Chapter 16 Money and the Banking System

| November 9, 2018

25)
Suppose Jennifer has $42,000 in currency which she deposits in her bank. If the
reserve ratio is 50%, this will lead to a maximum increase of ________ in M1
throughout all banks.
A)
$0
B)
$21,000
C)
$42,000
D)
$84,000

26)
If the banking system has a required reserve ratio of 40%, then the money
multiplier is
A)
2.
B)
2.5.
C)
4.
D)
8.

27)
If the banking system has a required reserve ratio of 25%, then the money
multiplier is
A)
2.
B)
4.
C)
5.
D)
10.

28)
The money multiplier is equal to
A)
the government spending multiplier.
B)
the marginal propensity to consume.
C)
the reserve ratio.
D)
1/(reserve ratio).

29)
A bank may make loans until its
A)
required reserves are exhausted.
B)
excess reserves are exhausted.
C)
total assets are exhausted.
D)
total liabilities are exhausted.

30)
The money multiplier tends to be greater when
A)
individuals hold less cash.
B)
individuals hold more cash.
C)
banks hold more excess reserves.
D)
the reserve ratio increases.

31)
The money multiplier will be smaller when
A)
bank customers prefer to hold a bigger amount of their money as cash (instead
of in their checking account).
B)
banks prefer to lend out 9% of their excess reserves instead of 90%.
C)
when the marginal propensity to save declines.
D)
when the reserve ratio decreases.

32)
If people never withdrew money, how much money could the banking system create
given a new amount of deposits, assuming that excess reserves were zero?
A)
zero
B)
as much as the new deposits
C)
the amount of new deposits multiplied by the reserve ratio
D)
the amount of new deposits multiplied by the money multiplier

Recall
the Application about the Fed increasing bank reserves during the financial
crisis in 2008 to answer the following question(s). During the height of the
financial crisis in September 2008, The Fed injected large amounts of reserves
into banks, and in the next month, they started paying interest to banks on
these reserves. Prior to this time, banks earned no interest on either required
or excess reserves.

33)
Recall the application. The Fed started paying interest to banks on reserves.
Since this change has occurred,
A)
total reserves now far exceed required reserves.
B)
total reserves are finally equal to required reserves.
C)
all total reserves are now excess reserves.
D)
required reserves now exceed total reserves.

34)
Recall the application. The Fed started paying interest to banks on reserves.
All else equal, this would tend to ________ on a bank’s balance sheet.
A)
increase loans
B)
increase deposits
C)
increase reserves
D)
all of the above

Get a 20 % discount on an order above $ 40
Use the following coupon code:
LOBSTER
Positive SSL