5) The Fed lacks complete control over the money supply because it cannot perfectly predict

A) the amount of discount borrowing by banks.

B) shifts from deposits to currency.

C) the level of excess reserves held by banks.

D) any of the above.

Answer: D

10) The money multiplier is smaller than the simple deposit multiplier when

A) the excess reserves ratio is zero.

B) the currency-checkable deposit ratio is zero.

C) the excess reserves ratio is greater than zero.

D) only (a) and (b) of the above are true.

Answer: C

15) The money multiplier is

A) negatively related to high-powered money.

B) positively related to the excess reserves ratio.

C) negatively related to the required reserve ratio.

D) positively related to holdings of excess reserves.

Answer: C

20) For a given level of the monetary base, an increase in the required reserve ratio on checkable deposits causes the money multiplier to _____ and the money supply to _____.

A) decrease; increase B) increase; increase

C) decrease; decrease D) increase; increase

Answer: C

25) For a given level of the monetary base, a decrease in the currencies ratio causes the money multiplier to _____ and the money supply to _____.

A) decrease; increase B) increase; increase

C) decrease; decrease D) increase; increase

Answer: B

30) The examination of the 1980-1999 period suggests that

A) the longer the time period, the better control the Fed has over the money supply.

B) factors other than changes in the nonborrowed base influence money supply growth over short periods of time.

C) the rise in the money multiplier from January 1987 to April 1991 is explained by a rise in the currency ratio.

D) all of the above are true.

E) only (a) and (b) of the above are true.

Answer: E

35) If the required reserve ratio is ten percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money multiplier is approximately

A) 2.5. B) 1.67. C) 2.0. D) 0.601.

Answer: A

40) If the required reserve ratio is five percent, currency in circulation is $400 billion, checkable deposits are $800 billion, and excess reserves total $0.8 billion, then the money multiplier is approximately

A) 2.5. B) 2.72. C) 2.3. D) 0.551.

Answer: B

45) If the required reserve ratio is ten percent, currency in circulation is $400 billion, checkable deposits are $1000 billion, and excess reserves total $1 billion, then the monetary base is

A) $400 billion. B) $401 billion. C) $500 billion. D) $501 billion.

Answer: D

55) Equal increases in the discount rate and market interest rates cause banks to

A) hold fewer excess reserves.

B) increase discount borrowing from the Fed.

C) decrease discount borrowing from the Fed.

D) do both (a) and (b) of the above.

Answer: A

60) All else constant, a rise in market interest rates leads to

A) a rise in excess reserves and a rise in the money supply.

B) a rise in discount borrowing and a rise in the money supply.

C) a fall in excess reserves and a fall in the money supply.

D) a fall in discount borrowing and a rise in the money supply.

E) none of the above.

Answer: B

65) The money supply is _____ related to expected deposit outflows, and is _____ related to the market interest rate.

A) negatively; negatively B) negatively; positively

C) positively; negatively D) positively; positively

Answer: B

70) Factors that cause an increase in the money multiplier include:

A) a lowering of the required reserve ratio.

B) an increase in the market interest rate.

C) an increase in expected deposit outflows.

D) only (a) and (b) of the above.

Answer: D

75) Factors that cause a decline in the money multiplier include:

A) a lowering of the required reserve ratio.

B) an increase in the market interest rate.

C) an increase in expected deposit outflows.

D) all of the above.

Answer: C

80) Factors that cause an increase in the money supply include:

A) a lowering of the required reserve ratio.

B) an increase in the market interest rate.

C) a decline in the discount loan rate.

D) all of the above.

Answer: D

85) Factors that cause a decline in the money supply include:

A) a decrease in the nonborrowed monetary base.

B) a decrease in market interest rates.

C) an increase in expected deposit outflows.

D) all of the above.

E) only (a) and (b) of the above.

Answer: D

90) The M2 money multiplier is positively related to

A) high-powered money. B) the time deposit ratio.

C) discount borrowings from the Fed. D) both (a) and (b) of the above.

Answer: B

95) The M2 money multiplier is

A) negatively related to the currency ratio.

B) positively related to the required reserve ratio.

C) positively related to the excess reserves ratio.

D) both (a) and (b) of the above.

Answer: A