13. (Scenario: Assets and Liabilities of the Banking System) According to the sc

Question

13. (Scenario: Assets and Liabilities of the Banking System) According to the scenario Assets and Liabilities of the Banking System, suppose that the reserve when the Fed buys $25,000 worth of U.s. Treasury bills from the banking system. If the ratiois 1096 banking system does not want to hold any excess reserves- money supply. A) $666,667 B) $111,111 C) $250,000 D) $1 million -will be added to the Use the following to answer question 14: Scenario: Money Creation The reserve requirement is 20%, and Leroy deposits the $1,000 check he received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves and the public does NOT want to hold any currency 14. (Scenario: Money Creation) According to the scenario Money Creation, what is the maximum expansion in the money supply possible? A) $1,000 B) $1,800 C) $4,000 D) $5,000 15. Money is anything that: A) serves as a medium of exchange for goods and services B) can be converted into silver with relatively little loss in value. C) can be converted into gold with relatively little loss in value. D) is traded in the stock market.

Explanation / Answer

13. The correct answer is: c)

Reason: money multiplier = 1/reserve ratio = 1/0.1 = 10

Hence, increase in money supply = 10*$25000 =$250000.

14. The correct answer is: d)

Reason: here, money multiplier = 1/0.2 =5.

Hence, increase in money supply = 5*$1000 =$5000.

15.The correct answer is: a)

Reason: This goes by the definition of money that it can be used as a medium of exchange for goods and services.

Thanks!

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