econ+2100+study+guide+for+exam+3+chapters+18%2C+4-5%2C+7-8

econ+2100+study+guide+for+exam+3+chapters+18%2C+4-5%2C+7-8...

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Page 1 ECON 2100 Study Guide for Exam 3 Chapters 18, 4-5, 7-8 Exam 3 Date: Wednesday, 11/10/2010 Name: __________________________ Date: _____________ Use the following to answer question 1: Scenario: Assets and Liabilities of the Banking System 1. (Scenario: 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 2. Suppose the Federal Reserve were to engage in open-market operations by buying $100 million of U.S. Treasury bills. Which of the following would be the end result of such an action? A) The money supply would stay the same. B) The money supply would decrease by $100 million. C) The money supply would increase by $100 million. D) The money supply would increase by more than $100 million. 3. Fiat money is: A) the same as commodity money. B) money backed by a government's decree that it be accepted as a means of payment. C) money which is backed by gold or silver. D) used in barter exchanges.
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Page 2 4. Commodity-backed money is: A) a medium of exchange with no intrinsic value. B) equivalent to commodity money. C) a medium of exchange which has alternative economic uses. D) gold and silver coins used for exchange. 5. If the Federal Reserve buys $250 million worth of U.S. Treasury bills in the open market, and the reserve ratio is 10%, then the money supply will: A) potentially increase by $2,500 million. B) remain unchanged. C) increase by only $250 million. D) increase by only $25 million. 6. If the required reserve ratio is 10%, and a depositor withdraws $500 from her checkable deposit, the money supply will ______ if the banking system does NOT hold any excess reserves. A) be unchanged B) decrease by $500 C) decrease by $4,500 D) decrease by $5,000 Use the following to answer question 7: Use this scenario to answer questions 124–128. Scenario: Money Creation The reserve requirement is 20%, and Leroy deposits his $1,000 check received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves. 7. (Scenario: Money Creation) Which of the following is an accurate description of the bank's balance sheet immediately after the deposit? A) Reserves increase by $1,000, and demand deposits increase by $1,000. B) Reserves increase by $1,000, and demand deposits decrease by $1,000. C) Reserves decrease by $1,000, and demand deposits decrease by $1,000. D) Reserves decrease by $200, and demand deposits increase by $1,000.
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Page 3 8. The purpose of Regulation Q was to: A) prevent commercial banks from trading stocks and bonds. B) require investment banks to purchase deposit insurance. C) prevent unhealthy competition between banks by limiting the number of customers
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