Hubbard & O'Brien Quiz 14b


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  1. The required reserves of a bank equal its ________ the required reserve ratio.

      deposits divided by
      deposits multiplied by
      loans divided by
      loans multiplied by

  2. Banks can make additional loans when required reserves are

      greater than total reserves.
      less than total reserves.
      less than total deposits.
      less than total loans.

  3. If the required reserve ratio is 10 percent, an increase in bank reserves of $1,000 can support an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to

      $100.
      $1,000.
      $10,000.
      $100,000.

  4. If the required reserve ratio (RR) is 20 percent, the simple deposit multiplier is

      2.
      5.
      10.
      20.

  5. Suppose the required reserve ratio is 20 percent. If banks are conservative and choose not to loan all of their excess reserves, the real-world deposit multiplier is

      less than 5.
      equal to 5.
      greater than 5.
      equal to 20.

  6. Suppose there is a bank panic. Which of the following would not be a consequence of this bank panic?

      Bank total reserves would decrease.
      Required reserves would increase.
      Bank checking account balances would decrease.
      Individual banks would have to shrink the value of loans they made.

  7. In response to the destructive bank panics of the Great Depression, future bank panics are designed to be prevented by

      the Federal Reserve System acting as a lender of last resort.
      the Federal Reserve System conducting open market operations.
      the establishment of the Federal Deposit Insurance Corporation.
      establishing a fractional reserve system of banking.

  8. The purchase of Treasury securities by the Federal Reserve will, in general,

      not change the money supply.
      not change the quantity of reserves held by banks.
      increase the quantity of reserves held by banks.
      decrease the quantity of reserves held by banks.

  9. To increase the money supply, the Federal Reserve could

      raise the discount rate.
      decrease income taxes.
      raise the required reserve ratio.
      conduct an open market purchase of Treasury securities.

  10. Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve reduces the required reserve ratio to 8 percent, then the bank can make a maximum loan of

      $0.
      $2 million.
      $8 million.
      $10 million.

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