4. Commercial banks\' assets include A. bank deposits of individuals and busines
ID: 1163806 • Letter: 4
Question
4. Commercial banks' assets include A. bank deposits of individuals and businesses and bank reserves B. loans to individuals and businesses and government securities C. bank reserves and the deposits in M2 D. government securities and borrowed funds 5. Th e Fed's policy tools include all the following except A. required reserve ratio and open market operations B. quantitative easing C. discount rate D. taxing banks' deposits at the Fed 6. An open market of $100 million of securities A. purchase; increases bank reserves B. sale; increases bank reserves C. purchase; decreases the Fed's liabilities D. sale; increases the Fed's liabilities 7. The money multiplier A. increases if banks increase their desired reserve ratio B. increases if the currency drain ratio increases C. is 1 if the desired reserve ratio equals the currency drain ratio D. decreases if banks increase their desired reserve ratio 8. If the quantity theory of money is correct and other things remain the same, an increase in the quantity of money increases A. nominal GDP and the velocity of circulation B. the price level and potential GDP C. real GDP D. nominal GDP and the price levelExplanation / Answer
4 option b.
Commercial banks are the banks which provide loans for business.
Accepts others liabilities of a commercial Bank.
5. Option A.
Open market operations means buying and selling of government securities in the market to regulate banking system.
Reserve ratio means the amount of depositors,balance which the banks should have in hand as cash.
6. Option A.
When the open market purchase of$100 million of securities is made,it creates Excess Reserves for the banks.
7. Option D.
Money multiplier is the reciprocal of reserve ratio.
That means money multiplier is inversely related to reserve ratio.
Hence if one increases other one decreases.
8 option A.
If the amount of money in an Economy doubles, the price levels also increases and so does the nominal GDP because
Quantity of money equals nominal GDP in to price level.
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