27. If the required reserve ratio is 10 percent, what is the simple deposit mult

Question

27. If the required reserve ratio is 10 percent, what is the simple deposit multiplier? a. 20 b. 100 c. 5 d. 10 28. If a bank has the maximum possible change to the money supply? a. $40,000 b. $10,000 c. $O a required reserve ratio of 25 percent and there is $10,000 in deposits, what is d. $2,500 e. $7,500 29. The purchase of existing U.S. Treasury securities by the Federal Reserve will a. have no effect on the money supply b. decrease the money supply. c. increase the money supply. d. decrease the reserves at banks e. increase the amount of U.S. Treasury securities held at banks. 30. Discount loans, by definition, are loans a. from private banks to the Federal Reserve. b. between private banks c. from the Federal Reserve to private banks. d. that are offered at lower rates than market value. e. that are issued from the Federal Reserve to the government. 31. The discount rate, by definition, is the a. rate at which loans are issued between banks and the Federal Reserve. b. interest rate charged by banks on interbank loans. c. difference between the interest paid for deposits and the interest gained from loans. d. percentage of deposits that must be held back and not loaned out. e. interest rate on the loans made by the Federal Reserve to private banks. 32. Open market operations, by definition, involve the a. purchase or sale of bonds by a central bank. b. Federal Reserve dictating the discount rate to influence the money supply. c. purchase of securities from the U.S. Treasury. d. loaning of deposits between private banks. e. sale of Federal Reserve notes. 33. Gross domestie product (GDP) is defined as the total of all final goods and services prod during a fixed period of time. d. e. for export by a nation for domestic consumption a. by a nation's public sector b. by a nation's private sector c. within a nation's borders

Explanation / Answer

Answer:

27) Option d. 10

Explanation: Deposit Multiplier = 1/required reserve ratio

Here, Required Reserve Ratio = 10%

Deposit Multiplier = 1/ (10/100) = 10

28) Option a. 40000

Explanation: Change in Money Supply= Change in Reserves * Money Multiplier.

Money Multiplier can be calculated by using the formula 1/ Reserve Ratio.

Here, Reserve Ratio= 25%

Therefore, Money Multiplier = 1/(25/100) =4

Deposit= $10000

Change in Money Supply= Change in Reserve* Money multiplier

= 10000*4

=40000

29)Option c. Will increase the Money Supply.

Explanation: when securities are purchased by the federal reserve more money is pumped into the economy. As a result money supply will increase.

30) Option c. From the federal reserve to private banks.

Explanation: discount loans are short term loans issued by federal reserves to commercial banks. Theses are usually made over night and given on grounds of collateral securities

31) Option e.Interest rate on the loans made by federal reserve to private banks.

Explanation: Discount rate is the rate at which the federal reserve lend loans to the commercial banks as well as other depository institutions.

32) Option a. Purchase and sale of bonds by central bank.

Explanation: Open market operations are done by buying and selling of bonds and other government securities by the central bank. This is being done in order to control the money supply. If the country has to decrease the money supply, the central bank will issue bonds. These bonds will be purchased by other banks thus will result in decreasing the money supply. If the nation has to increase the money supply the central bank will buy back the bonds and securities issued by them.

33) Option c. within a nations border.

Explanation: GDP is calculated within the domestic territory of a country.

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