Question 1

If the required reserve ratio was 1, the demand deposit expansion multiplier would be

Accepted Answer

A)   0.
B)   1.
C)   1.2.
D)   5.

Question 2

When banks make new loans, the effect on reserves is the same as

Accepted Answer

A)   holding excess reserves.
B)   expanding capital.
C)   purchasing securities.
D)   acquiring deposits.

Question 3

A bank can safely lend only an amount equal to its excess reserves because

Accepted Answer

A)   all of its reserves are now required reserves.
B)   borrowers will spend the proceeds of their loans, and the bank will lose all of its excess reserves.
C)   the excess reserves will fall to zero when the bank makes the loans.
D)   This is not true since a bank can safely lend an amount equal to its total reserves.

Question 4

The Federal Reserve's ability to control the amount of demand deposits in the system depends on its ability to

Accepted Answer

A)   clear checks.
B)   charter national banks.
C)   print currency.
D)   regulate bank reserves.

Question 5

The change in demand deposits varies directly with

Accepted Answer

A)   the currency ratio.
B)   the reserve ratio on demand deposits.
C)   the monetary base.
D)   the reserve ratio on time deposits.

Question 6

Assume a required reserve ratio of .25 and a discount rate of .05. If excess reserves rise by $20, demand deposits can expand by a maximum of

Accepted Answer

A)   $20.
B)   $25.
C)   $80.
D)   $100.

Question 7

The largest component of the money supply (M1) is

Accepted Answer

A)   time deposits.
B)   large CDs.
C)   demand deposits.
D)   coin and currency.

Question 8

Assume that the ratio of excess reserves to demand deposits is 0, and the ratio of currency to demand deposits is .2. If the reserve requirement on demand deposits is .3 and there is no reserve requirement on savings accounts, the M1 multiplier is

Accepted Answer

A)   5.5.
B)   4.
C)   2.5.
D)   2.4.

Question 9

The demand deposit multiplier __________ as the required reserve ratio __________.

Accepted Answer

A)   increases; increases
B)   increases; decreases
C)   does not change; increases
D)   does not change; decreases

Question 10

Which of the following is classified as a liability for a commercial bank?

Accepted Answer

A)   Reserves
B)   Commercial loans
C)   Demand deposits
D)   Deposits with the Federal Reserve

Question 11

A commercial bank's ability to lend is determined by its

Accepted Answer

A)   required reserves.
B)   excess reserves.
C)   total reserves.
D)   capital. B

Question 12

If there is a(n) __________ in reserves, the potential change in demand deposits is __________.

Accepted Answer

A)   deficiency; 0
B)   deficiency; positive
C)   deficiency; negative
D)   excess; negative

Question 13

If the required reserve ratio is .10, demand deposits are $200 million, and total reserves are $40 million, then excess reserves are

Accepted Answer

A)   $20 million.
B)   $40 million.
C)   $400 million.
D)   $2,000 million.

Question 14

If the required reserve ratio is decreased from .2 to .1 the demand deposit expansion multiplier

Accepted Answer

A)   increases from 5 to 10.
B)   increases from 4 to 4.5.
C)   decreases from 5 to 2.5.
D)   decreases from 2 to 1. D

Question 15

If the required reserve ratio is .25, demand deposits are $400 million, and total reserves are $150 million, then excess reserves are

Accepted Answer

A)   $25 million.
B)   $50 million.
C)   $75 million.
D)   $125 million. B

Question 16

A bank's excess reserves can be calculated as

Accepted Answer

A)   total reserves times the reserve ratio.
B)   demand deposits times the reserve ratio.
C)   total reserves minus required reserves.
D)   demand deposits minus total reserves.

Question 17

If original excess reserves are $10 million, and if the potential change in demand deposits is $153 million, then the demand deposit expansion multiplier is

Accepted Answer

A)   1.53.
B)   0.65.
C)   10.0.
D)   0.07.

Question 18

If the required reserve ratio is increased from .1 to .2, the demand deposit expansion multiplier

Accepted Answer

A)   increases from 10 to 5.
B)   increases from 4 to 4.5.
C)   decreases from 5 to 2.5.
D)   decreases from 10 to 5.

Question 19

Deposits with the Federal Reserve Bank are part of a commercial bank's

Accepted Answer

A)   capital.
B)   reserves.
C)   loans.
D)   liabilities.

Question 20

If the required reserve ratio is .5, the deposit contraction multiplier is

Accepted Answer

A)   .5.
B)   2.
C)   2.5.
D)   5.

Exam 18: Bank Reserves and the Money Supply

If the required reserve ratio was 1, the demand deposit expansion multiplier would be

Correct AnswerverifiedShow Answer

When banks make new loans, the effect on reserves is the same as

Correct AnswerverifiedShow Answer

A bank can safely lend only an amount equal to its excess reserves because

Correct AnswerverifiedShow Answer

The Federal Reserve's ability to control the amount of demand deposits in the system depends on its ability to

Correct AnswerverifiedShow Answer

The change in demand deposits varies directly with

Correct AnswerverifiedShow Answer

Assume a required reserve ratio of .25 and a discount rate of .05. If excess reserves rise by $20, demand deposits can expand by a maximum of

Correct AnswerverifiedShow Answer

The largest component of the money supply (M1) is

Correct AnswerverifiedShow Answer

Assume that the ratio of excess reserves to demand deposits is 0, and the ratio of currency to demand deposits is .2. If the reserve requirement on demand deposits is .3 and there is no reserve requirement on savings accounts, the M1 multiplier is

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The demand deposit multiplier __________ as the required reserve ratio __________.

Correct AnswerverifiedShow Answer

Which of the following is classified as a liability for a commercial bank?

Correct AnswerverifiedShow Answer

A commercial bank's ability to lend is determined by its

Correct AnswerverifiedB

If there is a(n) __________ in reserves, the potential change in demand deposits is __________.

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If the required reserve ratio is .10, demand deposits are $200 million, and total reserves are $40 million, then excess reserves are

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If the required reserve ratio is decreased from .2 to .1 the demand deposit expansion multiplier

Correct AnswerverifiedD

If the required reserve ratio is .25, demand deposits are $400 million, and total reserves are $150 million, then excess reserves are

Correct AnswerverifiedB

A bank's excess reserves can be calculated as

Correct AnswerverifiedShow Answer

If original excess reserves are $10 million, and if the potential change in demand deposits is $153 million, then the demand deposit expansion multiplier is

Correct AnswerverifiedShow Answer

If the required reserve ratio is increased from .1 to .2, the demand deposit expansion multiplier

Correct AnswerverifiedShow Answer

Deposits with the Federal Reserve Bank are part of a commercial bank's

Correct AnswerverifiedShow Answer

If the required reserve ratio is .5, the deposit contraction multiplier is

Correct AnswerverifiedShow Answer

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The demand deposit multiplier as the required reserve ratio .

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B

If there is a(n) in reserves, the potential change in demand deposits is .

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D

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B

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