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Exam 29: The Monetary System

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Question 61

True/False

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An increase in the reserve requirement increases reserves and decreases the money supply.

A) True
B) False

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Question 62

Multiple Choice

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Which of the following is not included in either M1 or M2?

A) U.S. Treasury bills
B) small time deposits
C) demand deposits
D) money market mutual funds

E) A) and B)
F) A) and C)

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Question 63

Multiple Choice

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If the Federal Open Market Committee decides to decrease the money supply, it will

When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself initially makes the money supply

Table 29-7. -Refer to Table 29-7. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?

If banks hold any amount of their deposits in reserve, then they do not have the ability to influence the money supply.

The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the reserve requirement must be

Trace the effects on the money supply when the Fed decreases the discount rate.

Table 29-9 Metropolis National Bank is currently holding 2% of its deposits as excess reserves. -Refer to Table 29-9. Metropolis National Bank is currently holding 2% of deposits as excess reserves. Assuming that all banks have the same required reserve ratio, and then none want to hold excess reserves what is the value of the money multiplier?

Draw a simple T-account for First National Bank which has $5,000 of deposits, a required reserve ratio of 10 percent, and excess reserves of $300. Make sure your balance sheet balances.

Assume that when $100 of new reserves enter the banking system, the money supply ultimately increases by $625. Assume also that no banks hold excess reserves and that the entire money supply consists of bank deposits. If, at a point in time, reserves for all banks amount to $500, then at that same point in time, loans for all banks amount to $2,625.

People can write checks against

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?

If an economy uses silver as money, then that economy's money

People hold $400 million of bank deposits but no currency. Banks have made $380 million dollars of loans and only hold enough reserves to satisfy reserve requirements. Because of uncertainty, banks choose to hold $10 million more in reserves. The Fed takes no action. What happens to bank loans?

If the reserve ratio is 5 percent, banks do not hold excess reserves, and people do not hold currency, then when the Fed purchases $20 million worth of government bonds, bank reserves

If the reserve requirement is 12 percent and banks desire to hold no excess reserves, when a bank receives a new deposit of $1,000,

When the Fed makes open-market purchases bank

M1 includes savings deposits.