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Exam 14: The Money Supply Process

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Question 41

Multiple Choice

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An increase in the monetary base that goes into currency is ________,while an increase that goes into deposits is ________.

A) multiplied; multiplied
B) not multiplied; multiplied
C) multiplied; not multiplied
D) not multiplied; not multiplied

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Question 42

Multiple Choice

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In the simple deposit expansion model,a decline in checkable deposits of $500 when the required reserve ratio is equal to 20 percent implies that the Fed

A) sold $250 in government bonds.
B) sold $100 in government bonds.
C) sold $50 in government bonds.
D) purchased $100 in government bonds.

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Question 43

Multiple Choice

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Models describing the determination of the money supply and the Fed's role in this process normally focus on ________ rather than ________,since Fed actions have a more predictable effect on the former.

The relationship between borrowed reserves,the nonborrowed monetary base,and the monetary base is

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

The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds.If the proceeds are kept in ________,the open market purchase has no effect on reserves; if the proceeds are kept as ________,reserves increase by the amount of the open market purchase.

Explain why the simple deposit multiplier overstates the true deposit multiplier.

A bank has excess reserves of $4,000 and demand deposit liabilities of $100,000 when the required reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be

In the simple deposit expansion model,if the required reserve ratio is 20 percent and the Fed increases reserves by $100,checkable deposits can potentially expand by

If the required reserve ratio is 20 percent,the simple deposit multiplier is

An increase in Treasury deposits at the Fed causes

Assuming initially that rr = 15%,c = 40%,and e = 5%,a decrease in e to 0% causes the M1 money multiplier to ________,everything else held constant.

In the simple model of multiple deposit creation in which banks do not hold excess reserves,the increase in checkable deposits equals the product of the change in reserves and the

In the simple deposit expansion model,if the banking system has excess reserves of $75,and the required reserve ratio is 20%,the potential expansion of checkable deposits is

The volume of loans that the Fed makes to banks is affected by the Fed's setting of the interest rate on these loans,called the

Suppose that from a new checkable deposit,First National Bank holds two million dollars in vault cash,nine million dollars in excess 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.

The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits,excess reserves,and currency is

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

Recognizing the distinction between borrowed reserves and the nonborrowed monetary base,the money supply model is specified as

The monetary base minus currency in circulation equals