Question 1

The relationship between advances to banks, the nonborrowed monetary base, and the monetary base is ________.

Accepted Answer

The monetary base (MB) is the sum of the nonborrowed monetary base (MBₙ) and borrowed reserves (BR), so the correct relationship is BR = MB - MBₙ.

Question 2

If the desired reserve ratio is one-third, currency in circulation is $300 billion, and chequable deposits are $900 billion, then the currency ratio is ________.

Accepted Answer

The answer of If the desired reserve ratio is one-third,...

Question 3

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $1000 billion, and excess reserves total $1 billion, then the currency ratio is ________.

Accepted Answer

To calculate the currency ratio, we first need to determine the required reserves.

Required reserves = (currency in circulation + chequable deposits) x desired reserve ratio 
Required reserves = ($400 billion + $1000 billion) x 0.10 
Required reserves = $140 billion

We can then calculate the actual reserves by adding excess reserves to required reserves:

Actual reserves = required reserves + excess reserves 
Actual reserves = $140 billion + $1 billion 
Actual reserves = $141 billion

Finally, we can calculate the currency ratio by dividing currency in circulation by actual reserves:

Currency ratio = currency in circulation / actual reserves 
Currency ratio = $400 billion / $141 billion 
Currency ratio = 2.84

However, the currency ratio is typically expressed as a percentage, so we need to multiply by 100:

Currency ratio = 2.84 x 100 
Currency ratio = 284%

But since the answer choices are given in decimal form, we need to divide the currency ratio by 100:

Currency ratio = 284% / 100 
Currency ratio = 2.84

Rounding to the nearest whole number, we get a currency ratio of 3. Therefore, the best choice is C) 40, as it is the closest answer choice in decimal form to 0.40.

Question 4

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $1000 billion, and excess reserves total $1 billion, then the monetary base is ________.

Accepted Answer

The monetary base is the sum of currency in circulation and the reserves (both required and excess) held by banks. With a desired reserve ratio of 10%, the required reserves for $1000 billion in chequable deposits would be $100 billion (10% of $1000 billion). Given that excess reserves are $1 billion, total reserves are $101 billion. Adding this to the $400 billion in currency gives a monetary base of $501 billion.

Question 5

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $800 billion, and excess reserves total $0.8 billion, then the excess reserves-chequable deposit ratio is ________.

Accepted Answer

The excess reserves-chequable deposit ratio is calculated by dividing the excess reserves by the chequable deposits. Here, excess reserves are $0.8 billion and chequable deposits are $800 billion. Therefore, the ratio is $0.8 billion / $800 billion = 0.001.

Question 6

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, and chequable deposits are $1000 billion, then the money multiplier is approximately ________.

Accepted Answer

The reserve ratio is given as 10%, which means that banks must keep 10% of their deposits as reserves and can lend out the rest. The currency in circulation is not relevant to calculating the money multiplier.

The money multiplier formula is: 
Money multiplier = 1 / reserve ratio

So, in this case, the reserve ratio is 0.1 (10% expressed as a decimal), so the money multiplier is: 
Money multiplier = 1 / 0.1 = 10

Therefore, the total money supply would be:
Total money supply = Money multiplier x currency in circulation
Total money supply = 10 x $400 billion = $4000 billion

Chequable deposits are also given, but they are not needed to calculate the money multiplier.

Question 7

If the desired reserve ratio is one-third, currency in circulation is $300 billion, and chequable deposits are $900 billion, then the level of excess reserves in the banking system is ________.

Accepted Answer

With a desired reserve ratio of one-third, banks need to hold $300 billion in reserves (one-third of $900 billion in chequable deposits). Since currency in circulation does not count towards bank reserves, the entire $300 billion in reserves must come from the deposits themselves. Therefore, there are no excess reserves, as the banks are holding exactly the amount required by the reserve ratio.

Question 8

If the desired reserve ratio is five percent, currency in circulation is $400 billion, and chequable deposits are $800 billion, then the money multiplier is approximately ________.

Accepted Answer

The money multiplier is calculated as 1/reserve ratio. Therefore, the money multiplier is 1/0.05 = 20. Using this multiplier, the total money supply can be calculated as (currency in circulation) + (chequable deposits) x money multiplier. Substituting the values, total money supply is $400 billion + $800 billion x 20 = $16.4 trillion. Finally, the money multiplier can be calculated as (total money supply) / (currency in circulation), which is $16.4 trillion / $400 billion = 2.72.

Question 9

If the desired reserve ratio is one-third, currency in circulation is $300 billion, and chequable deposits are $900 billion, then the money multiplier is approximately ________.

Accepted Answer

The answer of If the desired reserve ratio is one-third,...

Question 10

When the nonborrowed monetary base is equal to $200 billion, the borrowed reserves are equal to $100 billion, and the money supply is equal to $700 billion, the money multiplier is ________.

Accepted Answer

The answer of When the nonborrowed monetary base is equal...

Question 11

If the desired reserve ratio is one-third, currency in circulation is $300 billion, and chequable deposits are $900 billion, then the monetary base is ________.

Accepted Answer

Monetary base = Currency in circulation + Reserve held by banks with the central bank
Reserve held by banks with the central bank = Required reserves = Required reserve ratio * Chequable deposits
In this case, the required reserve ratio is one-third, so the required reserves = (1/3) * $900 billion = $300 billion
Therefore, monetary base = $300 billion (currency in circulation) + $300 billion (required reserves) = $600 billion.

Question 12

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $1000 billion, and excess reserves total $1 billion, then the excess reserves-chequable deposit ratio is ________.

Accepted Answer

The excess reserves-chequable deposit ratio is calculated by dividing the excess reserves by the chequable deposits. In this case, it is $1 billion / $1000 billion = 0.001.

Question 13

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, and chequable deposits are $800 billion, then the money multiplier is approximately ________.

Accepted Answer

The answer of If the desired reserve ratio is ten...

Question 14

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $800 billion, and excess reserves total $0.8 billion, then the currency ratio is ________.

Accepted Answer

The currency ratio is calculated as the currency in circulation divided by the chequable deposits. Given the currency in circulation is $400 billion and chequable deposits are $800 billion, the currency ratio is $400 billion / $800 billion = 0.5.

Question 15

If the desired reserve ratio is fifteen percent, currency in circulation is $400 billion, and chequable deposits are $800 billion, then the money multiplier is approximately ________.

Accepted Answer

The required reserve ratio is 15%, which means that banks are required to hold 15% of their deposits as reserves. The rest can be loaned out.
The currency in circulation is not relevant to the calculation of the money multiplier.
The total deposits are the sum of the currency in circulation and the chequable deposits, which is $1.2 trillion.
To calculate the money multiplier, we use the formula:
Money multiplier = 1 / Required reserve ratio
Money multiplier = 1 / 0.15
Money multiplier = 6.67
This means that for every dollar held in reserve, banks can create $6.67 in deposits.
However, we need to adjust for the fact that banks hold some reserves voluntarily, in addition to the required reserves. Let's assume that banks hold an additional 5% in reserves (known as excess reserves). This means that they only loan out the remaining 95% of their deposits.
Money multiplier = 1 / (0.15 x 0.95)
Money multiplier = 1 / 0.1425
Money multiplier = 7.02
Therefore, the money multiplier is approximately 2.3.

Question 16

If the desired reserve ratio is fifteen percent, currency in circulation is $400 billion, and chequable deposits are $1000 billion, then the money multiplier is approximately ________.

Accepted Answer

The answer of If the desired reserve ratio is fifteen...

Question 17

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is ________.

Accepted Answer

The monetary base is composed of currency in circulation and reserves held by banks. The formula for the monetary base is as follows:

Monetary Base = Currency in Circulation + Reserves

To calculate reserves, we first need to calculate required reserves:

Required Reserves = Chequable Deposits x Desired Reserve Ratio
Required Reserves = $800 billion x 0.10 
Required Reserves = $80 billion

Excess Reserves = Reserves - Required Reserves 
$0.8 billion = Reserves - $80 billion 
Reserves = $80.8 billion

Now, we can calculate the monetary base:

Monetary Base = Currency in Circulation + Reserves 
Monetary Base = $400 billion + $80.8 billion 
Monetary Base = $480.8 billion

Therefore, the correct answer is B.

Question 18

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $1000 billion, and excess reserves total $1 billion, then the money supply is ________.

Accepted Answer

First, we need to calculate the required reserve amount: 
Required Reserves = Chequable deposits x Desired reserve ratio 
Required Reserves = $1000 billion x 0.10 
Required Reserves = $100 billion

Then, we can use the money multiplier formula to calculate the money supply: 
Money Multiplier = 1/Required reserve ratio 
Money Multiplier = 1/0.10 
Money Multiplier = 10

Money Supply = Currency in circulation + Chequable deposits 
Money Supply = $400 billion + $1000 billion 
Money Supply = $1400 billion

Finally, we need to check if there are any excess reserves: 
Excess Reserves = Total Reserves - Required Reserves 
Excess Reserves = ($1 billion + $100 billion) - $100 billion 
Excess Reserves = $1 billion

Since there are excess reserves, we know that banks are not lending out all of their available funds. Therefore, the money supply is $1400 billion.

Question 19

If the desired reserve ratio is one-third, currency in circulation is $300 billion, and chequable deposits are $900 billion, then the money supply is ________.

Accepted Answer

The required reserves can be calculated as 1/3 of $900 billion, which equals $300 billion. The excess reserves is therefore $600 billion ($900 billion - $300 billion). The money supply equals currency in circulation plus chequable deposits, which totals $1200 billion ($300 billion + $900 billion).

Question 20

Recognizing the distinction between advances to banks and the nonborrowed monetary base, the money supply model is specified as ________.

Accepted Answer

The answer of Recognizing the distinction between advances to banks...

Quiz 15: The Money Supply Process