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Refer to the accompanying table. If a bank has $60 million in savings deposits and $40 million in checkable deposits, then its required reserves are

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Multiple Choice

• $30 million.

• $3 million.

• $1.8 million.

• $1.2 million.

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When a bank loan is repaid, the supply of money

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Multiple Choice

• is constant, but its composition will have changed.

• is decreased.

• is increased.

• may either increase or decrease.

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Which of the following would reduce the money supply?

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Multiple Choice

• Commercial banks use excess reserves to buy government bonds from the public.

• Commercial banks loan out excess reserves.

• Commercial banks sell government bonds to the public.

• A check clears from Bank A to Bank B.

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Refer to the accompanying balance sheet for the First National Bank of Bunco. All figures are in millions. If this bank has excess reserves of $6 million, the legal reserve ratio must be

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Multiple Choice

• 10 percent.

• 12 percent.

• 14 percent.

• 20 percent.

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Monetary policy is thought to be

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Multiple Choice

• equally effective in moving the economy out of a depression as in controlling demand-pull inflation.

• more effective in moving the economy out of a depression than in controlling demand-pull inflation.

• more effective in controlling demand-pull inflation than in moving the economy out of a recession.

• only effective in moving the economy out of a depression.

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Banks' borrowed funds come mostly from

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Multiple Choice

• buying bonds and loans.

• buying stocks and selling Treasury bonds.

• issuing stocks and buying Treasury bonds.

• issuing bonds and accepting deposits.

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As a result of policy actions taken by the Fed since 2008, it (the Fed) can no longer expect to affect the federal funds rate through traditional open market operations to alter the overall amount of excess reserves in the banking system. This is because

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Multiple Choice

• Congress has taken this power away from the Fed.

• there is a massive amount of excess reserves already in the banking system.

• the federal funds rate has become rigidly fixed by law.

• banks are no longer holding any excess reserves.

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Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. The maximum amount by which the commercial banking system can expand the supply of money by lending is

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Multiple Choice

• $250 billion.

• $350 billion.

• $450 billion.

• $600 billion.

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The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of

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Multiple Choice

• the MPS.

• its actual reserves.

• its excess reserves.

• the reserve ratio.

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All else equal, when the Federal Reserve Banks engage in a restrictive monetary policy, the prices of government bonds usually

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Multiple Choice

• fall.

• rise.

• remain constant.

• move in the same direction as the bonds' interest rate yield.

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In the recent financial and economic crises, the economy fell into a so-called liquidity trap, which means that

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Multiple Choice

• banks did not have enough reserves to continue lending to firms.

• the Fed injected reserves into the banking system, but the interest rates remained high.

• firms did not want to borrow from banks because they had little need for extra liquidity.

• banks held on to excess reserves and people chose to pay off loans rather than spend.

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The reserve ratio refers to the ratio of a bank's

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Multiple Choice

• reserves to its liabilities and net worth.

• capital stock to its total assets.

• checkable deposits to its total liabilities.

• required reserves to its checkable-deposit liabilities.

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A checkable deposit at a commercial bank is a(n)

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Multiple Choice

• liability to the depositor and an asset to the bank.

• liability to both the depositor and the bank.

• asset to the depositor and a liability to the bank.

• asset to both the depositor and the bank.

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Money is destroyed when

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Multiple Choice

• loans are made.

• checks written on one bank are deposited in another bank.

• loans are repaid.

• the net worth of the banking system declines.

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Which of the following would not be a consequence of negative interest rates?

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Multiple Choice

• People’s deposits in banks would have shrinking balances over time.

• Reduced bank reserves that could cause a contraction in the economy.

• People would want to put more money in banks.

• People would rather hold cash than bank deposits.

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The possible asymmetry of monetary policy is the central idea of the

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Multiple Choice

• invisible hand concept.

• ratchet analogy.

• pushing-on-a-string analogy.

• bandwagon effect.

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Refer to the accompanying table of information for the Moolah Bank. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's

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Multiple Choice

• assets are $1,100.

• liabilities are $1,100.

• net worth is $300.

• profit is $1,000.

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Lowering the discount rate has the effect of

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Multiple Choice

• turning required into excess reserves.

• turning excess into required reserves.

• making it less expensive for commercial banks to borrow from central banks.

• forcing commercial banks to call in outstanding loans from their best customers.

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Which one of the following is presently a major deterrent to bank panics in the United States?

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Multiple Choice

• the legal reserve requirement

• the fractional reserve system

• the gold standard

• deposit insurance

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When a check is drawn and cleared, the

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Multiple Choice

• reserves and deposits of both the bank against which the check is cleared and the bank receiving the check are unchanged by this transaction.

• bank against which the check is cleared loses reserves and deposits equal to the amount of the check.

• bank receiving the check loses reserves and deposits equal to the amount of the check.

• bank against which the check is cleared acquires reserves and deposits equal to the amount of the check.

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A commercial bank buys a $40,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer's checkable deposit balance by $40,000. The money supply has

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Multiple Choice

• increased by $40,000.

• decreased by $40,000.

• not been affected.

• increased by $40,000 multiplied by the reserve ratio.

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A bank that has liabilities of $150 billion and a net worth of $20 billion must have

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Multiple Choice

• assets of $170 billion.

• excess reserves of $130 billion.

• assets of $150 billion.

• excess reserves of $150 billion.

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Refer to the accompanying table. If a bank has $20 million in savings deposits and $50 million in checkable deposits, then its required reserves are

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Multiple Choice

• $5 million.

• $10 million.

• $2 million.

• $70 million.

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The price of a bond with no expiration date is originally $1,000 and has a fixed annual interest payment of $150. If the price of the bond then rises by $200, what will be the interest rate yield to a new buyer of the bond?

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Multiple Choice

10 percent

12.5 percent

15 percent

18.8 percent

6.3 percent

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(Advanced analysis) Assume the equation for the total demand for money is L = 0.4Y + 80 − 4i, where L is the amount of money demanded, Y is gross domestic product, and i is the interest rate. If gross domestic product is $350 and the interest rate is 7 percent, what amount of money will society want to hold?

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Multiple Choice

220.

175.

350.

192.

216.

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Refer to the graph. If the initial equilibrium interest rate was 5 percent and the money supply increased by $50 billion, then the new interest rate would be

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Multiple Choice

4 percent.

2 percent.

3 percent.

1 percent.

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If nominal GDP is $900 billion and, on average, each dollar is spent six times in the economy over a year, then the quantity of money demanded for transactions purposes will be

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Multiple Choice

• 3,600

• 900

• 450

• 150

• 750

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Answer the question based on the following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent. If the price of this bond increases to $1,250, the interest rate will

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Multiple Choice

rise to 18 percent.

fall to 8 percent.

rise to 12.5 percent.

fall to 1.25 percent.

fall to 2.5 percent.

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Answer the question based on the following information: For transactions, households and businesses want to hold an amount of money equal to one-half of nominal GDP. The table shows the amounts of money they want to hold as an asset at various interest rates.

If nominal GDP is $300 and the supply of money is $230, the equilibrium interest rate will be

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Multiple Choice

4 percent.

10 percent.

6 percent.

2 percent.

8 percent.

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Assume that Smith deposits $80 in currency into her checking account in the XYZ Bank. Later that same day, Jones negotiates a loan for $700 at the same bank. In what direction and by what amount has the supply of money changed?

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Multiple Choice

• increased by $700

• decreased by $80

• increased by $780

• increased by $80

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