The Financial Sector / Monetary Policy Practice

When the interest rate rises, bond prices

• decrease

• increase

• are unchanged because the interest rate on a bond is fixed

• are adjusted by the US Treasury

The RRR is 25%. This means the money multiplier will be

• 5

• 10

• 20

• 4

Which of the following actions by the Fed will result in a decrease in the money supply?

• an increase in the RRR

• a tax increase

• a decrease in the discount rate

• buying government securities on the open market

The RRR is 10%. You deposit $1000 cash in your bank. What is the initial increase in demand deposits from this transaction?

• $1000

• $900

• $9000

• $10000

The reserve requirement is 10%. You deposit $1000 cash into your bank. What is the maximum increase in demand deposits in the banking system that eventually results from this transaction?

• $1000

• $9000

• $10000

• $100

The reserve requirement is 10%. You deposit $1000 cash in your bank account. What is the maximum increase in the money supply that could result from this transaction?

• $900

• $1000

• $9000

• $10000

The reserve requirement is 20%. The Fed buys $1 million in bonds on the open market. What is the initial increase in excess reserves?

• $800,000

• $1 million

• $5 million

The reserve requirement is 20%. The Fed buys $1 million of bonds on the open market. What is the maximum increase in the money supply?

• $1 million

• $20 million

• $5 million

• $4 million