Question 1

Suppose that the required reserve ratio is 25% and a customer deposits $300 in her chequable deposit.The money supply will _____ if the banking system does NOT hold any excess reserves.

Accepted Answer

The required reserve ratio is 25%, which means that the bank is required to keep 25% of the deposit ($300) as reserves and can lend out the remaining 75%. If the bank does not hold any excess reserves, it can lend out 75% of $300, which is $225. This $225 can be deposited into another chequable account, and the process can continue, leading to a chain reaction. Using the money multiplier formula (1/required reserve ratio), we can see that $225 can lead to an increase in the money supply by $900 ($225 multiplied by 1/0.25). Therefore, the money supply will increase by an additional $900 if the banking system does not hold any excess reserves.

Question 2

The money multiplier is equal to _____:

Accepted Answer

The answer of The money multiplier is equal to _____:
...

Question 3

Suppose that a bank receives a $5000 deposit and the reserve ratio is 25%.The bank is required to keep in reserve:

Accepted Answer

The reserve ratio is 25%, which means the bank is required to keep 25% of the deposit as a reserve. Therefore, 25% of $5000 is $1250.

Question 4

Which factor is a component of both the monetary base and the money supply?

Accepted Answer

Currency in circulation is part of both the monetary base and the money supply, as it is the physical money available to the public and banks.

Question 5

The money multiplier and the required reserve ratio are:

Accepted Answer

The required reserve ratio and the money multiplier are inversely related. The higher the reserve ratio, the lower the money multiplier, and vice versa. The reserve ratio determines the amount of reserves that banks must hold against deposits. The lower the reserve ratio, the more money banks can lend out, increasing the money supply and the money multiplier. Alternatively, the higher the reserve ratio, the less banks can lend out, decreasing the money supply and the money multiplier.

Question 6

Suppose that an economy has $200000 of demand deposits and $40000 of excess reserves,with a 10% required reserve ratio.If the monetary authorities raise the required reserve ratio to 20%:

Accepted Answer

With a 10% required reserve ratio, banks had to hold reserves of $20000 (10% of $200000). With $40000 of excess reserves, they were holding twice the required amount. When the required reserve ratio is raised to 20%, banks will need to hold reserves of $40000 (20% of $200000). Since they only have excess reserves of $40000, they will need to decrease their excess reserves by $20000 to meet the new reserve requirement. Therefore, excess reserves will decrease by $20000.

Question 7

In a deposits-only monetary system with a 5% required reserve ratio,a bank deposit of $1000 could increase the total amount of bank deposits by up to:

Accepted Answer

In a deposits-only monetary system, the formula for calculating the maximum increase in the total amount of bank deposits is (1/reserve ratio) x initial deposit. Therefore, in this scenario, the maximum increase would be (1/0.05) x $1,000 = $20,000. Option C is the closest choice to the correct answer.

Question 8

Suppose that your grandma sends you $100 for your birthday and you deposit that amount in your chequing account.The reserve ratio is 10%.Based upon this deposit,the bank's excess reserves have increased by _____,and if the bank lends these new excess reserves,the money supply could eventually grow by as much as an additional _____.

Accepted Answer

The excess reserves of the bank will increase by the amount of the deposit multiplied by the reserve ratio, which is 10%. So the excess reserves will increase by $10 ($100 x 0.1 = $10). If the bank lends these new excess reserves, the money supply could increase by up to 1/reserve ratio times the new loans, which is 1/0.1 x $10 = $100. Therefore, the money supply could eventually grow by an additional $100. Therefore, the correct choice is C) $90 for excess reserves and $900 for potential money supply growth.

Question 9

Suppose that there are no excess reserves in the banking system and the current amount of demand deposits is $100000.If the monetary authorities lower the required reserve ratio from 10% to 5%:

Accepted Answer

Lowering the required reserve ratio from 10% to 5% will increase the amount of excess reserves that banks hold. This will increase their ability to create new loans and therefore increase their money-creating potential.

Question 10

When a bank deposit is withdrawn and kept as currency,bank reserves decrease and the _____:

Accepted Answer

The answer of When a bank deposit is withdrawn and...

Question 11

The monetary base is the sum of:

Accepted Answer

The monetary base includes the reserves held by banks (which includes deposits at the central bank) and the currency in circulation (physical cash). The other options include other types of bank deposits that are not considered part of the monetary base.

Question 12

Use the following to answer questions: 
-(Table: Assets and Liabilities of the Banking System)Refer to Table: Assets and Liabilities of the Banking System.If the reserve ratio is 6% and the banking system does NOT want to hold excess reserves,how much more can be added to the money supply?

Accepted Answer

The reserve ratio is 6%, meaning banks must keep 6% of deposits as reserves. If banks do not hold excess reserves, they can lend out 94% of deposits. The money multiplier is 1/0.06 = 16.67. If $40,000 is the initial deposit, the total increase in the money supply is $40,000 * 16.67 = $666,800, approximately $667,000.

Question 13

Use the following to answer questions: 
-(Table: Assets and Liabilities of the Banking System)Refer to Table: Assets and Liabilities of the Banking System.If the reserve ratio is 8% and the banking system does NOT want to hold excess reserves,how much more can be added to the money supply?

Accepted Answer

The potential increase in the money supply is equal to the initial excess reserves multiplied by the money multiplier. In this case, the initial excess reserves are $500,000 (total reserves of $2 million less required reserves of $1.5 million). The money multiplier is equal to 1/reserve ratio, or 1/0.08 = 12.5. Therefore, the potential increase in the money supply is $500,000 x 12.5 = $6,250,000. If the banking system does not want to hold excess reserves, they will lend out the full amount of the initial excess reserves, which is $500,000. So, the additional increase in the money supply is $500,000 x 12.5 = $6,250,000 - $500,000 = $5,750,000. Rounded to the nearest thousand, this is about $250,000.

Question 14

The _____ multiplier is equal to _____.

Accepted Answer

The money multiplier is equal to 1 divided by the required reserve ratio. This is because banks are required to hold a certain amount of reserves based on the deposits they receive. The money multiplier shows how much the money supply can expand based on changes in the reserve requirements.

Question 15

Suppose that the banking system does NOT hold excess reserves and the reserve ratio is 25%.If Molly deposits $1000 cash in her chequing account,the banking system can increase the money supply by an additional _____:

Accepted Answer

If Molly deposits $1000 cash in her chequing account, the banking system can increase the money supply by an additional $3000 (calculated as $1000/0.25 reserve ratio). This is because the reserve ratio is 25%, meaning that banks are required to hold 25% of deposits as reserves but can loan out the remaining 75%. Therefore, the initial deposit of $1000 can lead to creation of $3000 additional money supply.

Question 16

Suppose that a bank gets a new deposit of $100 cash and it has a 20% required reserve ratio.If the bank lends the maximum amount of money allowed,then the money supply (including the original deposit)increases by _____

Accepted Answer

With a 20% reserve ratio, the bank must keep $20 of the $100 deposit in reserve but can lend out $80. The $80 lent out can then be deposited in a bank, which can lend out 80% of that, and so on. This process continues, creating a multiplier effect. The formula for the maximum increase in the money supply is 1/reserve ratio, which in this case is 1/0.20 = 5. Therefore, the original $100 deposit can increase the money supply by up to $500 (5 times the original deposit), including the original deposit.

Question 17

Suppose the banking system does NOT hold excess reserves and the reserve ratio is 20%.If Sam deposits $500 cash in his chequing account,the banking system can increase the money supply by an additional _____:

Accepted Answer

The money multiplier is 1/reserve ratio = 1/0.20 = 5. The banking system can increase the money supply by $500 * 5 - $500 = $2000.

Question 18

Use the following to answer questions: 
-(Table: Assets and Liabilities of the Banking System)Refer to Table: Assets and Liabilities of the Banking System.If the reserve ratio is 5% and the banking system does NOT want to hold excess reserves,how much more can be added to the money supply?

Accepted Answer

The answer of Use the following to answer questions: 
-(Table:...

Question 19

Use the following to answer questions: 
-(Table: Assets and Liabilities of the Banking System)Refer to Table: Assets and Liabilities of the Banking System.If the reserve ratio is 9% and the banking system does NOT want to hold excess reserves,how much more can be added to the money supply?

Accepted Answer

The answer of Use the following to answer questions: 
-(Table:...

Question 20

The money multiplier is equal to _____:

Accepted Answer

The money multiplier is the ratio of the money supply to the monetary base. This means that for every dollar in the monetary base, a certain amount of money is created through the banking system, resulting in a larger money supply. The exact value of the money multiplier varies depending on factors such as the reserve ratio and the demand for money, but it is generally greater than 1.

Quiz 14: Money, Banking, and the Federal Reserve System

Suppose that the required reserve ratio is 25% and a customer deposits $300 in her chequable deposit.The money supply will _____ if the banking system does NOT hold any excess reserves.

The money multiplier is equal to _____:

Suppose that a bank receives a $5000 deposit and the reserve ratio is 25%.The bank is required to keep in reserve:

Which factor is a component of both the monetary base and the money supply?

The money multiplier and the required reserve ratio are:

Suppose that an economy has $200000 of demand deposits and $40000 of excess reserves,with a 10% required reserve ratio.If the monetary authorities raise the required reserve ratio to 20%:

In a deposits-only monetary system with a 5% required reserve ratio,a bank deposit of $1000 could increase the total amount of bank deposits by up to:

Suppose that there are no excess reserves in the banking system and the current amount of demand deposits is $100000.If the monetary authorities lower the required reserve ratio from 10% to 5%:

When a bank deposit is withdrawn and kept as currency,bank reserves decrease and the _____:

The monetary base is the sum of:

Use the following to answer questions: -(Table: Assets and Liabilities of the Banking System) Refer to Table: Assets and Liabilities of the Banking System.If the reserve ratio is 6% and the banking system does NOT want to hold excess reserves,how much more can be added to the money supply?

Use the following to answer questions: -(Table: Assets and Liabilities of the Banking System) Refer to Table: Assets and Liabilities of the Banking System.If the reserve ratio is 8% and the banking system does NOT want to hold excess reserves,how much more can be added to the money supply?

The _ multiplier is equal to _.

Suppose that the banking system does NOT hold excess reserves and the reserve ratio is 25%.If Molly deposits $1000 cash in her chequing account,the banking system can increase the money supply by an additional _____:

Suppose that a bank gets a new deposit of $100 cash and it has a 20% required reserve ratio.If the bank lends the maximum amount of money allowed,then the money supply (including the original deposit) increases by _____

Suppose the banking system does NOT hold excess reserves and the reserve ratio is 20%.If Sam deposits $500 cash in his chequing account,the banking system can increase the money supply by an additional _____:

Use the following to answer questions: -(Table: Assets and Liabilities of the Banking System) Refer to Table: Assets and Liabilities of the Banking System.If the reserve ratio is 5% and the banking system does NOT want to hold excess reserves,how much more can be added to the money supply?

Use the following to answer questions: -(Table: Assets and Liabilities of the Banking System) Refer to Table: Assets and Liabilities of the Banking System.If the reserve ratio is 9% and the banking system does NOT want to hold excess reserves,how much more can be added to the money supply?

The money multiplier is equal to _____: