Practice Problems: - Weebly



Practice Problems:

People are likely to want to hold more money if the interest rate

a. increases making the opportunity cost of holding money rise.

b. increases making the opportunity cost of holding money fall.

c. decreases making the opportunity cost of holding money rise.

d. decreases making the opportunity cost of holding money fall.

A decrease in the interest rate, other things being equal, causes

a. an upward movement along the demand curve for money.

b. a downward movement along the demand curve for money.

c. a rightward shift of the demand curve for money.

d. a leftward shift of the demand curve for money.

Which of the following will be classified as a liability on the balance sheet of a commercial bank?

a. vault cash

b. loans extended to customers

c. checking deposits of customers

d. deposits held at a Federal Reserve bank

If the public decides to hold less currency and more deposits in banks, bank reserves

a. decrease and the money supply eventually decreases.

b. decrease but the money supply does not change.

c. increase and the money supply eventually increases.

d. increase but the money supply does not change.

The immediate effect of a member bank's sale of U.S. government securities to the Fed is

a. an increase in that bank's required reserves.

b. a decrease in that bank's required reserves.

c. an increase in that bank's excess reserves.

d. a decrease in that bank's excess reserves.

In order to increase the money supply, the banking system must have

a. required reserves.

b. the authority to buy corporate stocks.

c. the authority to print U.S. currency.

d. excess reserves.

e. the authority to engage in interstate banking.

A bank that has $10,000 in excess reserves can extend new loans up to a maximum of

a. $1,000.

b. $9,000.

c. $10,000.

d. $100,000.

Assuming a 20 percent legal reserve requirement, a new deposit of $10,000 in a commercial bank will place that bank in a position to lend out an additional

a. $2,000.

b. $8,000.

c. $10,000.

d. $50,000.

A reserve requirement of 5 percent implies a potential money deposit multiplier of

a. 5.

b. 10.

c. 20.

d. 25.

The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be

a. lower interest rates, decrease in aggregate demand, and a reduction in output.

b. lower interest rates, increase in aggregate demand, and an expansion in output.

c. higher interest rates, decrease in aggregate demand, and a reduction in output.

d. higher interest rates, increase in aggregate demand, and an expansion in output.

The Fed's sale of U.S. government securities in its open market operations constitutes

a. a restrictive policy because it lowers the amount of total reserves in the banking system.

b. a restrictive policy because it raise the amount of required reserves in the banking system.

c. an expansionary policy because it raises the amount of total and excess reserves in the banking system.

d. an expansionary policy because it raises the amount of excess reserves and lowers the amount of required reserves in the banking system.

e. an expansionary policy because it raises the amount of required reserves in the

banking system.

A decrease in the required reserve ratio would be

a. a restrictive policy because it lowers the amount of total reserves in the banking system.

b. a restrictive policy because it lowers the amount of excess reserves in the banking system.

c. an expansionary policy because it raises the amount of required reserves in the banking system.

d. an expansionary policy because it raises the amount of total reserves in the banking system

. e. an expansionary policy because it raises the amount of excess reserves in the banking system.

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