34) 34) Which one of the following is NOT a function of the Federal Reserve Syst

Question

34) 34) Which one of the following is NOT a function of the Federal Reserve System A) determining the permissible size of the federal budget deficit the economy with currency C) regulating the money supply D) providing a system for check clearing 35) There is a strong correlation between money supply and B) real GDP D) all of the above. C) nominal GDP 36) 36) Fractional reserve banking is a system in which A) a fraction of banking services must be provided by depository B) depository C) the money supply is a set fraction of the U.S. gold reserves. institutions pay a fraction of advertised interest rates. D) depository institutions hold a fraction of total deposits in reserve. 37) What are required reserves? 37) A) the amount of currency a bank must have on hand for customers who wish to take out short-term loans B) the amount of legal reserves a bank must have on hand to back its deposits C) the amount of gold a bank must have on hand to back its deposits D) the amount of government bonds a bank must have on hand to back its deposits 33) Excess reserves are 38) A) transaction deposits required reserve ratio. B) legal reserves - required reserves. C) legal reserves x required reserve ratio, D) required reserve ratio x transaction deposits. 39) If a bank that satisfies its reserve requirement has legal reserves of 39) 5200,000, loans of $800,000, and no excess reserves then the required reserve ratio must be A) 15 percent c) 20 percent. B) 10 percent. D) 30 percent. 40) When the Fed buys U.S. government securities on the open market, 40) A) the legal reserves of the banking system will fall below required B) the reserves of the banking system expand C) the money supply contracts. D) the reserves of the banking system contract 41) Suppose that the required reserve ratio is 20 percent. A bank's customer 41) deposits into her account $100,000 in funds from a check written on an account at another bank. The maximum potential increase in the money supply resulting from this transaction is equal to A) $200,000. B) $20,000. C)00,000. D) so.

Explanation / Answer

34. Determining the possible size of the Federal budget deficit

35. All of the above

36. Depository institutions hold a fraction of total deposits in reserve.

37. the amount of legal reserves a bank must have on hand to back its deposits.

38. Legal reserves - required reserves

39. 10 percent

Explanation:

Required reserve = [200,000 / (200,000 + 800,000)] * 100 = 10%

40. the reserves of banking system expands

41. $500,000

Explanation:

Multiplier = 1 / 0.2 = 5

Increase in money supply = $100,000 * 5 = $500,000

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