If people refused to use banks to create checkable deposits, the banking system would:
a. not be affected in the money creating process.
b. not have a way to loan out excess reserves.
c. be able to expand the money supply by more than the money multiplier indicates.
d. not be able to create new money.
e. not be able to find new borrowers.
QUESTION 2Real-world accuracy of the money multiplier can be affected by:
a. the amount of loans provided by nonbanks.
b. the way the public divides its holding of M1 between currency and certificates of deposit.
c. the willingness of banks to loan excess reserves.
d. all of these.
QUESTION 3When the economy is at full employment and inflation is present, the government could create a surplus budget by cutting its own spending and raising taxes. The Fed would be expected to:
a. reduce the required reserve ratio, increase the discount rate, and buy securities on the open market.
b. reduce the required reserve ratio, reduce the discount rate, and sell securities on the open market.
c. reduce the required reserve ratio, reduce the discount rate, and buy securities on the open market.
d. increase the required reserve ratio, reduce the discount rate, and sell securities on the open market.
e. increase the required reserve ratio, increase the discount rate, and sell securities on the open market.
QUESTION 4When a recession hits, we would expect the government to run a budget deficit by raising the level of its spending or by cutting taxes, or perhaps both. The Fed would be expected to:
a. reduce the required reserve ratio, increase the discount rate, and buy securities on the open market.
b. reduce the required reserve ratio, reduce the discount rate, and sell securities on the open market.
c. reduce the required reserve ratio, reduce the discount rate, and buy securities on the open market.
d. increase the required reserve ratio, reduce the discount rate, and sell securities on the open market.
e. increase the required reserve ratio, increase the discount rate, and sell securities on the open market.
QUESTION 5Which of the following would cause the money supply to increase?
a. An open market purchase by the Fed. b. A reduction in the discount rate.
c. A reduction in required ratios. d. All of these.
QUESTION 6The Fed's countercyclical policy during expansion and prosperity includes:
a. raising the required reserve ratio, raising the discount rate, and selling government bonds on the open market.
b. raising the required reserve ratio, raising the discount rate, and buying government bonds on the open market.
c. raising the required reserve ratio, cutting the discount rate, and selling government bonds on the open market.
d. raising the required reserve ratio, cutting the discount rate, and buying government bonds on the open market.
e. lowering the required reserve ratio, cutting discount rates, and buying government bonds on the open market.
QUESTION 7The Fed's countercyclical policy tools to eliminate a recession include lowering:
a. the required reserve ratio, cutting the discount rate, and selling government bonds on the open market.
b. the required reserve ratio, raising the discount rate, and selling government bonds on the open market.
c. the required reserve ratio, raising the discount rate, and buying government bonds on the open market.
d. the discount rate, cutting the discount rate, and raising the margin requirement.
e. the reserve requirement, lowering the discount rate, and buying government bonds on the open market.
QUESTION 8Which of the following actions by the Fed would increase the money supply?
a. Increasing the required reserve ratio.
b. Selling government bonds in the open market.
c. Increasing the discount rate.
d. Reducing the required reserve ratio.
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