Ch.14 Flashcards
If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable deposits are $1,000 billion, and excess reserves total $1 billion, then the excess reserves-checkable deposit ratio is
A. 0.001.
B. 0.05.
C. 0.10.
D. 0.01.
A
The amount of borrowed reserves is ________ related to the discount rate, and is ________ related to the market interest rate.
A. positively; positively
B. positively; negatively
C. negatively; positively
D. negatively; negatively
C
When the Federal Reserve sells a government bond to a primary dealer, reserves in the banking system ________ and the monetary base ________, everything else held constant.
A. increase; increases
B. increase; decreases
C. decrease; increases
D. decrease; decreases
D
A ________ in market interest rates relative to the discount rate will cause discount borrowing to ________.
A. fall; remain unchanged
B. rise; decrease
C. rise; increase
D. fall; increase
C
Assuming initially that the required reserve ratio = 15%, the currency-deposit ratio = 40%, and the excess reserve ratio = 5%, an increase in the excess reserve ratio to 10% causes the M1 money multiplier to ________, everything else held constant.
A. decrease from 1.67 to 1.54
B. increase from 2.15 to 2.33
C. decrease from 2.33 to 2.15
D. increase from 1.54 to 1.67
C
In the model of the money supply process, the bank’s role in influencing the money supply process is represented by
A. only borrowed reserves.
B. the excess reserve.
C. both the excess reserve and the market interest rate.
D. the currency ratio.
B
Both ________ and ________ are Federal Reserve assets.
A. currency in circulation; reserves
B. securities; loans to financial institutions
C. securities; reserves
D. currency in circulation; securities
B
If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base ________ and the money supply ________.
A. increases; increases
B. remains unchanged; remains unchanged
C. remains unchanged; increases
D. increases; remains unchanged
D
A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent, the bank’s excess reserves will be
A. $1,000.
B. $5,000.
C. $8,000.
D. $9,000.
B
Suppose that from a new checkable deposit, First National Bank holds eight million dollars on deposit with the Federal Reserve, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars in vault cash.
A. two
B. eight
C. nine
. ten
A
When the Fed supplies the banking system with an extra dollar of reserves, deposits ________ by ________ than one dollar-a process called multiple deposit creation.
A. decrease; more
B. increase; more
C. increase; less
D. decrease; less
B
Suppose that from a new checkable deposit, First National Bank holds two million dollars in vault cash, one million dollars in required reserves, and faces a required reserve ratio of ten percent. Given this information, we can say First National Bank has ________ million dollars on deposit with the Federal Reserve.
A. one
B. two
C. eight
D. ten
C
The money multiplier is
A. negatively related to the required reserve ratio.
B. positively related to holdings of excess reserves.
C. negatively related to high-powered money.
D. positively related to the excess reserves ratio.
A
When the Fed buys $100 worth of bonds from a primary dealer, reserves in the banking system
A. increase by $100.
B. increase by more than $100.
C. decrease by $100.
D. decrease by more than $100.
A
An increase in the monetary base that goes into currency is ________, while an increase that goes into deposits is ________.
A. multiplied; not multiplied
B. multiplied; multiplied
C. not multiplied; multiplied
D. not multiplied; not multiplied
C
