1) A bank can lend out its excess reserves but not its required reserves. style=
ID: 1178297 • Letter: 1
Question
1) A bank can lend out its excess reserves but not its required reserves.style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
A) True>
B) Falsestyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
2) A bank creates money when itstyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
A) gets new checkable deposits which creates excess reserves for the bankstyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
B) has a loan paid off, which creates excess reserves for the bank>
C) makes a loan from its excess reservesstyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
D) holds back excess reserves because of an increase in the required reserve ratiostyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
E) gets more excess reserves because of a decrease in the required reserve ratio>color="#111111" face="lucida grande, arial, sans-serif" size="2">
style="line-height: 15px;">color="#111111" face="lucida grande, arial, sans-serif" size="2">
3)A decrease in the discount rate by the Federal Reserve causes the money stock to expand.style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">style="line-height: 15px;" data-mce-style="line-height: 15px;">color="#111111" face="lucida grande, arial, sans-serif" size="2">
A)True>color="#111111" face="lucida grande, arial, sans-serif" size="2">
B)Falsestyle="line-height: 15px;">color="#111111" face="lucida grande, arial, sans-serif" size="2">
style="line-height: 15px;">color="#111111" face="lucida grande, arial, sans-serif" size="2">
4)An increase in the discount rate by the Federal Reserve causes the money stock to expand.style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
A)True data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
B)Falsestyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
5)When the Fed purchases government securities, it:style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
A)has no effect on either the money supply or the discount rate
B) uses discounting operations to influence margin requirements.
C) automatically raises the discount rate.style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
D) decreases banks' reserves and makes possible a decrease in the money supplystyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
E) increases banks' reserves and makes possible an increase in the money supply.style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
6) The federal funds rate is the interest rate that:style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
A) the government charges banks to borrow moneystyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">style="color: rgb(17, 17, 17); font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
B) the Fed charges banks to borrow moneystyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">color="#111111" face="lucida grande, arial, sans-serif" size="2">
C) the federal government pays to borrow moneystyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
D) federally chartered banks charge their customers for commercial loans.style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">color="#111111" face="lucida grande, arial, sans-serif" size="2">
E) banks charge other banks for short-term loans.style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
7)In a system in which all banks have a uniform reserve requirement, the money multiplier is equal to 1 divided by the required reserve ratio.style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">color="#111111" face="lucida grande, arial, sans-serif" size="2">
A)Truestyle="line-height: 15px;">color="#111111" face="lucida grande, arial, sans-serif" size="2">
B)Falsestyle="line-height: 15px;">color="#111111" face="lucida grande, arial, sans-serif" size="2">
8)The discount rate is the interest rate charged by:style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">style="line-height: 15px;" data-mce-style="line-height: 15px;">color="#111111" face="lucida grande, arial, sans-serif" size="2">
A) major banks to their best customersstyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
B) banks for overnight loans to other banksstyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
C) the fed on loans of resrves to banksstyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
D) banks for loans of less than 24 hoursstyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
9)Because the banking system operates using fractional reserves,style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
A) the money multiplier is greater than one.style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
B) excess reserves are equal to zero.style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
C) required reserves are equal to 100 percentstyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
D)banks can loan out only their required reservesstyle="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
E) the money multiplier must be equal to zero.style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: 13px;">
10)Assume a simplified banking system in which all banks are subject to a uniform reserve requirement of 20 percent and checkable deposits are the only from of money. A bank that received a new checkable deposit of $10,000 would be able to extend new loans up to a maximum of:style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
A) $2,000style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
B) $8,000style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
C) $9,000style="color: rgb(17, 17, 17); font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;" data-mce-style="color: #111111; font-family: 'lucida grande', arial, sans-serif; font-size: small; line-height: 15px;">
D) $10,000style="line-height: 15px;" data-mce-style="line-height: 15px;">color="#111111" face="lucida grande, arial, sans-serif" size="2">
Explanation / Answer
1)True
2)E
3)True
4)B
5)E
6)E
7)True
8)C
9)A
10) B =8000$
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