85) The Fed buys $25,000 of government securities. The desired reserve ratio is 20 percent
and the currency drain ratio is zero. What will be the change in the quantity of money?
A) $5,000
B) $20,000
C) $25,000
D) $125,000
E) $50,000
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
86) If the desired reserve ratio is 10 percent and there is no currency drain, then a $100
increase in the monetary base leads the banking system to increase the quantity of money
by
A) $1,000.
B) $400.
C) $900.
D) $110.
E) $1,100.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
87) Suppose the desired reserve ratio is 20 percent and there is no currency drain. Then a
$1 increase in the monetary base leads to the banking system to increase the quantity of
money by
A) $0.02.
B) $4.
C) $5.
D) $20.
E) $2.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
91
88) Suppose the desired reserve ratio is 10 percent and there is no currency drain. Then a
$200 increase in the monetary base results in the banking system increasing the quantity
of money by
A) $200.
B) $2,000.
C) $20.
D) $10.
E) $2,190.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
89) If the required reserve ratio is 15 percent, there is no currency drain, and banks loan
all of their excess reserves, an increase in the monetary base of $20,000 leads to a total
increase in the quantity of money of
A) $3,000.
B) $20,000.
C) $133,333.
D) $200,000.
E) $300,000.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
90) The Fed conducts an open market purchase of securities of $5,000. If the currency
drain ratio is 0 percent and the desired reserve ratio is 10 percent, then the total increase
in the quantity of money is
A) $5,000.
B) $20,000.
C) $50,000.
D) $10,000.
E) $4,000.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
92
91) Suppose the Fed sells $100 of government securities. If the desired reserve ratio is 20
percent and there is no currency drain, then the quantity of money
A) decreases by $100.
B) decreases by $500.
C) decreases by $400.
D) increases by $100.
E) decreases by $80.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
92) The Fed buys $20,000 of government securities. The desired reserve ratio is 5 percent
and the currency drain ratio is zero. What will be the change in the quantity of money?
A) $20,000
B) $400,000
C) $399,980
D) $19,000
E) $5,000
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
93) If the Fed buys $10 million of government securities when the desired reserve ratio is
20 percent and the currency drain ratio is 5 percent, the quantity of money
A) increases by $42 million.
B) increases by $50 million.
C) decreases by $42 million.
D) decreases by $50 million.
E) increases by $7.5 million.
Skill: Level 5: Critical thinking
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
93
94) Which of the following reduces the money multiplier?
A) Banks loan all their excess reserves.
B) Bank customers hold some of the loan proceeds as currency outside the banking system.
C) The Fed reduces the required reserve ratio.
D) Banks impose a currency drain on bank customers.
E) The Fed sells U.S. government securities.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
95) The quantity of money decreases if
A) the currency drain ratio increases.
B) the desired reserve ratio decreases.
C) banks loan all excess reserves.
D) the Treasury Department issues fewer government securities.
E) the Fed buys U.S. government securities.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
96) ________ in the currency drain ratio and ________ in the desired reserve ratio ________ the
money multiplier.
A) An increase; an increase; increase
B) An increase; a decrease; decrease
C) A decrease; an increase; decrease
D) A decrease; a decrease; increase
E) An increase; a decrease; increase
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
94
97) An increase in the currency drain ratio ________.
A) increases the size of the money multiplier
B) decreases the size of the money multiplier
C) increases the deposits in all banks
D) decreases the size of the monetary base
E) increases the size of the monetary base
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
98) An increase in the currency drain ratio
A) decreases the size of the money multiplier.
B) increases the size of the money multiplier.
C) increases the money supply.
D) decreases the required reserve ratio.
E) increases the desired reserve ratio.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
99) If there is an increase in the amount of currency held outside banks, then the
A) monetary base will decrease.
B) quantity of money will increase.
C) quantity of money and the monetary base will decrease.
D) quantity of money will decrease.
E) quantity of money will not change.
Skill: Level 1: Deinition
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
95
100) An increase in the currency drain ratio
A) decreases the monetary base.
B) increases the quantity of money.
C) increases bank reserves.
D) does not change the amount of the monetary base.
E) does not change the quantity of money.
Skill: Level 1: Deinition
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
101) An increase in the currency drain ratio
A) decreases the quantity of money.
B) decreases the monetary base.
C) increases banks’ reserves.
D) increases banks’ deposits.
E) has no efect on the amount of the monetary base or the quantity of money.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
102) ________ increases the size of the money multiplier.
A) An increase in the currency drain ratio
B) An open market purchase of government securities by the Fed
C) A reduction in the desired reserve ratio
D) An open market sale of government securities by the Fed
E) An increase in the size of open market operations
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
96
103) If the monetary base does not change and the desired reserve ratio increases, the
money multiplier ________ and the quantity of money ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) decreases; does not change
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
104) The ________ the desired reserve ratio, the ________ the ________ in the quantity of
money created from an initial increase of $100,000 in the monetary base.
A) larger; larger; decrease
B) larger; larger; increase
C) larger; smaller; decrease
D) smaller; larger; decrease
E) smaller; larger; increase
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
105) When part of a bank loan does not return to the banking system but rather remains
outside the banking system as currency, then the money multiplier ________ in size and the
amount of money created by an open market operation ________.
A) increases; decreases
B) does not change; increases
C) decreases; decreases
D) increases; increases
E) decreases; does not change
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
97
106) Decisions of ________ determine the magnitude of the monetary multiplier.
A) only the Fed
B) only the public
C) both the Fed and the public
D) neither the Fed nor the public
E) the Fed and the U.S. Congress
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
107) As a result of the Fed’s actions during the 2008 inancial crisis and banks’ lending
policies,
A) the M2 money multiplier has fallen from about 9 to about 4.
B) the M2 money multiplier more than doubled.
C) the monetary base decreased by 50 percent.
D) the ratio of currency to M2 deposits more than doubled.
E) the reserve requirement ratio increased.
Skill: Level 4: Applying models
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
108) As a result of the Fed’s actions during the 2008 inancial crisis and banks’ lending
policies, the money multiplier ________ as a direct result of the ________.
A) fell from about 9 to about 4; surge in banks’ desired reserve ratios as they took on less
risk
B) rose from about 4 to about 9; surge in banks’ desired reserve ratios as they took on less
risk
C) fell from about 9 to about 4; low risk experienced by banks because of the FDIC
increasing their default coverage amounts
D) rose drastically; consistent decrease in banks’ desired reserve ratios as they took on less
risk
E) decreased drastically; consistent decrease in banks’ desired reserve ratios as they took
on less risk
Skill: Level 4: Applying models
Section: Checkpoint 11.4
Status: New
AACSB: Relective thinking
98
109) As of 2013, the U.S. monetary base has ________ its 2007 level, the level held before
the 2008 inancial crisis, as a direct result of ________.
A) quadrupled; the Fed’s actions with quantitative easing
B) doubled; the Fed’s actions with quantitative easing
C) tripled; the Fed’s actions with quantitative easing
D) quadrupled; the Fed’s actions and the resulting reduction of the money multiplier
E) tripled; the Fed’s actions and the resulting reduction of the currency drain
Skill: Level 4: Applying models
Section: Checkpoint 11.4
Status: New
AACSB: Relective thinking
110) The M2 multiplier in the United States is currently about
A) 1.
B) 4.
C) 16.
D) 50.
E) 23.
Skill: Level 1: Deinition
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
111) During the 2008 inancial crisis, banks restricted ________, and the M2 money
multiplier ________.
A) lending; decreased
B) lending; increased
C) deposits; increased
D) buying securities; increased
E) deposits; decreased
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
99
112) Excess reserves are the
A) same as the required reserves.
B) amount of reserves the Fed requires banks to hold.
C) amount of reserves held over what is desired.
D) amount of reserves a bank holds at the Fed.
E) amount of reserves banks keep in their vaults.
Skill: Level 1: Deinition
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
113) Banks can make loans up to an amount equal to their
A) total deposits.
B) total reserves.
C) required reserves.
D) excess reserves.
E) total government securities.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
114) If the Fed buys government securities, then
A) the quantity of money is not changed, just its composition.
B) new bank reserves are created.
C) the quantity of money decreases.
D) bank reserves are destroyed.
E) banks’ excess reserves decrease.
Skill: Level 1: Deinition
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
100