Chapter 16 Money and the Banking System

| November 9, 2018

35)
Recall the application. The Fed injected large amounts of reserves into banks
during the 2008 financial crisis. The Fed needs to make sure that, in the long
run, banks do not loan out too many of these reserves or the result will be
A)
higher inflation.
B)
higher interest rates.
C)
additional unemployment.
D)
a smaller money multiplier.

36)
Suppose Kaylee withdraws $4,000 from her bank. If the reserve ratio is 25%,
then this will lead to a decrease in M1 of
A)
$1,000.
B)
$4,000.
C)
$8,000.
D)
$12,000.

37)
Suppose George withdraws $60,000 from his bank. If the reserve ratio is 25%,
then this transaction will lead to a decrease of ________ in checking account
balances.
A)
$15,000
B)
$45,000
C)
$90,000
D)
$180,000

38)
Isabel receives a check for $7,000 from Kermit and deposits it in her bank.
Suppose that the reserve ratio is 10%. As a result of this transaction the
money supply will
A)
increase by $70,000.
B)
decrease by $63,000 and then increase by $70,000.
C)
decrease by $70,000 and then increase by $63,000.
D)
not change.

39)
Mr. Garrison has recently obtained a bank card from South Park National Bank.
Excited about the concept of using a little plastic card to get money from a
machine, he quickly runs down to the nearest Automatic Teller Machine and
withdraws $500. This action has
A)
increased the money supply by $500.
B)
reduced the money supply by $500.
C)
reduced the bank’s required reserves by $25 assuming the reserve ratio is 5%.
D)
not changed the money supply.

40)
Which one of the following would lead to an eventual change in the total money
supply?
A)
a customer’s cash withdrawal from an ATM
B)
a customer moves funds from her checking account to her savings account
C)
using a credit card to purchase a new television
D)
depositing a paycheck in a bank

41)
Banks prefer to make loans than keep reserves because they earn interest on
loans and must pay interest on reserves.

42)
A bank’s required reserves are the fraction of deposits they are required by
law to hold as reserves.

43)
A bank’s excess reserves are the fraction of a bank’s deposits held at the
Federal Reserve.

44)
If cash is deposited into a checking account, the supply of money increases.

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