5-2 Question 9. 9. If the reserve ratio is 20 percent, the money multiplier is (

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5-2

Question 9. 9. If the reserve ratio is 20 percent, the money multiplier is (Points : 5) 2. 4. 5. 8.

Question 10. 10. The interest rate the Fed charges on loans it makes to banks is called (Points : 5) the prime rate. the federal funds rate. the discount rate. the LIBOR.

Question 11. 11. Table 16-2. An economy starts with $10,000 in currency. All of this currency is deposited into a single bank, and the bank then makes loans totaling $9,250. The T-account of the bank is shown below. Assets Liabilities Reserves $750 Deposits $10,000 Loans 9,250 Refer to Table 16-2. If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves of $150 for this bank has the potential to increase deposits for all banks by (Points : 5) $866.67. $1,666.67. $2,000.00. an infinite amount.

Question 12. 12. Which of the following is not included in M1? (Points : 5) currency demand deposits traveler’s checks credit cards

Explanation / Answer

9. 5

Money multiplier = 1/rr = 1/0.20 = 5

10. the discount rate

11 $2,000

rr = 750/10,000 = 0.075

Money multiplier = 1/rr = 1/0.075

Increase in Deposits = money multiplier*increase in reserve = (1/.075)*150 = 2000

12 Credit cards

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