55) If the Fed sells government securities to a member of the nonbank public, then the
resulting efect on the quantity of money is
A) much larger than if the securities were sold to a bank.
B) much smaller than if the securities were sold to a bank.
C) the same as if the securities were sold to a bank.
D) that there is no change in the quantity of money.
E) None of the above answers is correct.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
56) Comparing the efect on the monetary base between an open market purchase of
government securities from a bank and the same open market operation conducted with
the general public, the monetary base
A) increases by a larger amount if the general public sells the securities than if a bank sells
the securities.
B) increases by a larger amount if a bank sells the securities than if the general public sells
the securities.
C) does not change if it is the general public that sells the securities.
D) increases by the same amount if the general public sells the securities or if a bank sells
the securities.
E) decreases by the same amount if the general public sells the securities or if a bank sells
the securities.
Skill: Level 1: Deinition
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
57) If the Fed buys government securities from the non-bank public, then
A) reserves at banks decrease.
B) loans at banks decrease.
C) deposits at banks increase and banks’ reserves decrease.
D) deposits at banks increase and banks’ reserves increase.
E) deposits at banks decrease and banks’ reserves increase.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
81
58) The Fed purchases $1 million of U.S. government securities from First Bank. The
desired reserve ratio is 10 percent, the currency drain ratio is zero, and banks loan all
excess reserves. The Fed’s purchase increases First Bank’s excess reserves by how much?
A) $900,000
B) $1,000,000
C) $1,100,000
D) $10,000,000
E) $100,000
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
59) When the desired reserve ratio is 10 percent, suppose the Fed buys $1,000,000 of
government securities from banks. As a result, the banks’ excess reserves
A) increase by $900,000.
B) increase by $1,000,000.
C) increase by $10,000.
D) decrease by $10,000.
E) decrease by $1,000,000.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
60) The FUN Bank has no excess reserves when a new deposit of $20,000 is made. The
desired reserve ratio is 5 percent. After the deposit, but before making any loans, how
much does The FUN Bank have in excess reserves?
A) $1,000
B) $20,000
C) $9,000
D) $19,000
E) $21,000
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
82
61) When a bank receives $100,000 in new deposits, the amount of loans the bank can
make is limited by
A) federal law.
B) the annual federal budget.
C) the Treasury Department.
D) its desired reserve ratio.
E) state law, with banks in diferent states being able to make diferent amounts of loans.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
62) At any point in time, a single bank can loan an amount equal to
A) its excess reserves.
B) its required reserves.
C) its government securities.
D) the amount of loans the bank made in the past.
E) its total reserves.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
63) Assume First Central Bank has a desired reserve ratio of 15 percent; $80,000 in total
deposits, loans equal to $60,000, and has $20,000 in actual reserves. First Central can
make additional loans totaling
A) $8,000.
B) $12,000.
C) $20,000.
D) $60,000.
E) $80,000.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
83
64) Bank One has reserves of $100,000, government securities of $200,000, loans of
$700,000, and checkable deposits of $800,000. If the desired reserve ratio is 10 percent,
Bank One can make additional loans totaling
A) $0.00.
B) $10,000.
C) $20,000.
D) $80,000.
E) $100,000.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
65) A new bank has reserves of $600,000, checkable deposits of $500,000, and government
securities of $100,000. If the desired reserve ratio is 10 percent, the amount of loans this
bank can make is
A) $50,000.
B) $60,000.
C) $540,000.
D) $550,000.
E) $600,000.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
66) If a single bank has $25,000 in excess reserves and the desired reserve ratio is 20
percent, what is the maximum this bank can loan?
A) $5,000
B) $20,000
C) $25,000
D) $125,000
E) $30,000
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
84
67) A-1 bank initially has no excess reserves. If the desired reserve ratio is 10 percent and
a new deposit of $10,000 is made in A-1, then A-1
A) is required to hold the deposit in its reserves.
B) can immediately loan a multiple of the $10,000.
C) can immediately loan $9,000.
D) can immediately loan $100,000.
E) can immediately loan $10,000.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
68) A currency drain is
A) an increase in currency held outside banks.
B) when the Fed buys securities, but it is not when the Fed sells securities.
C) when the Fed sells securities, but it is not when the Fed buys securities.
D) when the Fed either buys or sells securities.
E) when the Fed raises the required reserve ratio.
Skill: Level 1: Deinition
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
69) A currency drain occurs when the
A) Fed increases the required reserve ratio.
B) Fed sells U.S. government securities.
C) non-bank public increases its holdings of currency outside the banking system.
D) banks reduce the number of loans they create with their excess reserves.
E) Fed buys U.S. government securities.
Skill: Level 1: Deinition
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
85
70) The currency drain reduces the amount of
A) reserves available to banks to make loans.
B) currency the Fed has outstanding in the economy.
C) currency available for banks to borrow from the Fed.
D) the monetary base.
E) open market operations the Fed can make.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
71) A currency drain ________ the amount of bank reserves available to banks to make loans
because ________.
A) reduces; people are holding more money outside of the banks
B) increases; people are holding less money outside of the banks
C) reduces; people are holding less money outside of the banks
D) reduces the monetary base; people are holding more money outside of the banks
E) reduces; people are holding onto the money the banks could have borrowed from the
Fed
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: New
AACSB: Relective thinking
72) Suppose the Federal Reserve buys $50 million worth of securities from a commercial
bank. As a result, the monetary base ________, and the quantity of money will ________ $50
million due to the ________.
A) increases; increase by more than; money multiplier
B) decreases; decrease by more than; money multiplier
C) increases; increase by more than; expenditure multiplier
D) decreases; decrease by less than; expenditure multiplier
E) increases; decrease by; currency drain
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
86
73) The money multiplier is the
A) fraction of the monetary base that is kept in currency.
B) factor by which a change in the monetary base is multiplied to give the change in the
quantity of money.
C) factor by which a change in the deposits base is multiplied to give the change in the
monetary base.
D) proportion by which a change in the quantity of money changes the monetary base.
E) number of times that the Fed conducts open market operations in a month.
Skill: Level 1: Deinition
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
74) The number by which a change in the monetary base is multiplied to ind the resulting
change in the quantity of money is called the
A) desired reserve ratio.
B) money multiplier.
C) currency multiplier.
D) currency drain.
E) open market operation.
Skill: Level 1: Deinition
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
75) If the money multiplier is 3.0, a $1,000 increase in the monetary base
A) increases quantity of money by $3,000.
B) decreases quantity of money by $3,000.
C) increases the monetary base by $300.
D) increases the money multiplier by 3 percent.
E) decreases the quantity of money by 3 percent.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
87
76) C/D is the currency drain ratio and R/D is the desired reserve ratio. The money
multiplier equals
A) .
B) .
C) .
D) .
E) .
Skill: Level 4: Applying models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
77) The Fed purchases $1 million of U.S. government securities from First Bank. The
desired reserve ratio is 10 percent, the currency drain ratio is zero, and banks loan all
excess reserves. The money multiplier is equal to
A) 0.10.
B) 1.0.
C) 10.0.
D) 100.0.
E) $1 million.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
78) Suppose the currency drain ratio is 33.33 percent and the desired reserve ratio is 10
percent. The money multiplier equals
A) 4.27.
B) 3.00.
C) 3.08.
D) 2.50.
E) 6.67.
Skill: Level 5: Critical thinking
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
88
79) If the currency drain ratio is 0.2 and the desired reserve ratio is 0.03, the money
multiplier is
A) 0.76.
B) 6.67.
C) 3.23.
D) 4.46.
E) 5.22.
Skill: Level 5: Critical thinking
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
80) Suppose the currency drain ratio is 25 percent and the desired reserve ratio is 20
percent. The money multiplier equals
A) 4.00.
B) 3.00.
C) 2.78.
D) 2.00.
E) 5.42.
Skill: Level 5: Critical thinking
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
81) If the currency drain ratio is 30 percent and the desired reserve ratio is 10 percent, the
money multiplier is
A) 0.80.
B) 1.25.
C) 3.25.
D) 5.00.
E) 10.0.
Skill: Level 5: Critical thinking
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
89
82) The monetary multiplier is 3 and the change in the monetary base is $100,000. How
much will the quantity of money increase?
A) $300,000
B) $200,000
C) $100,000
D) $70,000
E) $33,333
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
83) If the currency drain ratio is zero, which of the following situations leads to the
greatest total increase in the quantity of money?
A) an increase in the monetary base of $100,000 when the desired reserve ratio is 5
percent
B) an increase in the monetary base of $120,000 when the desired reserve ratio is 10
percent
C) an increase in the monetary base of $200,000 when the desired reserve ratio is 20
percent
D) an increase in the monetary base of $250,000 when the desired reserve ratio is 15
percent
E) an increase in the monetary base of $100,000 when the desired reserve ratio is 50
percent
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
84) The Fed buys $50,000 of government securities. The desired reserve ratio is 10 percent
and the currency drain ratio is zero. What will be the change in the quantity of money?
A) $5,000
B) $50,000
C) $500,000
D) $5,000,000
E) $0
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
90