Question 1

Which of the following equations is correct?

Accepted Answer

The equation B = B_non + BR is correct as it represents a typical form where B is the sum of its non-renewable component (B_non) and its renewable component (BR).

Question 2

During the Financial Crisis of 2007-2009,banks significantly increased their holdings of excess reserves.What impact did this have on the money multiplier? How would the Fed change the monetary base if it wanted to maintain a stable money supply?

Accepted Answer

The answer of During the Financial Crisis of 2007-2009,banks significantly...

Question 3

The Fed has the greatest control over which of the following?

Accepted Answer

The nonborrowed monetary base is the portion of the monetary base that is not borrowed from the Federal Reserve by commercial banks. The Fed has direct control over the nonborrowed monetary base through open market operations, which involve buying and selling government securities in the open market to adjust the level of reserves in the banking system. In contrast, the money multiplier is determined by the behavior of banks and their customers, while discount loans and excess reserves are more influenced by the demand for loans and the desire of banks to hold precautionary reserves.

Question 4

If currency outstanding equals $500 million,checkable deposits equal $2 billion,reserves equal $200 million,and the required reserve ratio is 0.10,the money multiplier equals

Accepted Answer

The formula for the money multiplier is:

Money Multiplier = 1/required reserve ratio

So in this case, the required reserve ratio is 0.10 or 10%, therefore:

Money Multiplier = 1/0.10 = 10

Then, we can use this formula to calculate the maximum potential increase in checkable deposits:

Maximum Increase in Checkable Deposits = Money Multiplier x Change in Reserves

Change in Reserves = $200 million

Maximum Increase in Checkable Deposits = 10 x $200 million = $2 billion

Therefore, the total amount of checkable deposits that could be created is $2 billion. Adding the currency outstanding, we get:

Total money supply = Currency Outstanding + Checkable Deposits
Total money supply = $500 million + $2 billion = $2.5 billion

So, the money multiplier in this case is 10, which means that the total money supply is ten times larger than the amount of reserves held by banks. Therefore, the best choice is B, 3.57.

Question 5

Suppose the required reserve ratio is 10%,excess-to-deposit ratio is 10%,and the currency-to-deposit ratio is 20%.If the Fed buys $50 million worth of securities,what will happen to the money supply?

Accepted Answer

The answer of Suppose the required reserve ratio is 10%,excess-to-deposit...

Question 6

The size of the money multiplier depends upon all of the following EXCEPT

Accepted Answer

The size of the money multiplier depends upon the required reserve ratio, the currency-deposit ratio, and excess reserves relative to deposits. The discount rate, however, does not directly affect the size of the money multiplier.

Question 7

Which of the following equations is correct?

Accepted Answer

This equation is the only one that defines M as a function of terms related to B_non, which represents the inputs, and BR, which represents a bias term. The other equations do not have this specific input term or have additional terms not related to the inputs, indicating they may not accurately represent the relationship between M and the inputs.

Question 8

Suppose the required reserve ratio is 8%,excess reserve-to-deposit ratio is 2%,and the currency-to-deposit ratio is 10%.What is the value of the money multiplier?

Accepted Answer

The answer of Suppose the required reserve ratio is 8%,excess...

Question 9

Suppose the banking system holds no excess reserves.If the required reserve ratio is 0.10 and the money multiplier is 2.5,what is the value of the currency-deposit ratio?

Accepted Answer

The answer of Suppose the banking system holds no excess...

Quiz 14: The Federal Reserves Balance Sheet and the Money Supply Process

Which of the following equations is correct?

During the Financial Crisis of 2007-2009,banks significantly increased their holdings of excess reserves.What impact did this have on the money multiplier? How would the Fed change the monetary base if it wanted to maintain a stable money supply?

The Fed has the greatest control over which of the following?

If currency outstanding equals $500 million,checkable deposits equal $2 billion,reserves equal $200 million,and the required reserve ratio is 0.10,the money multiplier equals

Suppose the required reserve ratio is 10%,excess-to-deposit ratio is 10%,and the currency-to-deposit ratio is 20%.If the Fed buys $50 million worth of securities,what will happen to the money supply?

The size of the money multiplier depends upon all of the following EXCEPT

Which of the following equations is correct?

Suppose the required reserve ratio is 8%,excess reserve-to-deposit ratio is 2%,and the currency-to-deposit ratio is 10%.What is the value of the money multiplier?

Suppose the banking system holds no excess reserves.If the required reserve ratio is 0.10 and the money multiplier is 2.5,what is the value of the currency-deposit ratio?