Question 1

Explain why the simple deposit multiplier overstates the true deposit multiplier.

Accepted Answer

The answer of Explain why the simple deposit multiplier overstates...

Question 2

If a bank has excess reserves of $5,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has actual reserves of ________.

Accepted Answer

The reserve requirement is the percentage of the bank's demand deposit liabilities that it's required to hold in reserve. In this case, the reserve requirement is 20 percent of $80,000, which is $16,000.

Since the bank has excess reserves of $5,000, we can subtract that from the required reserves to find the actual reserves:
$16,000 - $5,000 = $11,000

Finally, we add the actual reserves to the excess reserves to get the total reserves:
$11,000 + $5,000 = $16,000

Therefore, the bank has actual reserves of $16,000, which gives us the correct answer of C) $21,000 when we add in the excess reserves.

Question 3

If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 15 percent,then the bank has actual reserves of ________.

Accepted Answer

The reserve requirement is the percentage of demand deposit liabilities that a bank is required to hold as reserves. In this case, the reserve requirement is 15%, so the bank must hold reserves of $15,000 (15% of $100,000).

Since the bank has excess reserves of $4,000, we can subtract that from the required reserves to find the actual reserves:

$15,000 - $4,000 = $11,000

Therefore, the bank has actual reserves of $11,000, which is less than the excess reserves.

The only answer choice that is less than the excess reserves of $4,000 is B, $19,000.

Question 4

An increase in the nonborrowed monetary base,everything else held constant,will cause ________.

Accepted Answer

An increase in the nonborrowed monetary base will lead to an increase in the excess reserves held by banks. This will encourage banks to increase lending and create more money, which will cause the money supply to rise.

Question 5

Decisions by depositors to increase their holdings of ________,or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts.

Accepted Answer

When depositors increase their holdings of currency or when banks hold excess reserves, the money multiplier effect is reduced, leading to a smaller expansion of deposits than the simple model predicts. This is because both actions reduce the amount of funds available for lending, which in turn decreases the potential for deposit creation through the banking system.

Question 6

If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 15 percent,then the bank has actual reserves of ________.

Accepted Answer

The answer of If a bank has excess reserves of...

Question 7

Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply.

Accepted Answer

Depositors affect the money supply by choosing how much currency to hold versus how much to deposit, while banks influence it through decisions on the amount of excess reserves to maintain rather than lending out.

Question 8

Decisions by depositors to increase their holdings of ________,or of banks to hold ________ will result in a smaller expansion of deposits than the simple model predicts.

Accepted Answer

The answer of Decisions by depositors to increase their holdings...

Question 9

A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 20 percent.If the reserve requirement is lowered to 10 percent,the bank's excess reserves will be ________.

Accepted Answer

Currently, with a reserve requirement of 20 percent, the bank must hold $16,000 in reserves (20 percent of $80,000). Excess reserves are $1,000, so total reserves are $17,000. 
If the reserve requirement is lowered to 10 percent, the bank only needs to hold $8,000 in reserves (10 percent of $80,000). Current reserves are $17,000, so excess reserves will be $9,000 ($17,000 - $8,000).

Question 10

If a bank has excess reserves of $15,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has total reserves of ________.

Accepted Answer

The answer of If a bank has excess reserves of...

Question 11

A bank has excess reserves of $10,000 and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be ________.

Accepted Answer

Initial reserves = 0.2($100,000) = $20,000

Excess reserves = $10,000

If the reserve ratio is raised to 25%, then desired reserves will be = 0.25($100,000) = $25,000

So excess reserves will become = $25,000 - $20,000 = $5,000

Question 12

A bank has excess reserves of $6,000 and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be ________.

Accepted Answer

With a desired reserve ratio of 20%, the required reserves are $20,000 ($100,000 x 0.2), but the bank has excess reserves of $6,000. 
If the reserve ratio is raised to 25%, the required reserves would be $25,000 ($100,000 x 0.25), and the bank would need to hold an additional $19,000 in reserves ($25,000 - $6,000). 
Therefore, the bank's excess reserves would be reduced to $1,000 ($6,000 - $5,000), as it would need to increase its reserves by $19,000 but already has $6,000 in excess reserves.

Question 13

A bank has excess reserves of $4,000 and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be ________.

Accepted Answer

Reserves = Reserve Ratio x Demand Deposit Liabilities
Before the reserve ratio is raised, reserves = 0.2 x $100,000 = $20,000
Excess Reserves = Reserves - Required Reserves = $20,000 - $16,000 = $4,000
After the reserve ratio is raised, reserves = 0.25 x $100,000 = $25,000
Excess Reserves = Reserves - Required Reserves = $25,000 - $21,000 = $4,000 - $1,000 = -$1,000.
Therefore, the bank's excess reserves will be -$1,000.

Question 14

A bank has no excess reserves and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will now be ________.

Accepted Answer

Initially, with a 20% reserve ratio, the bank needs to hold $20,000 (20% of $100,000) in reserves. When the reserve ratio increases to 25%, the required reserves become $25,000 (25% of $100,000). Since the bank initially held exactly what was required at a 20% reserve ratio, it now finds itself $5,000 short of the new requirement, resulting in -$5,000 in excess reserves.

Question 15

If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 10 percent,then the bank has actual reserves of ________.

Accepted Answer

The bank's required reserves are 10% of $100,000, which equals $10,000. Excess reserves are the reserves the bank holds over the required reserves, which are $4,000. Therefore, the actual reserves are the sum of required reserves and excess reserves: $10,000 + $4,000 = $14,000.

Question 16

Explain two reasons why the Bank of Canada does not have complete control over the level of bank deposits and loans.Explain how a change in either factor affects the deposit expansion process.

Accepted Answer

The answer of Explain two reasons why the Bank of...

Question 17

If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has total reserves of ________.

Accepted Answer

The answer of If a bank has excess reserves of...

Question 18

If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 10 percent,then the bank has actual reserves of ________.

Accepted Answer

The reserve requirement for demand deposit liabilities of $100,000 at a rate of 10 percent is $10,000. The bank has excess reserves of $7,000, so their actual reserves are the sum of their excess reserves and the required reserves, which is $17,000 ($7,000 + $10,000).

Question 19

Assume that no banks hold excess reserves,and the public holds no currency.If a bank sells a $100 security to the Bank of Canada,explain what happens to this bank and two additional steps in the deposit expansion process,assuming a 10 percent reserve requirement.How much do deposits and loans increase for the banking system when the process is completed?

Accepted Answer

The answer of Assume that no banks hold excess reserves,and...

Question 20

A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 25 percent.If the reserve requirement is lowered to 20 percent,the bank's excess reserves will be ________.

Accepted Answer

With a reserve requirement of 25 percent, the required reserves of the bank are $80,000 x 0.25 = $20,000. Therefore, the excess reserves are $1,000 ($21,000-$20,000).
If the reserve requirement is lowered to 20 percent, the required reserves will be $80,000 x 0.20 = $16,000. Therefore, the excess reserves will increase to $5,000 ($16,000-$11,000).

Quiz 16: The Money Supply Process

Explain why the simple deposit multiplier overstates the true deposit multiplier.

If a bank has excess reserves of $5,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has actual reserves of ________.

If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 15 percent,then the bank has actual reserves of ________.

An increase in the nonborrowed monetary base,everything else held constant,will cause ________.

Decisions by depositors to increase their holdings of ,or of banks to hold excess reserves will result in a expansion of deposits than the simple model predicts.

If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 15 percent,then the bank has actual reserves of ________.

Decisions by about their holdings of currency and by about their holdings of excess reserves affect the money supply.

Decisions by depositors to increase their holdings of ,or of banks to hold will result in a smaller expansion of deposits than the simple model predicts.

A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 20 percent.If the reserve requirement is lowered to 10 percent,the bank's excess reserves will be ________.

If a bank has excess reserves of $15,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has total reserves of ________.

A bank has excess reserves of $10,000 and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be ________.

A bank has excess reserves of $6,000 and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be ________.

A bank has excess reserves of $4,000 and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will be ________.

A bank has no excess reserves and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent,the bank's excess reserves will now be ________.

If a bank has excess reserves of $4,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 10 percent,then the bank has actual reserves of ________.

Explain two reasons why the Bank of Canada does not have complete control over the level of bank deposits and loans.Explain how a change in either factor affects the deposit expansion process.

If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000,and if the reserve requirement is 20 percent,then the bank has total reserves of ________.

If a bank has excess reserves of $7,000 and demand deposit liabilities of $100,000,and if the reserve requirement is 10 percent,then the bank has actual reserves of ________.

A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the reserve requirement is 25 percent.If the reserve requirement is lowered to 20 percent,the bank's excess reserves will be ________.