Practice Problems_questions for chapter 18

Practice Problems_questions for chapter 18 - ECON 2100...

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ECON 2100 Practice Problemse for Chapter 18 "Money and Banking" Name: __________________________ Date: _____________ 1. Bank reserves are: A) the fraction of deposits kept in gold with the Federal Reserve. B) the deposits lent to finance illiquid investments. C) the fraction of deposits kept in the form of very liquid assets. D) gold kept in the bank's vault. 2. Among the assets of a bank are: A) deposits. B) loans. C) borrowings. D) all of the above. Use the following to answer question 3: Exhibit: Assets and Liabilities of the Banking System Assets Liabilities Loans $900,000 Deposits $1,000,000 Reserves $100,000 3. (Exhibit: Assets and Liabilities of the Banking System) If the reserve ratio is 6% and the banking system does NOT want to hold excess reserves, then _______ will be added to the money supply. A) $666,667 B) $111,111 C) $250,000 D) $1,000,000 Page 1
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4. Suppose the banking system does NOT hold excess reserves and the reserve ratio is 25%. If Molly deposits $1,000 of cash into her checking account, the banking system can increase the money supply by: A) $5,000. B) $1,000. C) $3,000. D) $4.000. 5. Capital requirements for banks are: A) an attempt to reduce bank owners incentive for excessive risk taking. B) an attempt to offset the change in incentive caused by deposit insurance. C) the excess of a bank's assets over its deposits and other liabilities. D) all of the above. 6. Which of the following is true concerning the monetary aggregates? A) M 2 includes M 3 but not M 1. B) M 2 includes M 1. C) M 3 includes M 2 but not M 1. D) M 1 includes M 2 but not M 3. 7. When we keep part of our wealth in a savings account, money is playing the role of: A) medium of exchange. B) unit of account. C) barter. D) store of value. 8. Suppose the banking system does NOT hold excess reserves and the reserve ratio is 20%. If Sam deposits $500 of cash into his checking account, the banking system can increase the money supply by: A) $5,000. Page 2
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B) $2,000. C) $2,500. D) $400. 9. To _______ the money supply, the Fed could ________. A)
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Practice Problems_questions for chapter 18 - ECON 2100...

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