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Exam 12: Money Creation and the Federal Reserve

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Question 111

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Your grandmother gives you a $50 bill for your birthday.Does it matter whether you hold it as cash or deposit it in your checking account?

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It doesn't matter to you personally.But ...

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Question 112

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If the reserve requirement is 2.5%,the potential money multiplier is:

A) 0.025
B) 2.5
C) 4
D) 40

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Question 113

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If the reserve requirement is 10%,then the potential money multiplier is ____ and the actual money multiplier is ____.

Sumit deposits $1,500 cash into his checking account.The reserve requirement is 25%.How much money can the banking system create?

Alpha Bank's balance sheet is shown in the following table: If the bank is fully loaned up,what is its required reserve ratio? Suppose a depositor adds $5,000 to her account with Alpha Bank.If the bank uses the additional deposit to make a loan and the funds are deposited in Beta Bank (which also is fully loaned up),what does Beta Bank's balance sheet look like?

The reserve ratio is the level of reserves a bank holds as a percentage of total deposits.

A solvency crisis means that a bank's liabilities exceed its assets.

Does the Fed lose the ability to help the economy when interest rates reach zero? Explain.

Federal Reserve board members serve for ______ years,but the chair serves for ______.

The fractional reserve banking system:

Increasing excess reserves will cause a decrease in the actual money multiplier.

If the reserve requirement is 20%,then the money multiplier is five.

Members of the Federal Reserve Board serve 14-year terms and cannot be reappointed.These provisions help ensure that the Fed is free to take the long view and not be overly influenced by short-term political considerations.

When the Federal Reserve buys bonds,it effectively lowers the nominal interest rate in the market.

The Federal Reserve System includes _____ regional banks.

How do banks create money? Explain your response with an example.

The central bank of the United States is:

If a bank is subject to a reserve requirement of 15%,then it is required to:

Which of the following does NOT explain why the actual money multiplier and the potential money multiplier are different?

Sumit deposits $1,500 cash into his checking account.The reserve requirement is 25%.How many dollars' worth of loans can the banking system create?