Exam 16: Banking and the Money Supply

Suppose you borrow $1,000 to purchase a car. Which of the following correctly represents the changes in your personal balance sheet after the bank lends the money but before you spend it?

As a lender, a bank holds an advantage over any individual person because

In the United States, paper money is redeemable for gold.

Which of the following are the two forms in which a bank can legally hold reserves?

Credit cards are included in M2.

The Fed relies primarily on the discount rate to control the money supply.

When the Fed buys U.S. government securities from a member bank, the immediate effect on that member bank's balance sheet is

Which of the following statements is correct?

Currency held by the nonbank public is a medium of exchange.

M1, the money supply narrowly defined, consists of coins, paper currency, checkable deposits, travelers checks, and certificates of deposit (CDs).

If at the end of the business day a bank has $50,000 in excess reserves, and the required reserve ratio is 20 percent, the bank can maximize its profits if it

If a bank receives $1,000 in currency as a new deposit, its ability to make loans increases by $1,000.

If the Fed increases the required reserve ratio at a time when banks are holding excess reserves,

The Fed is profitable because it

The M1 money supply consists of

Through changes in the discount rate, the Federal Reserve can

If each bank in the United States had to keep 100 percent of checkable deposits as reserves, each $1 the Fed injected into new reserves could increase the money supply by as much as

The simple money multiplier

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

If a bank's reserves are exactly equal to the required amount of reserves, then it has no excess reserves.