Question 5 (1 point) Suppose banks hold 20% of money in reserves. What is the mo

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Question 5 (1 point)

Suppose banks hold 20% of money in reserves. What is the money multiplier?

Question 5 options:

a)

50

b)

20

c)

5

d)

10

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Question 6 (1 point)

The Federal Open Market Committee is responsible for:

Question 6 options:

a)

reducing the Fed's reliance on open market operations.

b)

running the check-clearing process.

c)

overseeing the buying and selling of government securities in the open market.

d)

setting interest rates.

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Question 7 (1 point)

When the Federal Reserve prints money, what does it do with it?

Question 7 options:

a)

buys bonds to raise the interest rate

b)

buys bonds to reduce the interest rate

c)

sells bonds to reduce the interest rate

d)

sells bonds to raise the interest rate

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Question 8 (1 point)

There are _____ Regional Federal Reserve Banks; the only Regional Bank president who is a permanent member of the Federal Open Market Committee is based in _____.

Question 8 options:

a)

12; San Francisco

b)

7; San Francisco

c)

12; New York

d)

7; New York

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Question 9 (1 point)

If a bank has a total of $80,000 in deposits and has made three loans in the amounts of $10,000, $20,000, and $30,000, what is this bank's reserve ratio (assuming it has no other deposits or made any other loans)?

Question 9 options:

a)

20%

b)

75%

c)

60%

d)

25%

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Question 10 (1 point)

If the Fed increases the supply of money in the market, bond prices will _____ and interest rates will _____.

Question 10 options:

a)

fall; rise

b)

rise; rise

c)

rise; fall

d)

fall; fall

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Question 11 (1 point)

How is money created “out of thin air” by banks?

Question 11 options:

a)

Banks are able to print as much money as they need to run their daily operations.

b)

Banks can borrow large amounts of money from the government at virtually no interest.

c)

Banks can recall loans back from customers at any time, generating reserves quickly.

d)

Banks loan out money that is then redeposited into other banks, creating a cycle.

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Question 12 (1 point)

If the money multiplier is 4, what is the reserve requirement?

Question 12 options:

a)

4%

b)

25%

c)

10%

d)

40%

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Question 13 (1 point)

The main feature of fractional reserve banking is that banks:

Question 13 options:

a)

invest all of its deposits in a combination of stocks and bonds.

b)

keep a portion of deposits in reserves but lend out the rest.

c)

lend out as little as possible to avoid becoming insolvent.

d)

keep most of its deposits in a vault in order for customers to have easy access to cash.

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Question 14 (1 point)

Which of these is a liability for a bank?

Question 14 options:

a)

cash it keeps in its ATMs

b)

reserves at the Fed

c)

loans it makes to customers

d)

customers' checking account balances

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Question 15 (1 point)

What is the most important function of the Federal Reserve?

Question 15 options:

a)

determining mortgage rates

Explanation / Answer

5) Money multiplier = 1/RR

Where RR is the reserve ratio

Money multiplier = 1/20% = 5

c. 5

6) c. overseeing the buying and selling of treasury securities in the open market.

7) b. buys bonds to reduce the interest rates. When the Fed buys bonds money supply increases. When money supply increases interest rates fall.

8) c. 12, New York

9) The reserve ratio is the percentage of depositors money that a bank must keep as reserves. The bank has $80000 in depositors money and has given loans of $60000. Amount of reserves = $20000. Reserve ratio = ($20000/$80000)*100 = 25%

d. 25%

10) When the fed increases the money supply bond prices will increase, since their is more supply of money and less supply of bonds. In addition, when the moeny supply increases interest rates fall.

c. rise, fall

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