Assignment #6 - Due Thursday, April 23, 2009 (4:00pm)
1. If the required reserve ratio is 10 percent, a bank with a new deposit of $1,000
must keep $100 on reserve and can make up to $900 in new loans.
must keep $200 on reserve and can make up to $800 in new loans.
must keep $900 on reserve and can make up to $100 in new loans.
must keep $1,000 on reserve and can make no additional loans.
2. Money is
valuable because it is backed by gold.
the item that is commonly used as a means of payment for goods, services, assets, and
an asset that can be used to store purchasing power for future use.
Both b and c are correct.
3. If the Fed wanted to use all three of its major monetary control tools to decrease the money
supply, it would
buy bonds, reduce the discount rate, and reduce reserve requirements.
sell bonds, reduce the discount rate, and reduce reserve requirements.
sell bonds, increase the discount rate, and increase reserve requirements.
buy bonds, increase the discount rate, and increase reserve requirements.
4. Which of the following would be most appropriate if the Federal Reserve wanted to increase
the money supply in order to stimulate the economy ?
buy U.S. securities.
force the Treasury to reduce the national debt.
raise the discount rate.
increase the reserve requirements.
5. Consider the following:
The M1 money supply reflects the medium of exchange function of money, while the M2
money supply reflects the store of value function of money.
The M1 money supply is larger than the M2 money supply.