Multiple Deposit Expansion Practice
1. Given a required reserve ratio of 20%, assume the Federal Reserve purchases $100 million worth of US Treasury
Securities on the open market from a primary security dealer. Determine the amount that a single bank can lend
from this Federal Reserve purchase of bonds.
2. Given a required reserve ratio of 20%, assume the Federal Reserve purchases $100 million worth of US Treasury
Securities on the open market from a primary security dealer. Determine the maximum change in loans in the
banking system from this Federal Reserve purchase of bonds.
3. Given a required reserve ratio of 20%, assume the Federal Reserve purchases $100 million worth of US Treasury
Securities on the open market from a primary security dealer. Determine the maximum change in the money
supply from this Federal Reserve purchase of bonds.
4. Given a required reserve ratio of 20%, assume the Federal Reserve purchases $100 million worth of US Treasury
Securities on the open market from a primary security dealer. Determine the maximum change in demand
deposits from this Federal Reserve purchase of bonds.
Use the following to answer questions 52-55:
Answer the next question(s) on the basis of the following list of assets:
1. Large ($100,000 and over) time deposits
2. Noncheckable savings deposits
3. Currency (coins and paper money)
4. Small (under $100,000) time deposits
5. Stock certificates
6. Checkable deposits
7. Money market deposit accounts
8. Money market mutual fund balances
52. Refer to the above list. The M1 definition of money comprises item(s):
A) 6 only.
B) 3, 4, and 6.
*C) 3 and 6.
D) 2, 3, and 6.
53. Refer to the above list. The M2 definition of money comprises:
A) items 1, 2, 3, and 6.
B) items 3, 4, 5, and 6.
*C) items 2, 3, 4, 6, 7, and 8.
D) items 1, 2, 3, and 4.
54. Refer to the above list. The M3 definition of money comprises:
*A) items 1, 2, 3, 4, 6, 7, and 8.
B) items 2, 3, 4, 6, 7, and 8.
C) items 1, 3, 4, 6, 7, and 8.
D) all of the eight items listed.
55. Refer to the above list. Which of the following is not included in any of the three official definitions of money?
A) item 2
*B) item 5
C) item 4
D) items 1 and 4