Question 1

The required reserve ratio is 20 percent and banks have no excess reserves. Katie deposits $300 in her bank. What are the bank's excess reserves immediately after Katie makes her deposit?
A)$30
B)$90
C)$240
D)$60
E)$300

Accepted Answer

Required reserve = 20% of $300 = $60
The remaining $240 are the bank's excess reserves.

Question 2

A bank has deposits of $400, reserves of $50, and the desired reserve ratio is 7 percent. The bank's excess reserves are
A)$0.
B)$22.
C)$28.
D)$3.50
E)$50.

Accepted Answer

The answer of A bank has deposits of $400, reserves...

Question 3

When the Fed buys government securities, the immediate effect of the purchase is that banks'
A)reserves increase.
B)deposits increase.
C)assets increase.
D)reserves decrease.
E)loans decrease.

Accepted Answer

When the Fed buys government securities, it pays for them by crediting the account of the selling bank with reserves. Therefore, the immediate effect of the purchase is that banks' reserves increase.

Question 4

The desired reserve ratio is 10 percent. Joe deposits $1,000 in Bank A. Bank A keeps its minimum desired reserves and lends the excess to Fred. Fred spends his loan at J.C. Penney. J.C. Penney deposits the check it receives from Fred in Bank B. Bank B keeps its minimum desired reserves and lends the excess to Mary. How much can Bank B lend to Mary?
A)$900
B)$90
C)$810
D)$100
E)$1,000

Accepted Answer

Bank A is required to keep $100 ($1,000 x 10%) in reserves and can lend out $900 to Fred.
Fred spends the entire $900 at J.C. Penney, so J.C. Penney deposits it in Bank B.
Bank B is required to keep $90 ($900 x 10%) in reserves and can lend out $810 to Mary. Therefore, the answer is $810.

Question 5

The desired reserve ratio is 3 percent. Robert deposits $3,000 in Bank America. Bank America keeps its minimum desired reserves and lends the excess to Fredrica. How much does Bank America lend to Fredrica?
A)$3,000
B)$2,910
C)$300
D)$2700
E)$900

Accepted Answer

The answer of The desired reserve ratio is 3 percent....

Question 6

Open market operations are defined as
A)a bank borrowing from the Fed.
B)the buying and selling of securities by the Fed.
C)the buying and selling of securities between banks.
D)the amount banks can lend on each deposit.
E)a bank making a loan to the Fed.

Accepted Answer

Open market operations refer to the buying and selling of securities, typically government bonds, by the central bank, such as the Federal Reserve in the United States. The purpose of these operations is to influence the money supply, interest rates, and overall economic activity. The Fed buys securities to inject money into the economy and sell securities to take money out of the economy.

Question 7

When the Fed buys or sells securities, it is conducting ________ operation.
A)a government debt
B)an open market
C)a money multiplier
D)a deposit
E)a currency

Accepted Answer

When the Fed buys or sells securities, it is conducting an open market operation. This involves the buying and selling of government securities in the open market in order to influence the supply of money and credit in the economy. These operations are a key tool used by the Fed to implement monetary policy.

Question 8

Assume the desired reserve ratio is 10 percent, banks loan all excess reserves and the currency drain is zero. If the Fed sells $100 million of U.S. government securities to Boise Bank, the monetary base increases by
A)$1 million.
B)$10 million.
C)$100 million.
D)$1,000 million.
E)$90 million.

Accepted Answer

When the Fed sells $100 million of U.S. government securities to Boise Bank, the monetary base would increase by the same amount, which is $100 million. This is because the monetary base is equal to the sum of currency in circulation and reserves held by banks, and when the Fed sells securities, reserves held by banks decrease while currency in circulation does not change, resulting in a net increase in the monetary base. Since the desired reserve ratio is 10 percent, banks would have to hold $10 million of the $100 million as reserves, leaving $90 million as excess reserves. If banks loan all excess reserves and the currency drain is zero, the money multiplier would be 1/required reserve ratio, which is 1/0.1 or 10. Therefore, the initial increase in the monetary base of $100 million would eventually result in a $1 billion increase in the money supply (10 x $90 million).

Question 9

Whenever somebody deposits a check from bank A into a checkable deposit at bank B, bank A's reserves ________ and bank B's reserves ________.
A)increase; decrease
B)increase; increase
C)decrease; decrease
D)decrease; increase
E)do not change; do not change

Accepted Answer

When a check is deposited from bank A into a checkable deposit at bank B, bank A's reserves decrease because it loses the amount of the check from its reserves. On the other hand, bank B's reserves increase because it now has the funds from the check in its reserves.

Question 10

When the Fed buys $100 million of securities from a commercial bank the
A)monetary base increases.
B)money supply decreases.
C)bank's reserves decrease.
D)required reserve ratio decreases.
E)bank is risking its depositors' money.

Accepted Answer

When the Fed buys securities from a commercial bank, it is essentially creating new reserves for the bank, which increases the monetary base of the economy. This increase in reserves also enables the bank to lend out more money, which can ultimately lead to an increase in the money supply, but the immediate impact is an increase in the monetary base. The other choices are not directly impacted by the Fed's purchase of securities from a bank.

Question 11

The desired reserve ratio is 10 percent and banks have no excess reserves. Juliet deposits $300 in her bank. What is the maximum that Juliet's bank can now loan?
A)$3,000
B)$270
C)$30
D)$330
E)$300

Accepted Answer

The answer of The desired reserve ratio is 10 percent...

Question 12

If the reserve requirement is 20 percent and the Fed buys $10,000 worth of Treasury bonds, what is the change in the banks' total reserves?
A)$2,000
B)$10,000
C)$20,000
D)$50,000
E)100,000

Accepted Answer

If the reserve requirement is 20%, for every $10,000 of deposits the bank must hold $2,000 in reserve. When the Fed buys $10,000 worth of Treasury bonds, the bank receives $10,000 in exchange, which is new reserves for the bank. Since the reserve requirement ratio is 20%, banks can lend out $8,000 of the new reserves and have to hold $2,000 as required reserves. Therefore, the change in the banks' total reserves is $10,000.

Question 13

If Jose deposits $2,000 in his bank and the desired reserve ratio is 10 percent, what is the amount of new loans that the bank can make?
A)$2,000
B)$200
C)$1,800
D)$1,900
E)$2,200

Accepted Answer

The bank is required to keep 10% of the deposit as a reserve, leaving $1,800 available to make new loans.

Question 14

When the Fed buys securities from the public, banks' reserves ________ and the quantity of money ________.
A)increase; increases
B)increase; decreases
C)decrease; increases
D)decrease; decreases
E)do not change; increases

Accepted Answer

When the Fed buys securities from the public, banks' reserves increase as they receive payment for the securities. This increase in reserves allows banks to make more loans, leading to an increase in the quantity of money in circulation.

Question 15

The Commerce Bank of Beverly Hills has total deposits of $1,000,000 and total reserves of $220,000. The desired reserve ratio is 10 percent. The bank's excess reserves are
A)$22,000.
B)$120,000.
C)$100,000.
D)$80,000.
E)$1,000,000.

Accepted Answer

The required reserves for the bank are 10% of $1,000,000, which is $100,000. The bank has $220,000 in reserves, so its excess reserves are $220,000 - $100,000 = $120,000. Therefore, the best choice is B.

Question 16

Suppose the desired reserve ratio is 10 percent. If the Commerce Bank has total deposits of $20,000, total assets of $10,000, and actual reserves of $8000, the amount of excess reserves is
A)$2,000.
B)$6,000.
C)$800.
D)$100.
E)$0.

Accepted Answer

The required reserves for Commerce Bank are 10 percent of its total deposits, which is $2,000 ($20,000 × 0.1 = $2,000). The actual reserves is given as $8,000, which is higher than the required reserves of $2,000. Therefore, the excess reserves can be calculated by subtracting the required reserves from the actual reserves: $8,000 − $2,000 = $6,000.

Question 17

When the Fed ________, the quantity of banks' reserves decreases.
A)hikes taxes
B)buys government securities
C)sells government securities
D)lowers the required reserve ratio
E)raises the required reserve ratio

Accepted Answer

When the Fed sells government securities, it decreases the quantity of banks' reserves because banks use those reserves to purchase government securities. As the Fed sells the securities, banks pay for them with their reserves, which decreases the overall quantity of reserves.

Question 18

Suppose a bank has $1,000 in deposits and $100 in reserves. If the desired reserve ratio is 5 percent, how much can this bank increase its loans?
A)$0
B)$400
C)$80
D)$50
E)$100

Accepted Answer

The answer of Suppose a bank has $1,000 in deposits...

Question 19

If the Fed makes an open market purchase of $1 million of government securities, the monetary base
A)is decreased by $1 million.
B)is unchanged in size, though its composition changes.
C)is increased by $1 million.
D)will decrease by a multiple of $1 million over time.
E)will increase by a multiple of $1 million over time.

Accepted Answer

When the Fed makes an open market purchase of $1 million of government securities, it increases the reserves of the bank that sells the securities to the Fed. This increase in reserves can then be used by the bank to make loans, which ultimately increases the money supply. Therefore, the monetary base increases by $1 million.

Question 20

A bank has deposits of $100,000, reserves of $20,000, and loans of $80,000. If the desired reserve ratio is 10 percent, then its excess reserves are
A)0.
B)$8,000.
C)$10,000.
D)$2,000.
E)$12,000.

Accepted Answer

The desired reserve ratio is 10%, therefore the bank should hold $10,000 (10% of $100,000) in reserves. Currently the bank has $20,000 in reserves, which means its excess reserves are $20,000 - $10,000 = $10,000. Therefore, the answer is (C) $10,000.

Quiz 18: Money and the Monetary System

The required reserve ratio is 20 percent and banks have no excess reserves. Katie deposits $300 in her bank. What are the bank's excess reserves immediately after Katie makes her deposit?

A bank has deposits of $400, reserves of $50, and the desired reserve ratio is 7 percent. The bank's excess reserves are

When the Fed buys government securities, the immediate effect of the purchase is that banks'

The desired reserve ratio is 3 percent. Robert deposits $3,000 in Bank America. Bank America keeps its minimum desired reserves and lends the excess to Fredrica. How much does Bank America lend to Fredrica?

Open market operations are defined as

When the Fed buys or sells securities, it is conducting ________ operation.

Assume the desired reserve ratio is 10 percent, banks loan all excess reserves and the currency drain is zero. If the Fed sells $100 million of U.S. government securities to Boise Bank, the monetary base increases by

Whenever somebody deposits a check from bank A into a checkable deposit at bank B, bank A's reserves and bank B's reserves .

When the Fed buys $100 million of securities from a commercial bank the

The desired reserve ratio is 10 percent and banks have no excess reserves. Juliet deposits $300 in her bank. What is the maximum that Juliet's bank can now loan?

If the reserve requirement is 20 percent and the Fed buys $10,000 worth of Treasury bonds, what is the change in the banks' total reserves?

If Jose deposits $2,000 in his bank and the desired reserve ratio is 10 percent, what is the amount of new loans that the bank can make?

When the Fed buys securities from the public, banks' reserves and the quantity of money .

The Commerce Bank of Beverly Hills has total deposits of $1,000,000 and total reserves of $220,000. The desired reserve ratio is 10 percent. The bank's excess reserves are

Suppose the desired reserve ratio is 10 percent. If the Commerce Bank has total deposits of $20,000, total assets of $10,000, and actual reserves of $8000, the amount of excess reserves is

When the Fed ________, the quantity of banks' reserves decreases.

Suppose a bank has $1,000 in deposits and $100 in reserves. If the desired reserve ratio is 5 percent, how much can this bank increase its loans?

If the Fed makes an open market purchase of $1 million of government securities, the monetary base

A bank has deposits of $100,000, reserves of $20,000, and loans of $80,000. If the desired reserve ratio is 10 percent, then its excess reserves are