Assume we have a simplified banking system in balance-sheet equilibrium. Also assume that all banks are subject to a uniform 10 percent reserve requirement and demand deposits are the only form of money. A commercial bank receiving a new demand deposit of 100 would be able to extend new loans in the amount of:
a. 10 b. 90.
c. 100 d. 1,000.
QUESTION 2Which of the following is most likely to be a major source of growth in per capita GDP?
a. A high investment / GDP ratio b. A high rate of inflation
c. Rapid population growth d. Rapid growth in the money supply
QUESTION 3The spending multiplier effect is the result of a shift in the aggregate expenditures (AE) line.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 4Which of the following would not appear on the asset side of a commercial bank balance sheet?
a. Reserves. b. Checkable deposits.
c. Loans. d. Securities.
QUESTION 5Investment in both physical and human capital enhances economic growth because it:
a. increases consumption during the current period.
b. makes it possible for individuals to produce more goods and services per hour worked.
c. encourages firms to expand output by employing more low-productivity workers.
d. encourages workers to unionize and, thereby, fight for higher wages.
QUESTION 6The greater the marginal propensity to consume in the economy, the smaller the spending multiplier.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 7A bank's required reserves are:
a. held as deposits with the Federal Reserve System.
b. equal to its checkable deposits.
c. equal to its transactions deposits.
d. none of these.
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