Question

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.

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 $100B2. 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.A3. 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.D4. 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.C5. 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.A6. 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.B7. 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.A8. 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. 5C9. 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.A10. 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