If the reserve ratio is 10 percent, banks do not hold excess reserves, and people hold only deposits and no currency, when the fed sells $10 million dollars of bonds to the public, bank reserves increase by $1 million and the money supply eventually increases by $10 million.

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Business

Barbara Clayton

12 October, 15:05

If the reserve ratio is 10 percent, banks do not hold excess reserves, and people hold only deposits and no currency, when the fed sells $10 million dollars of bonds to the public, bank reserves increase by $1 million and the money supply eventually increases by $10 million.

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Rangel · Answer 1

1. Suppose Oscar withdraws $100 from his checking account and deposits it into his savings account. This

transaction causes M1 to

A. Increase by $100 and M2 to remain the same.

B. Decrease by $100 and M2 to remain the same.

C. Decrease by $100 and M2 to increase by $100.

D. Remain the same and M2 to increase by $100 B 2. Suppose Megan withdraws $75 from her savings account and deposits it into her checking account. This

transaction causes M1 to

A. Increase by $75 and M2 to remain the same.

B. Decrease by $75 and M2 to remain the same.

C. Increase by $75 and M2 to decrease by $75.

D. Remain the same and M2 to increase by $75. A 3. Suppose Jared takes $200 from his savings account and holds it as cash. The immediate result of this

transaction is that M2

A. Increases by $200 and M1 remains the same.

B. Decreases by $200 and M1 remains the same.

C. And M1 do not change.

D. Remains the same and M1 increases by $200. D 4. A single bank with $10,000 of reserves and a reserve ratio of 25 percent could support total transactions

account balances of at most

A. $10,000.

B. $5,000.

C. $40,000.

D. $25,000. C 5. A single bank with $20,000 of reserves and a reserve ratio of 5 percent could support total transactions

account balances of at most

A. $400,000.

B. $1,000.

C. $100,000.

D. $20,000. A 6. Initially a bank has a required reserve ratio of 20 percent and no excess reserves. If $5,000 is deposited into

the bank, then initially, ceteris paribus,

A. This bank can increase its loans by $5,000.

B. This bank can increase its loans by $4,000.

C. Total reserves will increase by $4,000.

D. Required reserves will increase by $5,000. B 7. Initially a bank has a required reserve ratio of 10 percent and no excess reserves. If $1,000 is deposited into

the bank, then, ceteris paribus,

A. This bank can increase its loans by $900.

B. This bank can increase its loans by $1,000.

C. Total reserves will increase by $900.

D. Required reserves will increase by $1,000. A 8. If total reserves for a bank are $12,000, excess reserves are $2,000, and demand deposits are $100,000, the

money multiplier must be

A. 20.

B. 15.

C. 10.

D. 5 C 9. If the banking system has demand deposits of $100,000, total reserves equal to $15,000, and a required

reserve ratio of 10 percent, the banking system can increase the volume of loans by a maximum of

A. $5,000.

B. $50,000.

C. $85,000.

D. $100,000. A 10. Suppose a banking system has a required reserve ratio of 0.15. How much can the money supply increase in

response to a $1 billion increase in excess reserves for the whole banking system?

A. $1 billion.

B. $150 million.

C. $15 billion.

D. $6.67 billion. B