If the reserve requirement is 15 percent and a customer makes a new cash deposit of 50,000, how much new excess reserves are created?
a. 7,500
b. 33,000
c. 67,500
d. 42,500
Question 2Other things equal, an increase in the general price level causes the money demand function to shift to the left.
a. True
b. False
Indicate whether the statement is true or false
Question 3When a binding price floor is imposed on a market,
a. price no longer serves as a rationing device.
b. the quantity demanded at the price floor exceeds the quantity that would have been demanded without the price floor.
c. all sellers benefit.
d. All of the above are correct.
Question 4Can bankers create money?
a. No, they do not have this power.
b. No, unless they have a special charter which permits it.
c. Yes, through multiple deposit creation.
d. Yes, by printing checks for customers.
Question 5Suppose you hold 5,000 in cash when the interest rate on bonds is 4 percent. Other things equal, as the bond interest rate declines to 3 percent, you will want to hold more money because the opportunity cost of holding money has decreased.
a. True
b. False
Indicate whether the statement is true or false
Question 6When a binding price floor is imposed on a market,
a. price no longer serves as a rationing device.
b. the quantity supplied at the price floor exceeds the quantity that would have been supplied without the price floor.
c. only some sellers benefit.
d. All of the above are correct.
Question 7An important effect of fractional reserve banking is that:
a. bankers' choices about how much to lend can affect the money supply.
b. the commercial banking system has complete control over total reserves.
c. bankers always turn every dollar of excess reserves into loans.
d. a new bank deposit allows a bank to extend loans of the same amount to borrowers.
Question 8There is an inverse relationship between the interest rate and the quantity of money demanded.
a. True
b. False
Indicate whether the statement is true or false
Question 9If the government removes a binding price floor from a market, then the price received by sellers will
a. decrease, and the quantity exchanged in the market will decrease.
b. decrease, and the quantity exchanged in the market will increase.
c. increase, and the quantity exchanged in the market will decrease.
d. increase, and the quantity exchanged in the market will increase.
Question 10Fractional reserve banking takes its name from the fact that:
a. banks hold only a fraction of their reserves at the bank itself.
b. banks keep only a fraction of total deposits on reserve.
c. banks reserve only a fraction of their activity for lending.
d. all of the above
Question 11The interest rate represents the opportunity cost of holding non-monetary assets.
a. True
b. False
Indicate whether the statement is true or false
Question 12If the government removes a binding price floor from a market, then the price paid by buyers will
a. increase, and the quantity exchanged will increase.
b. increase, and the quantity exchanged will decrease.
c. decrease, and the quantity exchanged will increase.
d. decrease, and the quantity exchanged will decrease.
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