Deck 21: Money, Banks, and the Central Bank

Question 1

The Sudanese people lost confidence in the Sudanese pound and as a result

A) economic activity was severely limited.
B) the economy was plagued by double digit inflation.
C) economic activity became over -stimulated.
D) the economy suffered a bout of stagflation.

Answer 1

economic activity was severely limited.

Question 2

The statement, "My iPhone is worth $500" represents money's function as

A) a medium of exchange.
B) a standard of deferred payment.
C) a unit of account.
D) a store of value.

Answer 2

a unit of account.

Question 3

After the fall of the Saddam Hussein government of Iraq, the Iraqi dinar

A) rose significantly in value against the U.S dollar.
B) collapsed in value against the U.S. dollar.
C) ceased to circulate as currency.
D) fell by about one fourth in value against the U.S. dollar.

Answer 3

rose significantly in value against the U.S dollar.

Question 4

-Refer to Scenario 21 -1. M1 in this simple economy equals

A) $8,000.
B) $1,000.
C) $3,000.
D) $2,000.

Question 5

-Refer to Scenario 21 -1. M2 in this simple economy equals

A) $3,000.
B) $21,000.
C) $14,000.
D) $8,000.

Question 6

Which of the following statements is NOT correct?

A) National income should be equal to the country's money supply.
B) A person's wealth is equal to the value of their assets minus the value of any debts.
C) A person's money is equal to what he or she has in currency and in checking accounts.
D) A person's income is equal to his or her earnings during the year.

Question 7

Scenario 21-2:Imagine that Huda deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%

-Refer to Scenario 21 -2. As a result of Huda's deposit, Bank A's reserves immediately increase by

A) $50,000.
B) $10,000.
C) $2,000.
D) $8,000.

Question 8

Scenario 21-2:Imagine that Huda deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%

-Refer to Scenario 21 -2. As a result of Huda's deposit, Bank A's required reserves increase by

A) $50,000.
B) $8,000.
C) $10,000.
D) $2,000.

Question 9

Scenario 21-2:Imagine that Huda deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%

-Refer to Scenario 21 -2. As a result of Huda's deposit, Bank A's excess reserves increase by

A) $8,000.
B) $10,000.
C) $2,000.
D) $50,000.

Question 10

Scenario 21-2:Imagine that Huda deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%

-Refer to Scenario 21 -2. As a result of Huda's deposit, Bank A can make a maximum loan of

A) $50,000.
B) $2,000.
C) $8,000.
D) $10,000.

Question 11

Suppose you deposit $4,000 in currency into your checking account at Bank of America. Assume that Bank of America has no excess reserves at the time you make your deposit and that the required reserve ratio is 10 percent.
a. Use a T-account to show the initial effect of this transaction on Bank of America's balance sheet.
b. Suppose that Bank of America makes the maximum loan they can from the funds you deposited. Use a T-account to show the initial effect on Bank of America's balance sheet from granting the loan. Also include in this T-account the transaction from question (a.).
c. Now suppose that whoever took out the loan in question (b) writes a check for this amount and that the person receiving the check deposits it in Bank of Boston. Show the effect of these transactions on the balance sheet of Bank of America and Bank of Boston, after the check has been cleared. On the T-account for Bank of America, include the transactions from questions (a) and (b).
d. What is the maximum increase in checking account deposits that can result from your $4,000 deposit? What is the maximum increase in the money supply? Explain.

Question 12

Suppose the Central Bank purchases $10,000 of Treasury bonds from you and that you deposit the $10,000 into your checking account deposit at Bank Y. Assume that Bank Y has no excess reserves at the time you make your deposit and that the required reserve ratio is 20 percent.
a. Use a T-account to show the initial effect of this transaction on Bank Y's balance sheet.
b. Suppose that Bank Y makes the maximum loan they can from the funds you deposited. Use a T-account to show the initial effect on Bank Y's balance sheet from granting the loan. Also include in this T-account the transaction from question (a).
c. Now suppose that whoever took out the loan in question (b) writes a check for this amount and that the person receiving the check deposits it in Bank Z. Show the effect of these transactions on the balance sheet of Bank Y and Bank Z, after the check has been cleared. On the T-account for Bank Y, include the transactions from questions (a) and (b).
d. What is the maximum increase in checking account deposits that can result from your $10,000 deposit? What is the maximum increase in the money supply? Explain

Question 13

Which of the following was a key reason why Kuwait's banks reluctant to lend in 2010?

A) The bank had increased its discount rate.
B) Financial assets were appreciating.
C) Bank liquidity was low.
D) There was a high risk of default in the private sector.