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1. A bank has a reserve requirement of 10 percent. This means that if a customer deposits $10,000, the bank may lend:
$1000.
$9000.
$10,000.
$11,000.
2. Refer to the graph depicting the market for loanable funds. If the quantity of investment exceeds the quantity of loanable funds (savings) available in the market and some of the investment cannot channel the amount of savings, the long-term interest rate in this economy is:
5 percent.
3 percent.
1 percent.
none of the above.
3. Holding money for the speculative motive is holding cash for unexpected events.
True
False
4. The formula for the simple money multiplier is:
1/e where e is the excess reserve ratio.
1/r where r is the reserve ratio.
1/r where r is the required reserve ratio.
1/c where c is the ratio of cash people hold to deposits.
5. Holding money for the speculative motive is holding cash because bond prices are falling.
True
False
6. If deposits in Bank A, total $430 million and the required reserve ratio is 10 percent, then the required reserves at Bank A equal:
$4.3 million.
$387 million.
$28.8 million.
$43 million.
7. M1 is comprised of currency held outside banks + traveler’s checks + __________.
credit cards
savings deposits
gold
Checking account balances
8. A financial asset is liquid:
if it can be carried easily from one place to another.
if it can be readily exchanged for another asset or good.
only if it takes the form of cash.
if it is held by the public and earning interest.
9. If the Fed printed too much money, the relative price of money would:
fall, and the money price of goods would rise.
rise, and the money price of goods would fall.
fall, and the money price of goods would fall.
rise, and the money price of goods would rise.
10. When a bank creates loans, it also creates money.
True
False
11. The chief difference between the M1 and M2 measures of the money supply is:
the supply of M1 exceeds the supply of M2.
M2 excludes traveler’s checks.
M1 is a broader, more comprehensive measure.
M2 includes assets with a lower liquidity than those in M1.
12. Given a required reserve ratio of 10 percent for all banks and assuming individuals hold no cash, total bank reserves of $400 billion could support maximum deposits of:
$40 billion.
$400 billion.
$1,600 billion.
$4,000 billion.
13. The U.S. central bank is a financial institution that:
has the sole right to accept deposits and make loans.
has the sole right to issue currency, commonly referred to as notes.
sets borrowing and lending in a country.
determines what assets will back a currency.
14. Small-denomination time deposits are included in:
M1.
M2.
traveler’s checks.
checking accounts.
15. The amount of money ultimately created per dollar deposited when people hold cash is the:
money multiplier.
excess reserve ratio.
required reserve ratio.
simple money multiplier.
16. The amount of money ultimately created per dollar deposited when people hold no cash is the:
M1.
excess reserve ratio.
required reserve ratio.
simple money multiplier.
17. The interest rate is the price paid for the use of a:
real liability.
real asset.
financial liability.
financial asset.
18. What is produced and exchanged in the real sector?
Money
Goods and services
Financial assets
All assets with a money price
19. The short-term interest rate is determined in the:
loanable funds market.
stock market.
exchange rate market.
money market.
20. A reserve ratio of 0.10 means that a bank can lend an amount equal to:
10 percent of its deposit liabilities.
10 percent of its excess reserves.
90 percent of its deposit liabilities.
90 percent of its excess reserves.