

Accepted Answer

A) 10 percent of $500,000 
B) 10 percent of net worth 
C) 10 percent of excess reserves 
D) $10,000 
E) 0 
A) 10 percent of $500,000 
B) 10 percent of net worth 
C) 10 percent of excess reserves 
D) $10,000 
E) 0

Question 15

If a bank receives $2,500 of reserves by selling a government bond to the Fed, its ability to make loans increases by $2,500.

Accepted Answer

A) True 
 B)False

Question 16

If a customer deposits $1,000 cash into her checking account, the bank's

Accepted Answer

A) assets rise by $1,000 and liabilities fall by $1,000 
B) assets fall by $1,000 and liabilities rise by $1,000 
C) assets and liabilities both fall by $1,000 
D) assets and liabilities both rise by $1,000 
E) profits rise by $1,000 
A) assets rise by $1,000 and liabilities fall by $1,000 
B) assets fall by $1,000 and liabilities rise by $1,000 
C) assets and liabilities both fall by $1,000 
D) assets and liabilities both rise by $1,000 
E) profits rise by $1,000

Question 17

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 
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 18

If you returned a $5 Federal Reserve note to the Fed, you could receive

Accepted Answer

A) $5 in silver 
B) $5 in gold 
C) 5 one-dollar bills 
D) 10 one-dollar bills 
E) a small gold bar 
A) $5 in silver 
B) $5 in gold 
C) 5 one-dollar bills 
D) 10 one-dollar bills 
E) a small gold bar

Question 19

From a bank's point of view, its deposits are liabilities, not assets.

Accepted Answer

A) True 
 B)False

Question 20

Demand deposits are

Accepted Answer

A) long-term, high-interest savings accounts 
B) accounts into which banks can require depositors make regular deposits 
C) checkable deposits held by commercial banks that earn no interest 
D) negotiable order of withdrawal accounts 
E) loans from the Fed 
A) long-term, high-interest savings accounts 
B) accounts into which banks can require depositors make regular deposits 
C) checkable deposits held by commercial banks that earn no interest 
D) negotiable order of withdrawal accounts 
E) loans from the Fed

Exam 15: Banking and the Money Supply

If the Fed buys U.S. government securities from a bank and credits the bank's reserve account,

Exhibit 15-3 -Refer to Exhibit 15-3. What kind of transaction just took place at Leftbank?

In banking, Assets plus Liabilities must equal Net Worth.

A bank with $1 million in deposits and $50,000 in excess reserves, facing a required reserve ratio of 20 percent, holds total reserves of $250,000.

Suppose that a bank has $100 million in checkable deposits and the required reserve ratio is 0.1. If the bank has $5 million in excess reserves, then it would be able to lend out

Exhibit 15-2 -Refer to Exhibit 15-2. By how much can this bank alone now increase its lending? Assume a required reserve ratio of 10 percent.

If a bank calls in a loan to replenish its reserves,

A bank finds itself short of required reserves and therefore borrows from another commercial bank. The interest rate on this loan is

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

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

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

The Fed can reduce the money supply by

The M1 money supply is defined as

Exhibit 15-1 -Refer to Exhibit 15-1. If the interest rate on loans is 10 percent, the annual cost to Eubank of holding excess reserves is

If a bank receives $2,500 of reserves by selling a government bond to the Fed, its ability to make loans increases by $2,500.

If a customer deposits $1,000 cash into her checking account, the bank's

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

If you returned a $5 Federal Reserve note to the Fed, you could receive

From a bank's point of view, its deposits are liabilities, not assets.

Demand deposits are

The Art and Science of Economic Analysis

Economic Tools and Economics Systems

Economic Decision Makers

Demand Supply and Markets

Introduction to Macroeconomics

Tracking the Us Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Federal Budgets and Public Policy

Money and the Financial System

The Algebra of Income and Expenditure

Monetary Theory and Policy

Macro Policy Debate: Active or Passive

The Algebra of Demand-Side Equilibrium

International Trade

International Finance

Economic Development

National Income Accounts

Understanding Graphs

Variable Net Exports

Variable Net Exports Revisited

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