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University Of Arizona - ECON 330 Quiz 3. All Answers

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University Of Arizona - ECON 330 Quiz 3.
All Answers
1. If a single bank faces a required reserve ratio of 20%, has total reserves of $500,000,
and checkable deposit liabilities of $400,000, what is the maximum amount of money
this bank could create (add to the money supply)?- solve for excess reserves
a. $100,000
b. $420,000
c. $80,000 Answers available at https://bit.ly/35tr8im
d. $2,100,000
e. $500,000
2. As of May, 2011, the major component of the M1 money supply was:
a. Currency in circulation outside the banks
b. Small denomination time deposits
c. Demand deposits and other checkable deposits
d. Savings deposits and money market deposit accounts.
e. Money market mutual fund shares Answers available at https://bit.ly/35tr8im
3. According to most recent estimates, the amount of U.S. currency in circulation per
person in the U.S. is on the order of:
a. $3,000
b. $1,000
c. $5,000
d. $2,000
e. $4,000
4. Looking at the $ value of the assets held by the primary financial intermediaries in the
U.S., which type of financial intermediary has by far the largest $ value of assets:
a. Mutual fund companies
b. Life insurance companies
c. Commercial banks
d. Private pension funds
e. Money market mutual funds Answers available at https://bit.ly/35tr8im
5. Comparing how many dollars it takes to attend college each year to annual earnings
on a job represents the use of money as a:
a. Medium of exchange
b.
c.
d.
e.
Store of value
Unit of account
Standard of deferred payment
All of the above Answers available at https://bit.ly/35tr8im
6. Paper money which is not backed by, and is not convertible into, any other commodity
is called:
a. Commodity money
b. Real money
c. Seinorage
d. Worthless
e. Fiat money
7. The Federal Reserve’s principal decision-making body, where the Federal Reserve
exercises monetary control over the economy through a 12-person committee that
includes all seven members of the Board of Governors, is known as the:
a. Federal Deposit Insurance Corporation
b. System Board of Governors
c. Reserve Requirement Regulation Committee
d. Federal Open Market Committee
e. Federal Funds Advisory Committee Answers available at https://bit.ly/35tr8im
8. The rate of interest that the Federal Reserve charges member banks to borrow money
is called the:
a. Prime rate
b. Federal funds rate
c. Discount rate
d. Federal reserve rate
e. Commercial rate
9. The Federal Deposit Insurance Corporation (FDIC):
a. Insures all demand deposit accounts up to $500,000 in banks choosing FDIC
protection
b. Was created as a government-owned corporation following the creation of the World
Bank and the International Monetary Fund after World War II
c. Rarely evaluates bank performance to detect weaknesses in operation
d. Creates monetary policy in conjunction with the Federal Reserve Board
e. Was created in the 1930’s to reduce the risk of banking by compensating depositors
and keeping bank failures from spreading Answers available at https://bit.ly/35tr8im
10. In a commercial bank’s T-account, reserves, and outstanding loans are recorded as:
a. Assets
b. Debts
c. Profits
d. Liabilities
e. Net worth Answers available at https://bit.ly/35tr8im
11. Assume a bank faces a required reserve ratio of 5 percent. If a bank has $200 million
of checkable deposits and $15 million of total reserves, then how large are the bank’s
excess reserves?
a. $0
b. $5 million
c. $10 million
d. $15 million
e. $200 million
12. Which of the following would be classified as a liability for a commercial bank?
a. Reserves
b. Securities
c. Loans to customers
d. Checkable deposits
e. Buildings/property
13. An individual bank can lend out at most an amount equal to its:
a. Actual reserves
b. Fractional reserves
c. Legal reserves
d. Checkable deposits minus capital requirements
e. Excess reserves
14. Imagine that Odyssey National is a brand new bank and that its legal reserve
requirement is 10%. If it accepts a $1,000 deposit, then its excess reserve balance will
be:
a. $0
b. $90
c. $100
d. $900
e. $910 Answers available at https://bit.ly/35tr8im
15. The legal reserve requirement is:
a.
b.
c.
d.
The minimum amount of reserves the Federal Reserve requires a bank to hold
The interest rate that the Federal Reserve charges banks who borrow from them
The interest rate on loans made by banks to other banks
The maximum percentage of the cost of a stock that can be borrowed from a bank,
with the stock offered as collateral
e. An appeal by the Federal Reserve to banks, asking for voluntary compliance with the
Federal Reserve’s wishes
16. The money supply will grow faster through deposit creation when the legal reserve
requirement is:
a. High and banks hold no excess reserves
b. High and banks cannot find good customers to lend to
c. Low and banks are willing and able to lend out all of their excess reserves
d. Low and banks are unable to loan out all of their excess reserves
e. High and banks are not able to loan out all of their excess reserves
17. If the required-reserve ratio is a uniform 15% on all deposits, the simple money
multiplier will be:
a. 4.00
b. 6.67
c. 2.50
d. 0.85 Answers available at https://bit.ly/35tr8im
e. .15
18. Which of the following events would reduce the size of the “real world” money
multiplier?
a. The Federal Reserve reduces the required reserve ratio
b. Banks hold extensive excess reserves in their vaults and/or on deposit with the
Federal Reserve
c. Households hold less currency
d. The Federal Reserve increases the discount rate
e. All of the above
19. If the legal reserve requirement decreases, the:
a. Money multiplier decreases
b. Money multiplier increases
c. Amount of excess reserves the bank has decreases
d. Money multiplier stays the same
e. Amount of excess reserves stays the same Answers available at https://bit.ly/35tr8im
20. Calculate the realistic money multiplier if the reserve requirement is 0.10, the
currency – deposit ratio is 0.5, and the excess reserve ratio is 0.0001.
a. 2.5
b. 2.44
c. 2.3
d. 2.06
e. 5
21. Suppose Elizabeth deposits $100,000 into her checking account in a commercial bank.
Given a 10% reserve requirement, the result would be a:
a. Zero change in required reserves, assuming the bank was not “loaned up”
b. $100,000 increase in required reserves
c. $100,000 increase in excess reserves
d. $10,000 increase in required reserves
e. $80,000 increase in excess reserves Answers available at https://bit.ly/35tr8im
22. Which of the following commercial bank assets yields a 0% return?
a. U.S. Treasury Bills of 6 months duration or less
b. Reserves held on deposit with the Fed
c. Deposits with correspondent banks (small banks often have deposit accounts at larger
banks)
d. State and Municipal bonds
e. Vault cash
Answers available at https://bit.ly/35tr8im
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