25) 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
26) 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
27) 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
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
71
28) 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
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
29) 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
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
30) 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
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
72
31) 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
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
32) 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
Skill: Level 4: Applying models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
33) 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
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
73
34) 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
Skill: Level 1: Deinition
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
35) Open market operations are deined 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.
Skill: Level 1: Deinition
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
36) 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
74
37) 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
38) 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
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
39) 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
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
75
40) When the Fed buys government securities, the immediate efect of the purchase is that
banks’
A) reserves increase.
B) deposits increase.
C) assets increase.
D) reserves decrease.
E) loans decrease.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
41) 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.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
42) 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) $8,000
E) $100,000
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Revised
AACSB: Analytical thinking
76
43) When the Fed sells $100 million of securities to a commercial bank, the
A) monetary base increases.
B) money supply increases.
C) bank’s reserves decrease.
D) required reserve ratio decreases.
E) bank’s reserves do not change.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
44) When the Fed purchases government securities,
A) excess reserves in the banking system increase, leading to more loans being made.
B) required reserves in the banking system increase, leading to more loans being made.
C) excess reserves in the banking system decrease, leading to fewer loans being made.
D) required reserves in the banking system decrease, leading to fewer loans being made.
E) the monetary base does not change.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
45) When the Fed purchases government securities ________ loans end up being made
because ________.
A) more; excess reserves in the banking system increase
B) more; excess reserves in the banking system decrease
C) fewer; excess reserves in the banking system increase
D) fewer; excess reserves in the banking system decrease
E) fewer; required reserves in the banking system increase but desired reserves decrease
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: New
AACSB: Relective thinking
77
46) To increase the quantity of money in the economy, the Federal Reserve can
A) print more money and give it to the banks.
B) increase the required reserve ratio.
C) buy government bonds in an open market operation.
D) sell government bonds in an open market operation.
E) cut taxes.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
47) When the Fed ________ securities in an open market operation, banks’ reserves ________,
and therefore lending ________.
A) sells; increase; increases
B) buys; increase; increases
C) sells; decrease; increases
D) buys; decrease; decreases
E) buys; do not change; does not change
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
48) The Fed buys $100 million U.S. government securities from Bank of America. Bank of
America’s balance sheet shows this transaction as ________ in total assets and ________ in
reserves.
A) no change; a $100 million decrease
B) no change; a $100 million increase
C) a $100 million increase; no change
D) a $100 million increase; a $100 million increase
E) a $100 million decrease; a $100 million decrease
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
78
49) If the Fed purchases securities in the amount of $100,000 from First Union Bank, then
the
A) assets of First Union Bank decrease by $100,000.
B) assets of the Fed decrease by $100,000.
C) assets of First Union Bank change in composition but not in amount.
D) liabilities of the Fed change in composition but not in amount.
E) liabilities of First Union decrease by $100,000.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
50) The Fed purchases $100 million of U.S. government securities from First National
Bank. The balance sheet for First National Bank shows ________ in its total assets and
________ in its total liabilities.
A) a $100 million increase; a $100 million increase
B) a $100 million decrease; a $100 million increase
C) a $100 million increase; a $100 million decrease
D) no change; no change
E) a $100 million increase; no change
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
51) Suppose the Fed buys $1 million of government securities from Bank One, a large
commercial bank. Bank One’s reserves ________ and its deposits ________.
A) increase by $1 million; do not change
B) increase by $1 million; increase by $1 million
C) do not change; increase by $1 million
D) do not change; do not change
E) decrease by $1 million; do not change
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
79
52) The Fed sells $300 million U.S. government securities to commercial banks. This action
leads to ________ in Fed assets and ________ in Fed liabilities.
A) a $300 million increase; a $300 million increase
B) a $300 million increase; a $300 million decrease
C) no change; no change
D) a $300 million decrease; a $300 million decrease in
E) a $300 million decrease; a $300 million increase
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
53) When the Fed sells government securities to banks, the sale
A) increases banks’ reserves.
B) increases the quantity of money.
C) creates more excess reserves.
D) decreases banks’ reserves.
E) increases the monetary base.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
54) An open market purchase of securities by the Fed leads to all of the following EXCEPT
A) an initial increase in excess reserves.
B) an increase in bank lending.
C) a decrease in the quantity of money.
D) an increase in banks’ reserves.
E) an increase in the monetary base.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
80