Chapter 15 Multiple Deposit Creation and the Money Supply Process
5) The sum of the Fed's monetary liabilities and the U.S. Treasury's monetary liabilities is called
A). the money supply. .B) currency in circulation. .C) bank reserves. .D) the monetary base.
Answer: D
10) When the Federal Reserve purchases a government bond from a bank,
A) reserves in the banking system decline.
B) reserves in the banking system increase.
C) Federal Reserve liabilities remain unchanged.
D) Federal Reserve liabilities decline.
Answer: B
15) When the Federal Reserve _____ sells a government bond to a bank, reserves in the banking system _____.
A) sells; increase
B) sells; decline
C) purchase; remain unchanged
D) sells; remain unchanged
E) purchase; decline
Answer: B
20) When the Fed wants to decrease the level of reserves in the banking system, it can
A) purchase government bonds. B) sell government bonds.
C) extend discount loans to banks. D) do both (a) and (c).
Answer: B
25) The Fed can decrease the level of reserves of the banking system by
A) buying government bonds. B) selling government bonds.
C) increasing discount loans to banks. D) doing either (a) or (c) of the above.
Answer: B
30) If the required reserve ratio is equal to 20 percent, then a single bank can increase its loans up to a maximum amount equal to
A) five times its excess reserves. B) 20 percent of its excess reserves.
C) 2 1/2 times its excess reserves. D) none of the above.
Answer: D
35) If a bank has excess reserves of $5,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has actual reserves of
A) $11,000. B) $21,000. C) $26,000. D) $20,000.
Answer: B
40) If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then the bank has actual reserves of
A) $27,000. B) $17,000. C) $14,000. D) $22,000.
Answer: B
45) A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 20 percent. If the reserve requirement is lowered to 10 percent, the bank's excess reserves will be
A) $ 1,000. B) $ 8,000. C) $ 9,000. D) $17,000.
Answer: C
50) If the required reserve ratio is 20 percent, the simple deposit multiplier is
A) 5.0. B) 2.5. C) 4.0 D) 10.0.
Answer: A
55) If the required reserve ratio is 20 percent and the Fed increases reserves by $100, checkable deposits can potentially expand by
A) $100. B) $250. C) $500. D) $1,000.
Answer: C
60) In the simple deposit expansion model, a decline in checkable deposits of $1,000 when the required reserve ratio is equal to 10 percent implies that the Fed
A) sold $1000 in government bonds.
B) sold $100 in government bonds.
C) purchased $1000 in government bonds.
D) purchased $100 in government bonds.
Answer: B
65) Which of the following are depository institutions?
A) Commercial banks
B) Savings and loan associations
C) Mutual savings banks
D) All of the above
E) Only (a) and (b) of the above
Answer: D
70) A commercial bank is classified as a depository institution because it
A) accepts deposits from individuals.
B) accepts deposits from institutions.
C) makes loans.
D) does all of the above.
E) does both (a) and (b) of the above.
Answer: D
75) The sum of vault cash, deposits at Federal Reserve banks, and currency in circulation is called
A) the money supply. B) the monetary base.
C) Federal Reserve liabilities. D) near-cash.
Answer: B
80) When the Fed drains a dollar of reserves from the banking system, deposits ______ by _____ than one dollar--a process called multiple deposit contraction.
A) increase; less B) increase; more C) decrease; less D) decrease; more
Answer: D
85) A decrease in government securities held by the Fed leads to
A) a decline in the monetary base. B) a decline in the money supply.
C) an increase in the money supply. D) only (a) and (b) of the above.
Answer: D
90) When the Fed buys $100 worth of bonds from the First National Bank, 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.
Answer: A
95) If the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by
A) $10.
B) $100.
C) $100 times the reciprocal of the required reserve ratio.
D) $100 times the required reserve ratio.
Answer: C
100) If a bank chooses to purchase securities rather than extend loans with its excess reserves,
A) the expansion of deposits in the banking system will be dampened.
B) the effect on deposits will be the same as if the bank had held its excess reserves in vault cash.
C) the effect on deposits will be the same as if the bank had extended loans.
D) all of the above.
E) only (a) and (b) of the above.
Answer: C
105) The formula for the simple deposit multiplier can be expressed as
A) D R = (1 ¸ rD)´ D D
B) D D = (1 ¸ rD)´ D R
C) D r = (1 ¸ rT)´ D T
D) D R = (1 ¸ rT)´ D D
Answer: B
110) If reserves in the banking system increase by $100, then checkable deposits will increase by $100 in the simple model of deposit creation when the required reserve ratio is
A) 1.00 B) 0.01 C) 0.10 D) 0.20
Answer: A
115) Decisions by depositors to increase their holdings of _____, or of banks to hold excess reserves will result in a _____ expansion of deposits than the simple model predicts.
A) deposits; smaller B) deposits; larger
C) currency; smaller D) currency; larger
Answer: C
120) Which of the following are not found on the asset side of the Fed's balance sheet?
A) Discount loans B) U.S. Treasury deposits
C) Cash items in the process of collection D) U.S. Treasury bills
Answer: B
125) Which of the following are found on the asset side of the Federal Reserve's balance sheet?
A) Treasury deposits with the Fed
B) Foreign deposits with the Fed
C) Discount loans
D) Only (a) and (b) of the above
E) Only (a) and (c) of the above
Answer: C
130) An increase in _____ leads to an equal, though temporary, increase in the monetary base.
A) deferred availability cash items B) Treasury currency outstanding
C) float D) Treasury deposits with the Fed
Answer: C
135) Which of the following are assets on the Fed's Balance sheet?
A) discount loans
B) cash items in the process of collection
C) U.S. Treasury deposits
D) all of the above
E) only (a) and (b) of the above
140) Which of the following are not assets on the Fed's Balance sheet?
A) Federal Reserve notes outstanding B) U.S. Treasury deposits
C) discount loans D) only (a) and (b) of the above
Answer: D
145) An increase in U.S. Treasury deposits at the Fed reduces both _____ and the _____.
A) reserves; monetary base B) Fed liabilities; money multiplier
C) Fed assets; monetary base D) Fed assets; money multiplier
Answer: A
150) An increase in which of the following leads to an increase in the monetary base?
A) Float
B) Gold account
C) U.S. Treasury deposits at the Fed
D) All of the above
E) Only (a) and (b) of the above
Answer: E
155) When the Fed extends discount loans,
A) bank reserves increase, but the monetary base declines.
B) both bank reserves and the monetary base increase.
C) both bank reserves and the monetary base decline.
D) bank reserves decline, but the monetary base remains unchanged.
E) bank reserves increase, but the monetary base remains unchanged.
Answer: B
160) Which of the following are liabilities on the Fed's Balance sheet?
A) U.S. Treasury securities B) U.S. Treasury deposits
C) discount loans D) only (a) and (c) of the above
Answer: B
165) When the Fed purchases Treasury securities to finance a government budget deficit,
A) the monetary base rises.
B) the monetary base falls.
C) the money supply falls.
D) both the monetary base and the money supply remain unchanged.
Answer: A
170) Which of the following are assets in the Fed's balance sheet?
A) deferred availability cash items
B) bank deposits
C) securities
D) all of the above
E) none of the above
Answer: C
175) Which of the following are liabilities in the Fed's balance sheet?
A) deferred availability cash items
B) bank deposits
C) Federal Reserve notes outstanding
D) all of the above
E) only (a) and (c) of the above
Answer: D
180) Factors that add to the monetary base include
A) an increase in the Fed's holding of Treasury securities.
B) an increase in the Fed's holding of discount loans.
C) an increase in Treasury deposits at the Fed.
D) only (a) and (b) of the above.
Answer: D
185) Factors that cause the monetary base to decline include
A) an increase in the Fed's holding of Treasury securities.
B) a decrease in the Fed's holding of discount loans.
C) a decrease in Treasury deposits at the Fed.
D) all of the above.
Answer: B
190) Factors that cause the monetary base to decline include
A) a decrease in the Fed's holding of Treasury securities.
B) a decrease in the Fed's holding of discount loans.
C) a decrease in Treasury currency outstanding.
D) all of the above.
E) only (a) and (b) of the above
Answer: D
195) An increase in _____ leads to an equal and permanent _____ in the monetary base.
A) float; increase B) float; decrease
C) securities; increase D) securities; decrease
Answer: C
200) The monetary base is positively related to
A) securities and discount loans. B) gold and SDR accounts.
C) float. D) all of the above.
Answer: D
205) A Fed purchase of gold, SDRs, a deposit (asset) denominated in a foreign currency or any other asset (such as a computer) is just
A) an open market purchase of these assets, raising the monetary base.
B) an open market sale of these assets, raising the monetary base.
C) an open market purchase of these assets, lowering the monetary base.
D) an open market sale of these assets, lowering the monetary base.
Answer: A
210) The sum of currency in circulation and total reserves is called
A) the nonborrowed base. B) the borrowed base.
C) the monetary base. D) the money supply.
Answer: C
215) A purchase of government bonds by the Fed
A) is called an open market purchase.
B) increases the monetary base, all else being the same.
C) increases the nonborrowed base, all else being the same.
D) does all of the above.
E) does only (a) and (b) of the above.
Answer: D
220) When the Fed purchases $100 of bonds from a bank, the bank may either deposit the check it receives in its account with the Fed or cash it for currency, which will be counted as vault cash. Either action means that the bank will find itself with
A) additional reserves. B) more assets.
C) both (a) and (b). D) none of the above.
Answer: A
225) When a member of the nonbank public withdraws currency from a bank,
A) both the monetary base and bank reserves fall.
B) the monetary base falls, but bank reserves remain unchanged.
C) bank reserves fall, but the monetary base remains unchanged.
D) both currency in circulation and the monetary base rise.
Answer: C
230) If the Federal Reserve purchases securities from a bank, then
A) reserves in the banking system increase.
B) Federal Reserve liabilities increase.
C) Federal Reserve assets increase.
D) all of the above.
E) both (a) and (c) of the above.
Answer: D
235) The effect of open market operations on _____ is much more uncertain than the effect on _____.
A) high-powered money; reserves
B) high-powered money; high-powered money
C) reserves; reserves
D) reserves; high-powered money
Answer: D
240) If a member of the nonbank public sells a government bond to the Federal Reserve in exchange for currency,
A) the monetary base will remain unchanged, but reserves will fall.
B) the monetary base will remain unchanged, but reserves will rise.
C) the monetary base will rise, but currency in circulation will remain unchanged.
D) the monetary base will rise, but reserves will remain unchanged.
Answer: D
245) When a member of the nonbank public deposits currency into her bank account, then the monetary base will _____, but reserves will _____.
A) remain unchanged; rise B) remain unchanged; fall
C) rise; remain unchanged D) fall; remain unchanged
Answer: A