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[QUESTION]
125. Given a required reserve ratio of 20 percent for all banks, total bank reserves of $300
billion could support maximum deposits of:
A. $60 billion.
B. $1,200 billion.
C. $1,500 billion.
D. $2,000 billion.
126. Given a required reserve ratio of 10 percent for all banks, total bank reserves of $400
billion could support maximum deposits of:
A. $40 billion.
B. $400 billion.
C. $1,600 billion.
D. $4,000 billion.
127. Suppose the banking system has $100,000 in outstanding deposits and actual reserves of
$35,000. If the required reserve ratio is 20 percent, the maximum amount the banking system can
add to the money supply is:
A. $15,000.
B. $75,000.
C. $175,000.
D. $500,000.
128. Suppose the banking system has $100,000 in outstanding deposits and actual reserves of
$35,000. If the required reserve ratio is 25 percent, the maximum amount the banking system
can now add to the money supply is:
A. $10,000.
B. $25,000.
C. $40,000.
D. $50,000.
129. Excess reserves equal:
A. total deposits.
B. total deposits minus required reserves.
C. total reserves.
D. total reserves minus required reserves.
130. The amount of money ultimately created per dollar deposited is the:
A. money multiplier.
B. excess reserve ratio.
C. required reserve ratio.
D. depsosit multiplier.
131. If people hold onto money as cash rather than depositing it, the money multiplier will:
A. get larger.
B. stay the same.
C. get smaller.
D. be increased by the Federal Reserve.
132. After there has been a change in bank reserves, the multiplier process continues until:
A. required reserves are the same for all banks.
B. each bank holds its desired reserve-to-deposit ratio.
C. banks start to extend new loans.
D. the Fed runs out of government securities.
133. The key to understanding the money creation process is the fact that:
A. whenever banks create financial assets for themselves, they create financial liabilities for
individuals, and those financial liabilities are considered money.
B. whenever banks create financial liabilities for themselves, they create financial assets for
individuals, and those financial assets are considered money.
C. banks are able to print dollar bills and add these to circulation whenever they extend loans.
D. since the money supply excludes cash but includes checking account deposits, money is
created whenever individuals deposit cash into a checking account.
134. The amount of reserves in the economy is often determined by the amount of money in the
economy that will achieve a particular interest rate. This reflects the fact that the money supply
is:
A. extrapolative.
B. implicit.
C. endogenous.
D. fiat.
135. Why is it difficult for policy makers to rely on the theoretical discussion of the money
multiplier to target the money supply?
A. The equation of exchange has been proven to be wrong.
B. The use of quantitative easing has made it impossible to accurately determine the money
supply.
C. The amount of excess reserves and cash in the system varies.
D. There is no good measure of reserves in the economy.
136. Which of the following do policy makers tend to target when setting monetary policy?
A. Money supply
B. Interest rates
C. Reserves
D. Exchange rates
137. When people hold financial assets in the form of money, they:
A. earn income in the form of interest rate.
B. pay interest rates.
C. forgo interest payments.
D. reduce their financial assets.
138. What is produced and exchanged in the real sector?
A. Money
B. Goods and services
C. Financial assets
D. All assets with a money price
139. For every financial asset there is a:
A. corresponding financial liability.
B. corresponding financial liability if the financial asset is financed.
C. real liability.
D. corresponding real asset.
140. What is exchanged in the financial sector?
A. Money only
B. Goods and services
C. All financial assets
D. Only assets with a money price
141. Real assets are created by:
A. government intervention.
B. real economic activity, such as the construction of a house.
C. the agreement by individuals to exchange financial assets for financial liabilities.
D. borrowing and lending.
142. In a market economy, every real transaction has a corresponding:
A. financial transaction.
B. financial liability.
C. real liability.
D. real asset.
143. Which of the following statements about the financial and real sectors is true?
A. For every financial asset there is a real asset.
B. For every real asset there is a financial asset.
C. For every financial transaction there is a real transaction.
D. For every real transaction there is a financial transaction.
144. If the financial sector causes more to flow into spending than is saved, most likely:
A. the supply of real assets will exceed the demand for real assets.
B. there will be too many real assets produced.
C. the economy will experience inflation.
D. the economy will experience recession.
145. Every financial asset has a corresponding:
A. financial liability.
B. real liability.
C. real asset.
D. financial asset.
146. When you have $1,000 in a savings account at a bank:
A. the bank holds a financial asset of $1,000 and you hold a financial liability of $1,000.
B. the bank holds a financial liability of $1,000 and you hold a financial asset of $1,000.
C. both you and the bank now have a financial asset of $1,000.
D. both you and the bank now have a financial liability of $1,000.
147. When you withdraw $1,000 from your bank account:
A. the bank's financial assets fall by $1,000 and your financial liabilities rise by $1,000.
B. the bank's financial liabilities fall by $1,000 and your financial assets rise by $1,000.
C. both your and the bank's financial assets rise by $1,000.
D. the bank's financial liabilities and assets fall by $1,000, and you have exchanged one
financial asset for another.
148. Some economists believe that the financial sector does not channel all saving back into the
spending stream. Which of the following financial assets, when held by individuals, does not
reenter the spending stream?
A. Money
B. Bonds
C. Stocks
D. Loans
149. The interest rate is the price paid for the use of a:
A. real liability.
B. real asset.
C. financial liability.
D. financial asset.
150. When the interest rate rises, people are:
A. less likely to borrow, that is, sell a financial asset.
B. more likely to borrow, that is, sell a financial asset.
C. less likely to borrow, that is, purchase a financial asset.
D. more likely to borrow, that is, purchase a financial asset.
151. When the interest rate rises, people are:
A. less likely to save, that is, sell a financial asset.
B. more likely to save, that is, sell a financial asset.
C. less likely to save, that is, purchase a financial asset.
D. more likely to save, that is, purchase a financial asset.
152. Which of the following are examples of financial assets that pay a long-term interest rate?
A. Saving deposits and checking accounts
B. Mortgages and government bonds
C. Cash and currency
D. Money and CDs
153. Which of the following are examples of financial assets that pay a short-term interest rate?
A. Saving deposits and checking accounts
B. Mortgages and government bonds
C. Stocks and home loans
D. Treasury bonds and foreign bonds
154. The short-term interest rate is determined in the:
A. loanable funds market.
B. stock market.
C. exchange rate market.
D. money market.
155. If a loan has a probability of not being paid back, the interest rate will:
A. likely include a risk premium.
B. be the real interest rate.
C. insufficient to compensate bondholders.
D. lower than the market interest rate.
156. All of the following are reasons why people hold cash money except:
A. money can be used to buy goods.
B. emergencies.
C. to avoid losses from changes in bond prices.
D. cash earns interest.
157. Some colleges charge for student parking. Currently, your college does not charge for
parking but the administration announced a possible charge of $2 per day. You are not sure when
the new parking policy will start; therefore you decide to keep a $5 bill in your wallet. You hold
to $5 for the:
A. money creation motive.
B. precautionary motive.
C. speculative motive.
D. impulsive motive.
