9) In the simple deposit expansion model, if the Fed purchases $100 worth of bon

Question

9) In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase 9) A) $10. B) $100, C) $100 times the reciprocal of the required reserve ratio. D) $100 times the required reserve ratio. 10) Open market operations intended to offiset movements in noncontrollable factors (such as float) 10) that affect reserves and the monetary base are called A) dynamic open market operations C) reactionary open market operations. B) offensive open market operations D) defensive open market operations. 11) When the Fed supplies the banking system with an extra dollar of reserves, deposits increase by 11) more than one dollar-a process called A) extra deposit creation. C) stimulative deposit creation B) expansionary deposit creation. D) multiple deposit creation 12) The monetary base consists of 12) A) reserves and Federal Reserve Notes. B) currency in circulation and reserves. C) currency in circulation and Federal Reserve notes. D) currency in circulation and the U.S. Treasury's monetary liabilities. 13) The relationship between borrowed reserves (BR), the nonborrowed monetary base (MBn, and 13) the monetary base (MB) is B) MB- BR-MBn D) BR-MBn- MB. 14) The Fed does not tightly control the monetary base because it does NOT completely control 14) A) open market sales. C) the discount rate. B) open market purchases D) borrowed reserves 15) The three players in the money supply process include 15) , A) banks, borrowers, and the central bank. B) banks, depositors, and borrowers. C) banks, depositors, and the U.S. Treasury. D) banks, depositors, and the central bank 16) In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank 16) that previously had no excess reserves, the bank can now increase its loans by A) $10. B) $100. C) $100 times the reciprocal of the required reserve ratio. D) $100 times the required reserve ratio. 17) If the required reserve ratio is 10 percent, the simple deposit multiplier is 17)_ A) 100.0. B) 10.0 C) 5.0. D) 2.5.

Explanation / Answer

Question 9

According to the Simple Deposit Expansion Model,

Total increase in deposits = Amount of bonds purchased by Fed * (1/Required reserve ratio)

In given case, Fed has purchased $100 worth of bonds.

So, total increase in deposits with banking system would be,

Total increase in deposits = $100 * (1/Required reserve ratio)

Hence, the correct answer is the option (c).

Question 12

The monetary base is the sum total of currency in circulation and bank reserves with Fed.

Hence, the correct answer is the option (b).

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