ECON 2 QUIZ H3 Ch.13 1. The term fractional reserves refers to A. The fact that

Question

ECON 2 QUIZ H3 Ch.13 1. The term fractional reserves refers to A. The fact that reserves are split among many banks. B. Reserves being a small fraction of total transactions account balances. C. The ratio of required reserves to total loans D. The ratio of excess reserves to total loans. 2. Suppose Jared takes $200 from his savings account and holds it as cash. The immediate result of this transaction is that M2 A. Increases by $200 and M1 remains the same. B. Decreases by $200 and M1 remains the same. C. And M1 do not change. D. Remains the same and M1 increases by $200. 3. When money is used to acquire goods and services, it is functioning as a A. Medium of exchange. B. Store of value. C. Standard of account. D. Equation of value. 4. Suppose a bank has $100,000 in deposits, a required reserve ratio of 20 percern and total reserves of $20,000. Then this bank can make new loans in the amount A. $100,000. B. $20,000. C. $40,000. D. SO.

Explanation / Answer

Question 1). Answer :- Option B). Reserves being a small fraction of total transactions account balances.

Question 2). Answer :- Option D). Remains the same and M 1 increases by $ 200.

Question 3). Answer :- Option A). Medium of exchange.

Question 4). Answer :- Option D). $ 0.

Explanation :- Required reserves = Total deposits * Required reserve ratio.

= 100000 * 20 %

= $ 20,000.

Excess reserves = Actual reserves - Required reserves

= 20000 - 20000

= $ 0.

Since excess reserves are zero, accordingly, bank can not make any new loans in the given question. Therefore, the amount of new loans made by the bank is zero dollar.

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