Question 1

Consider the following data about the economy: currency outstanding (C)= $1 trillion, total deposits (D)= $750 billion, total reserves (R)= $76 billion, and the required reserve ratio (RR ratio)= 10%. What is the money multiplier for this economy?

Accepted Answer

The money multiplier formula is 1/RR ratio. Given a required reserve ratio (RR ratio) of 10% or 0.10, the money multiplier is 1/0.10 = 10. However, considering the presence of currency (C) in the economy, the adjusted money multiplier formula becomes (1 + C/D) / (RR ratio + C/D). Plugging in the values: (1 + 1 trillion / 750 billion) / (0.10 + 1 trillion / 750 billion) = 1.75 / 1.07 ≈ 1.63.

Question 2

Actual bank reserves are equal to

Accepted Answer

Actual bank reserves consist of the required reserves that banks must hold by regulation and any excess reserves that banks choose to hold beyond the required amount.

Question 3

The sum of Federal Reserve notes in circulation, plus US coins, plus bank reserves is collectively referred to by which of these designations?

Accepted Answer

The monetary base includes Federal Reserve notes in circulation, US coins, and bank reserves.

Question 4

Consider the following data about the economy: currency outstanding (C)= $1 trillion, total deposits (D)= $750 billion, total reserves (R)= $76 billion, and the required reserve ratio (RR ratio)= 10%. If the Federal Reserve increases the monetary base by $1 billion, the money supply will increase by

Accepted Answer

The answer of Consider the following data about the economy:...

Question 5

Trevor goes to the ATM machine and withdraws $500 in cash. How will this affect the monetary base?

Accepted Answer

The monetary base consists of currency in circulation and bank reserves. When Trevor withdraws $500, the currency in circulation increases by $500, but the bank's reserves decrease by $500, leaving the monetary base unchanged.

Question 6

When the currency ratio increases, the impact of changes in the monetary base on the money supply is

Accepted Answer

When the currency ratio increases, it means that more money is being held as currency rather than deposited in banks. This reduces the multiplier effect on the monetary base, thereby weakening the impact of changes in the monetary base on the money supply.

Question 7

When the Federal Reserve makes a loan at the discount window to a bank, which of the following will happen?

Accepted Answer

When the Federal Reserve makes a loan at the discount window to a bank, it increases the reserves of that bank. Since these reserves are part of the monetary base (which includes bank reserves and currency in circulation), making a loan at the discount window also increases the monetary base.

Question 8

Consider the following data about the economy: currency outstanding (C)= $1 trillion, total deposits (D)= $750 billion, total reserves (R)= $76 billion, and the required reserve ratio (RR ratio)= 10%. What is the currency ratio in this economy?

Accepted Answer

The currency ratio is calculated as currency outstanding (C) divided by total deposits (D). Given C = $1 trillion and D = $750 billion, the currency ratio = $1 trillion / $750 billion = 1.33.

Question 9

Consider the following data about the economy: currency outstanding (C)= $2 trillion, total deposits (D)= $1 trillion, total reserves (R)= $60 billion, and the required reserve ratio (RR ratio)= 5%. If the Federal Reserve increases the monetary base by $1 billion, the money supply will

Accepted Answer

The monetary base increase of $1 billion will be multiplied through the banking system. The money multiplier is 1/RR ratio = 1/0.05 = 20. Therefore, a $1 billion increase in the monetary base increases the money supply by $1 billion * 20 = $20 billion. However, the options provided do not include this calculation, suggesting a possible mistake in the interpretation of the options or a typo in the question. Given the options, the closest to the correct process is an increase, and since none of the provided options accurately reflects the correct calculation, the choice that suggests an increase in the money supply (C) is selected based on the available options, acknowledging a discrepancy in the calculation.

Question 10

Suppose the US Treasury engages in a foreign exchange intervention to lower the value of the dollar relative to the euro. The Fed sells dollars and buys euros in the foreign market. How will this affect the monetary base?

Accepted Answer

When the Fed sells dollars and buys euros in the foreign market, it is essentially injecting more dollars into the financial system, which increases the monetary base.

Question 11

Claire sells a US Treasury security to the Federal Reserve on the secondary market. She receives a check as payment and then cashes the check at her bank, keeping the cash. Which of the following best describes the result?

Accepted Answer

When Claire sells the Treasury security to the Fed and cashes the check, the monetary base increases because the cash she holds is part of the monetary base. However, bank reserves do not change because the cash is withdrawn from the bank's reserves.

Question 12

Consider the following data about the economy: currency outstanding (C)= $2 trillion, total deposits (D)= $1 trillion, total reserves (R)= $60 billion, and the required reserve ratio (RR ratio)= 5%. What is the money multiplier for this economy?

Accepted Answer

The money multiplier is calculated as 1 / (RR ratio + ER ratio), where ER ratio is the excess reserves ratio. Here, RR ratio is 0.05. Total reserves (R) are $60 billion, and required reserves are 5% of deposits, which is $50 billion. Excess reserves are $10 billion, so ER ratio is $10 billion / $1 trillion = 0.01. Thus, the money multiplier is 1 / (0.05 + 0.01) = 1.46.

Question 13

Consider the following data about the economy: currency outstanding (C)= $1 trillion, total deposits (D)= $750 billion, total reserves (R)= $76 billion, and the required reserve ratio (RR ratio)= 10%. What is the level of excess reserves for this economy?

Accepted Answer

Excess reserves are calculated as actual reserves minus required reserves. Required reserves for the deposits are 10% of $750 billion = $75 billion. Actual reserves are $76 billion. Therefore, excess reserves = $76 billion - $75 billion = $1 billion.

Question 14

When there is a decrease in the required reserve ratio ( r_r )what will be the change, if any, in the money supply multiplier?

Accepted Answer

When the required reserve ratio decreases, banks are required to hold less money in reserve for each deposit they receive. This allows them to lend out a greater portion of their deposits, which increases the money supply through the money creation process. The money supply multiplier, which quantifies this process, is inversely related to the reserve ratio. Therefore, a decrease in the required reserve ratio strengthens or increases the money supply multiplier.

Question 15

Through which of these methods can the Fed impact the money supply?

Accepted Answer

The Fed impacts the money supply primarily through three main tools: setting reserve requirements (bank reserves), conducting open market operations (buying and selling government securities), and adjusting the discount rate and the interest on reserves, which influence overall interest rates. These mechanisms allow the Fed to control the amount of money circulating in the economy.

Question 16

Christopher buys a US Treasury security from the Federal Reserve in the secondary market. He pays cash. What is the result of this transaction?

Accepted Answer

When Christopher buys a US Treasury security from the Federal Reserve in the secondary market and pays cash, the cash he uses to pay for the security is removed from circulation. This decreases the monetary base. Bank reserves are not directly affected by this transaction, as they involve the Federal Reserve selling an asset it holds, not altering the reserves held by banks.

Question 17

If the US Treasury engages in a foreign exchange intervention to increase the value of the dollar relative to the yuan renminbi by having the Federal Reserve buy dollars and sell yuan renminbi in the foreign market, how will this affect the monetary base?

Accepted Answer

When the Federal Reserve buys dollars and sells yuan, it reduces the monetary base because it is effectively removing dollars from circulation.

Question 18

When a bank repays a loan at the discount window to the Federal Reserve, which of the following will happen?

Accepted Answer

When a bank repays a loan at the discount window to the Federal Reserve, it decreases bank reserves because the bank is using its reserves to pay back the loan. This action also decreases the monetary base because the monetary base includes bank reserves among its components.

Question 19

Consider the following data about the economy: currency outstanding (C)= $1 trillion, total deposits (D)= $750 billion, total reserves (R)= $76 billion, and the required reserve ratio (RR ratio)= 10%. What is the level of required reserves for this economy?

Accepted Answer

Required reserves are calculated as the total deposits (D) multiplied by the required reserve ratio (RR ratio). In this case, $750 billion * 10% = $75 billion.

Question 20

Federal Reserve notes are considered to be

Accepted Answer

Federal Reserve notes are considered liabilities of the Federal Reserve because they are obligations of the Federal Reserve to the bearer, representing a promise to pay the bearer on demand.

Quiz 10: The Money Supply Process

Consider the following data about the economy: currency outstanding (C) = $1 trillion, total deposits (D) = $750 billion, total reserves (R) = $76 billion, and the required reserve ratio (RR ratio) = 10%. What is the money multiplier for this economy?

Actual bank reserves are equal to

The sum of Federal Reserve notes in circulation, plus US coins, plus bank reserves is collectively referred to by which of these designations?

Trevor goes to the ATM machine and withdraws $500 in cash. How will this affect the monetary base?

When the currency ratio increases, the impact of changes in the monetary base on the money supply is

When the Federal Reserve makes a loan at the discount window to a bank, which of the following will happen?

Consider the following data about the economy: currency outstanding (C) = $1 trillion, total deposits (D) = $750 billion, total reserves (R) = $76 billion, and the required reserve ratio (RR ratio) = 10%. What is the currency ratio in this economy?

Consider the following data about the economy: currency outstanding (C) = $2 trillion, total deposits (D) = $1 trillion, total reserves (R) = $60 billion, and the required reserve ratio (RR ratio) = 5%. If the Federal Reserve increases the monetary base by $1 billion, the money supply will

Suppose the US Treasury engages in a foreign exchange intervention to lower the value of the dollar relative to the euro. The Fed sells dollars and buys euros in the foreign market. How will this affect the monetary base?

Claire sells a US Treasury security to the Federal Reserve on the secondary market. She receives a check as payment and then cashes the check at her bank, keeping the cash. Which of the following best describes the result?

Consider the following data about the economy: currency outstanding (C) = $2 trillion, total deposits (D) = $1 trillion, total reserves (R) = $60 billion, and the required reserve ratio (RR ratio) = 5%. What is the money multiplier for this economy?

Consider the following data about the economy: currency outstanding (C) = $1 trillion, total deposits (D) = $750 billion, total reserves (R) = $76 billion, and the required reserve ratio (RR ratio) = 10%. What is the level of excess reserves for this economy?

When there is a decrease in the required reserve ratio ( r_r ) what will be the change, if any, in the money supply multiplier?

Through which of these methods can the Fed impact the money supply?

Christopher buys a US Treasury security from the Federal Reserve in the secondary market. He pays cash. What is the result of this transaction?

If the US Treasury engages in a foreign exchange intervention to increase the value of the dollar relative to the yuan renminbi by having the Federal Reserve buy dollars and sell yuan renminbi in the foreign market, how will this affect the monetary base?

When a bank repays a loan at the discount window to the Federal Reserve, which of the following will happen?

Consider the following data about the economy: currency outstanding (C) = $1 trillion, total deposits (D) = $750 billion, total reserves (R) = $76 billion, and the required reserve ratio (RR ratio) = 10%. What is the level of required reserves for this economy?

Federal Reserve notes are considered to be

Quiz 10: The Money Supply Process

Consider the following data about the economy: currency outstanding (C) = $1 trillion, total deposits (D) = $750 billion, total reserves (R) = $76 billion, and the required reserve ratio (RR ratio) = 10%. What is the money multiplier for this economy?

Actual bank reserves are equal to

The sum of Federal Reserve notes in circulation, plus US coins, plus bank reserves is collectively referred to by which of these designations?

Trevor goes to the ATM machine and withdraws $500 in cash. How will this affect the monetary base?

When the currency ratio increases, the impact of changes in the monetary base on the money supply is

When the Federal Reserve makes a loan at the discount window to a bank, which of the following will happen?

Consider the following data about the economy: currency outstanding (C) = $1 trillion, total deposits (D) = $750 billion, total reserves (R) = $76 billion, and the required reserve ratio (RR ratio) = 10%. What is the currency ratio in this economy?

Consider the following data about the economy: currency outstanding (C) = $2 trillion, total deposits (D) = $1 trillion, total reserves (R) = $60 billion, and the required reserve ratio (RR ratio) = 5%. If the Federal Reserve increases the monetary base by $1 billion, the money supply will

Suppose the US Treasury engages in a foreign exchange intervention to lower the value of the dollar relative to the euro. The Fed sells dollars and buys euros in the foreign market. How will this affect the monetary base?

Claire sells a US Treasury security to the Federal Reserve on the secondary market. She receives a check as payment and then cashes the check at her bank, keeping the cash. Which of the following best describes the result?

Consider the following data about the economy: currency outstanding (C) = $2 trillion, total deposits (D) = $1 trillion, total reserves (R) = $60 billion, and the required reserve ratio (RR ratio) = 5%. What is the money multiplier for this economy?

Consider the following data about the economy: currency outstanding (C) = $1 trillion, total deposits (D) = $750 billion, total reserves (R) = $76 billion, and the required reserve ratio (RR ratio) = 10%. What is the level of excess reserves for this economy?

When there is a decrease in the required reserve ratio ( rr ) what will be the change, if any, in the money supply multiplier?

Through which of these methods can the Fed impact the money supply?

Christopher buys a US Treasury security from the Federal Reserve in the secondary market. He pays cash. What is the result of this transaction?

If the US Treasury engages in a foreign exchange intervention to increase the value of the dollar relative to the yuan renminbi by having the Federal Reserve buy dollars and sell yuan renminbi in the foreign market, how will this affect the monetary base?

When a bank repays a loan at the discount window to the Federal Reserve, which of the following will happen?

Consider the following data about the economy: currency outstanding (C) = $1 trillion, total deposits (D) = $750 billion, total reserves (R) = $76 billion, and the required reserve ratio (RR ratio) = 10%. What is the level of required reserves for this economy?

Federal Reserve notes are considered to be

When there is a decrease in the required reserve ratio ( r_r ) what will be the change, if any, in the money supply multiplier?