Question 1

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 2

A bank has excess reserves of $6000 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

The current level of required reserves can be calculated as 20% of $100,000 = $20,000.

The bank's current excess reserves are $6,000, which means they have $14,000 in required reserves ($20,000 - $6,000).

If the reserve ratio is raised to 25%, then the new required reserves will be 25% of $100,000 = $25,000.

To meet the new required reserves, the bank will need to hold an additional $11,000 in reserves ($25,000 - $14,000).

Since the bank already has $6,000 in excess reserves, they only need to add $5,000 more, which means their new excess reserves will be $1,000 ($6,000 - $5,000).

Question 3

If a bank has excess reserves of $7000 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 4

If a bank has excess reserves of $5000 and demand deposit liabilities of $80000, and if the reserve requirement is 20 percent, then the bank has actual reserves of ________.

Accepted Answer

The reserve requirement is 20% of demand deposit liabilities which is $80000*0.2 = $16000. The excess reserves are $5000. Therefore, actual reserves are $16000 + $5000 = $21000.

Question 5

If a bank has excess reserves of $4000 and demand deposit liabilities of $100,000, and if the reserve requirement is 15 percent, then the bank has actual reserves of ________.

Accepted Answer

Actual reserves = Excess reserves + Required reserves
Required reserves = Demand deposit liabilities * reserve requirement
Required reserves = $100,000 * 0.15 = $15,000
Actual reserves = $4,000 + $15,000 = $19,000

Question 6

If a bank has excess reserves of $20000 and demand deposit liabilities of $80000, 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 7

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 money supply through the money multiplier effect. The nonborrowed monetary base consists of the currency in circulation plus reserves that depository institutions hold at the Fed. When the nonborrowed base increases, banks have more reserves to lend out, which in turn leads to an increase in the money supply.

Question 8

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,...

Question 9

If a bank has excess reserves of $7000 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. Since it has excess reserves of $7,000, its actual reserves are the sum of its required reserves and excess reserves, which is $10,000 + $7,000 = $17,000.

Question 10

If a bank has excess reserves of $4000 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 11

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

Accepted Answer

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

Question 12

A bank has excess reserves of $4000 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

Current required reserves = $100,000 x 20% = $20,000
Current excess reserves = $4,000
Current total reserves = $20,000 + $4,000 = $24,000

New required reserves = $100,000 x 25% = $25,000
New excess reserves = $24,000 - ($25,000 - $20,000) = $19,000 - $5,000 = $14,000

Therefore, the bank's excess reserves will decrease by $1000 ($14,000 - $15,000 = $1000) if the reserve ratio is increased from 20% to 25%. Answer B is correct as it represents the decrease of $1000.

Question 13

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 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 $15000 and demand deposit liabilities of $80000, 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 16

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 17

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 18

A bank has excess reserves of $1000 and demand deposit liabilities of $80000 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

The answer of A bank has excess reserves of $1000...

Question 19

A bank has excess reserves of $1000 and demand deposit liabilities of $80000 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%, the bank needs to hold $20,000 (25% of $80,000) in reserves. Since it has excess reserves of $1,000, its total reserves are $21,000. When the reserve requirement is lowered to 20%, it needs to hold only $16,000 (20% of $80,000) in reserves. Therefore, its excess reserves increase to $5,000 ($21,000 total reserves - $16,000 required reserves).

Question 20

A bank has excess reserves of $10000 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

Quiz 15: The Money Supply Process

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.

A bank has excess reserves of $6000 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 ________.

If a bank has excess reserves of $7000 and demand deposit liabilities of $100,000, and if the reserve requirement is 15 percent, then the bank has actual reserves of ________.

If a bank has excess reserves of $5000 and demand deposit liabilities of $80000, and if the reserve requirement is 20 percent, then the bank has actual reserves of ________.

If a bank has excess reserves of $4000 and demand deposit liabilities of $100,000, and if the reserve requirement is 15 percent, then the bank has actual reserves of ________.

If a bank has excess reserves of $20000 and demand deposit liabilities of $80000, and if the reserve requirement is 20 percent, then the bank has total reserves of ________.

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

If a bank has excess reserves of $7000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then the bank has actual reserves of ________.

If a bank has excess reserves of $4000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then the bank has actual reserves of ________.

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

A bank has excess reserves of $4000 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 ________.

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 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 $15000 and demand deposit liabilities of $80000, and if the reserve requirement is 20 percent, then the bank has total reserves of ________.

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.

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

A bank has excess reserves of $1000 and demand deposit liabilities of $80000 when the reserve requirement is 20 percent. If the reserve requirement is lowered to 10 percent, the bank's excess reserves will be ________.

A bank has excess reserves of $1000 and demand deposit liabilities of $80000 when the reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent, the bank's excess reserves will be ________.

A bank has excess reserves of $10000 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 ________.