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34. If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives
a new deposit of $500, it
a. must increase required reserves by $50.
b. will initially see reserves increase by $500.
c. will be able to use this deposit to make new loans amounting to $450.
d. All of the above are correct.
35. If the reserve requirement is 12 percent and banks desire to hold no excess reserves, when a
bank receives a new deposit of $1,000,
a. it must increase its required reserves by more than $150.
b. its total reserves initially increase by $120.
c. it will be able to make new loans up to a maximum of $880.
d. None of the above is correct.
7192 The Monetary System
36. Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement
of 6 percent. If you deposit $8,000 into First Raven Bank,
a. First Raven’s required reserves increase by $480.
b. First Raven will be able to lend out $7,520.
c. First Raven’s assets and liabilities both will increase by $8,000.
d. All of the above are correct.
37. If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives
a new deposit of $10, then this bank
a. must increase its required reserves by $10.
b. will initially see its total reserves increase by $10.50.
c. will be able to make new loans up to a maximum of $9.50.
d. All of the above are correct.
The Monetary System 7193
38. Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has
$18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this
bank now have to lend out if it decides to hold only required reserves?
a. $27,000
b. $27,190
c. $26,190
d. $9,000
39. When a bank loans out $1,000, the money supply
a. does not change.
b. decreases.
c. increases.
d. may do any of the above.
7194 The Monetary System
40. If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent,
this action by itself initially makes the money supply
a. and wealth increase by $200.
b. and wealth decrease by $200.
c. increase by $200 while wealth does not change.
d. decrease by $200 while wealth decreases by $200.
41. If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent,
this action by itself initially makes the money supply
a. and wealth increase by $500.
b. and wealth decrease by $500.
c. increase by $500 while wealth does not change.
d. decrease by $500 while wealth decreases by $500.
The Monetary System 7195
42. If R represents the reserve ratio for all banks in the economy, then the money multiplier is
a. 1/(1–R).
b. 1/R.
c. 1/(1+R).
d. (1+R)/R.
43. The money multiplier equals
a. 1/R, where R represents the quantity of reserves in the economy.
b. 1/R, where R represents the reserve ratio for all banks in the economy.
c. 1/(1+R), where R represents the quantity of reserves in the economy.
d. 1/(1+R), where R represents the reserve ratio for all banks in the economy.
7196 The Monetary System
44. As the reserve ratio decreases, the money multiplier
a. increases.
b. does not change.
c. decreases.
d. could do any of the above.
45. If the central bank in some country raised the reserve requirement, then the money multiplier for
that country
a. would increase.
b. would not change.
c. would decrease.
d. could do any of the above.
The Monetary System 7197
46. In the special case of the 100 percent-reserve banking, the money multiplier is
a. 1 and banks create money.
b. 1 and banks do not create money.
c. 2 and banks create money
d. 2 and banks do not create money.
47. Which of the following statements is correct? In the special case of the 100-percent reserve
banking the money multiplier is
a. 0 and banks create money.
b. 0 and banks do not create money.
c. 1 and banks create money
d. 1 and banks do not create money.
7198 The Monetary System
48. If the reserve ratio is 100-percent, then a new deposit of $1000 into a bank account
a. eventually increases the money supply by $1000.
b. leaves the size of the money supply unchanged.
c. eventually decreases the size of the money supply by $1000.
d. eventually increases the money supply by $2000.
49. If you deposit $100 of currency into a demand deposit at a bank, this action by itself
a. does not change the money supply.
b. increases the money supply.
c. decreases the money supply.
d. has an indeterminate effect on the money supply.
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50. If the reserve ratio is 4 percent, then the money multiplier is
a. 24.
b. 25.
c. 26.
d. 4.
51. If the reserve ratio is 8 percent, then the money multiplier is
a. 12.5.
b. 11.5.
c. 13.5.
d. 8.
7200 The Monetary System
52. If the reserve ratio is 12 percent, then the money multiplier is
a. 9.3.
b. 8.3.
c. 7.3.
d. 12.
53. If the reserve ratio is 10 percent, the money multiplier is
a. 100.
b. 10.
c. 9/10.
d. 1/10.
The Monetary System 7201
54. If the reserve ratio is 15 percent, the money multiplier is
a. 7.7.
b. 6.7.
c. 5.7.
d. 15.
55. If the reserve ratio is 7.5 percent, the money multiplier is
a. 7.5.
b. 10.3.
c. 13.3.
d. 11.3.
7202 The Monetary System
56. If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would
a. rise from 10 to 20.
b. rise from 5 to 10.
c. fall from 10 to 5.
d. not change.
57. If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to
a. $5,500 of new money.
b. $5,000 of new money.
c. $4,000 of new money.
d. None of the above is correct.
The Monetary System 7203
58. If the reserve ratio is 5 percent, then $500 of additional reserves can create up to
a. $10,500 of new money.
b. $10,000 of new money.
c. $9,500 of new money.
d. $2,500 of new money.
59. If the reserve ratio is 5 percent, then $600 of additional reserves can create up to
a. $30 of new money.
b. $3,000 of new money.
c. $12,000 of new money.
d. None of the above is correct.
7204 The Monetary System
60. If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money
supply by as much as
a. $6,400.
b. $8,000.
c. $12,500.
d. $10,000.
61. If the reserve ratio is 10 percent, $1,400 of additional reserves can create up to
a. $140 of new money.
b. $14,000 of new money.
c. $140,000 of new money.
d. None of the above is correct.
The Monetary System 7205
62. If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to
a. $159,000 of new money.
b. $54,000 of new money.
c. $150,000 of new money.
d. $141,000 of new money.
63. If the reserve ratio is 8 percent, then a decrease in reserves of $6,000 can cause the money supply
to fall by as much as
a. $48,000.
b. $75,000.
c. $55,200.
d. $10,800.
7206 The Monetary System
64. If the reserve ratio is 12.5 percent, then $2,000 of additional reserves can create up to
a. $8,000 of new money.
b. $16,000 of new money.
c. $32,000 of new money.
d. None of the above is correct.
65. If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to
a. $7,000 of new money.
b. $8,000 of new money.
c. $11,500 of new money.
d. $12,500 of new money.
66. If the reserve ratio is 20 percent, then $100 of new reserves can generate
a. $60 of new money in the economy.
b. $250 of new money in the economy.
c. $500 of new money in the economy.
d. $2,000 of new money in the economy.
The Monetary System 7207
67. If the reserve ratio is 4 percent, then $81,250 of new money can be generated by
a. $325 of new reserves.
b. $3,250 of new reserves.
c. $20,312.50 of new reserves.
d. $2,031,250 of new reserves.
68. If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by
a. $64 of new reserves.
b. $448 of new reserves.
c. $700 of new reserves.
d. $800 of new reserves.
7208 The Monetary System
69. Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves,
but at some point banks still have $5 million more they wish to lend out. If the reserve
requirement is 10 percent, how much more money can banks create if they lend out the remaining
amount?
a. $55 million
b. $50 million
c. $45 million
d. $40 million
70. If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is
a. 2.7 percent.
b. 12.5 percent.
c. 37.5 percent.
d. 40 percent.
The Monetary System 7209
71. In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that
people hold only deposits and no currency, and that banks hold no excess reserves, then the
reserve requirement is
a. 29 percent.
b. 22.5 percent.
c. 16 percent.
d. None of the above is correct.
72. In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold
only deposits and no currency, and that banks hold no excess reserves, then the reserve
requirement is
a. 14 percent.
b. 12.5 percent.
c. 8 percent.
d. None of the above is correct.
7210 The Monetary System
Table 29–3. An economy starts with $50,000 in currency. All of this currency is deposited into a
single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown
below.
Assets
Liabilities
Reserves $4,250
Deposits $50,000
Loans 45,750
73. Refer to Table 29-3. The bank’s reserve ratio is
a. 17.5 percent.
b. 8.5 percent.
c. 91.5 percent.
d. 100 percent.
74. Refer to Table 29–3. If all banks in the economy have the same reserve ratio as this bank, then
the value of the economy’s money multiplier is
a. 9.33.
b. 1.09.
c. 10.76.
d. 11.76.