# HW4-KEY - 1 Homework No. 4, Spring 2008 Due Wednesday,...

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1 Homework No. 4, Spring 2008 Due Wednesday, March 26, IN CLASS Chapter 11 [1]Assume a bank currently holds \$75 million in demand deposits, \$10 million in vault cash and \$25 million deposited at the Federal Reserve. If the required reserve ratio is 15 percent, how much must the bank hold in required reserves? 1. \$1.5 million 2. \$3.75 million 3. \$11.25 million 4. \$16.5 million [2]If a bank holds \$2000 in demand deposits and the required reserve ratio is 0.15, how much can the bank lend out? 1. \$2000 2. \$1700 3. \$300 4. \$150 [3]Suppose the Federal Reserve wishes to decrease the money supply by \$100,000. If the required reserve ratio is 0.1, which of the following actions will achieve the Fed’s goal? (Assume the simple demand deposit multiplier holds.) 1. The Fed must purchase \$100,000 in bonds. 2. The Fed must sell \$100,000 in bonds. 3. The Fed must purchase \$10,000 in bonds. 4. The Fed must sell \$10,000 in bonds. [4]If the required reserve ratio is 0.25, what is the demand deposit multiplier? 1. 4 2. 0.50 3. 0.75 4. 1.33 [5]Why were banking panics and failures largely eliminated after 1933? 1. The Federal Reserve guaranteed the solvency of all U.S. banks. 2. The Federal Reserve began regulating banks. 3. All U.S. currency began to be backed by gold. 4. Congress created deposit insurance.

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## This note was uploaded on 03/31/2008 for the course ECON 2006 taught by Professor Rdcothren during the Spring '08 term at Virginia Tech.

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HW4-KEY - 1 Homework No. 4, Spring 2008 Due Wednesday,...

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