On a bank's balance sheet, the value of its assets must equal the value of its:

the value of its liabilities plus net worth.

Suppose the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent. Which of the following is true?

Required reserves on the new deposits are $60,000.

Required reserves on the new deposits are $12,000.

Excess reserves on the new deposits are $500,000.

Excess reserves on the new deposits are $12,000.

Total reserves on the new deposits are $440,000.

To maximize its profit, a bank will:

minimize the number transactions it engages in.

When a customer deposits $1,000 in a bank, the deposit is:

a liability for the bank as the bank owes it to the customer.

an asset of the Federal Reserve.

included in M1 if it is currently in the bank's vault.

an asset to the bank if it is currently in the bank's vault.

Which of the following is true of banks?

Banks reduce the transaction costs of borrowing and lending money.

Banks reduce the opportunity cost of holding idle cash.

Banks act as intermediaries between the government and private investors.

Banks can reduce risk by lending to rich borrowers.

Banks can reduce risks by extending more loans.

Banks differ from other types of businesses because banks:

combine economic resources to produce services.

are regulated by the government.

If the Fed purchases government securities in the open market, _____.

the money supply will increase through the commercial banking system regardless of who the seller is

the money supply will increase only if the seller of those securities is a commercial bank

the money demand will increase immediately

the money demand will decrease immediately

Suppose the reserve requirement is 15 percent. Which of the following is true?

The simple money multiplier is 1/0.15.

The simple money multiplier is 15.

The simple money multiplier is 1/15.

The simple money multiplier is 30,000.

The simple money multiplier is 1/30,000.

Suppose the reserve requirement ratio is 20 percent. Assuming no bank holds excess reserves and nobody withdraws cash, a $10,000 injection of new reserves by the Fed can create:

$50,000 in new checkable deposits.

$2,000 in new checkable deposits.

$10,000 in new checkable deposits.

$500,000 in new checkable deposits.

Suppose you bank at Bank A and you write a check to your friend, who banks at Bank B. After the check clears, _____.

Bank A's assets decrease and Bank B's assets increase

both Bank A's and Bank B's assets increase

both Bank A's and Bank B's assets decrease

Bank A's assets increase and Bank B's assets decrease

there is an increase in the Federal Reserve's assets

The banking system creates money in the sense that it:

creates loans from excess reserves.

creates excess reserves from loans.

creates required reserves from loans.

creates loans from required reserves.

The actual money multiplier is smaller than the simple money multiplier because:

cash withdrawals reduce the amount banks can lend out.

the actual multiplier affects M2 rather than M1.

the actual multiplier affects the amount of excess reserves each bank holds.

the size of the simple multiplier depends on the volume of deposits unlike the actual multiplier.

the actual multiplier uses a different measure of reserve requirements.

The extent of money expansion will be:

less if banks hold on to excess reserves or private individuals hold on to cash.

greater if banks hold on to excess reserves.

greater if private individuals hold on to cash.

greater if banks hold on to excess reserves but less if private individuals hold on to cash.

less if banks hold on to excess reserves but greater if private individuals hold on to cash.

The money expansion process continues until there are no more:

excess reserves in the banking system that banks are willing to lend.

required reserves in the banking system.

demand deposits in the banking system.

liabilities in the banking system.

An increase in the money supply leads to a(n)

decline in interest rates, an increase in investment, and an increase in aggregate demand.

decline in interest rates, a decrease in investment, and an increase in aggregate demand.

decline in interest rates, an increase in investment, and a decline in aggregate demand.

increase in interest rates, an increase in investment, and an increase in aggregate demand.

decline in interest rates, a decline in investment, and a decline in aggregate demand.

If the Fed decreases the money supply, gross domestic product:

decreases by a greater amount than the decrease in investment because of the multiplier.

increases by the same amount as the increase in the interest rate.

decreases by a greater amount than the decrease in investment because of the multiplier.

decreases by the same amount as the decrease in investment.

decreases by a lesser amount than the decrease in investment because of the multiplier.

If the Fed purchases U.S. government securities, gross domestic product:

increases because the resulting decrease in the interest rate leads to an increase in investment.

increases because the resulting increase in the interest rate leads to a decrease in investment.

decreases because the resulting increase in the interest rate leads to a decrease in investment.

decreases because the resulting increase in the interest rate leads to an increase in investment.

decreases because the resulting decrease in the interest rate leads to an increase in investment.

If the Fed sells U.S. government securities in the open market, gross domestic product:

decreases because the resulting increase in the interest rate leads to a decrease in investment.

increases because the resulting increase in the interest rate leads to a decrease in investment.

increases because the resulting decrease in the interest rate leads to an increase in investment.

decreases because the resulting increase in the interest rate leads to an increase in investment.

decreases because the resulting decrease in the interest rate leads to an increase in investment.

For a given money demand curve, an increase in money supply:

lowers the opportunity cost of holding money.

drives up the real interest rate.

decreases the quantity of money demanded.

drives down the price level in an economy.

contracts the total output produced in an economy.

An increase in the nominal interest rate, other things constant, will:

decrease the quantity of money people choose to hold.

shift the money demand curve to the right.

shift the money demand curve to the left.

increase the quantity of money people choose to hold.

have no impact on the money demand curve.

Which of the following is not an activity of the Fed?

Lending funds to the federal government

Purchasing U.S. government securities

Holding deposits of the U.S. Treasury

A firm's level of investment depends on the market interest rate:

because the interest rate represents the opportunity cost of investing in capital.

only when the firm has to borrow funds to invest in new equipment.

only when the firm has to borrow funds to buy stocks and bonds.

only when the firm already has sufficient funds and could lend them.

A technological change that positively affects business expectations will:

cause a rightward shift of the investment demand curve.

cause a leftward shift of the investment demand curve.

cause an upward movement along the investment demand curve.

cause a downward movement along the investment demand curve.

An increase in income in other countries, other things equal, would cause U.S. _____.

imports to remain unchanged and exports to increase

exports to decrease and imports to increase

imports to decrease and exports to decrease

imports to increase and exports to remain unchanged

An increase in the U.S. price level, other things constant, will _____.

decrease U.S. exports and increase U.S. imports

increase U.S. exports and decrease U.S. imports

increase U.S. exports and leave U.S. imports unchanged

decrease U.S. exports and leave U.S. imports unchanged

Identify the correct statement.

Annual variations in investment are larger than annual variations in consumption.

During a recession, investment increases while consumption decreases.

During a recession, investment is constant while consumption increases.

Annual variations in investment are smaller than annual variations in consumption.

Historically, consumption spending in the United States has _____.

remained approximately constant as a percentage of income

fluctuated greatly with changes in the level of income

decreased as a percentage of income

varied inversely with the inflation rate

If incomes in the United States increase, other things equal, then U.S. _____.

imports increase and exports remain constant

exports increase and imports decrease

imports decrease and exports decrease

imports remain constant and exports increase

In an economy without a government and without international transactions, aggregate expenditure at each level of income is equal to:

consumption plus planned investment.

planned investment plus saving.

disposable income plus the price level.

Econ Exam #2

Authored by jerry morales

Business

10th Grade

Used 23+ times

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68 questions

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Barter is the direct exchange of goods and services for:

any kind of money

other goods and services

either goods or money

commodity money

foreign currency

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

An important function of commercial banks is to _____.

print new currency

issue fiat money

mint coins

redeem currency for precious metals

make loans

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Exchange is necessary in an economy if:

output is to be produced.

output is to be consumed

individuals are self-sufficient.

families are self-sufficient.

labor is specialized

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The reserve ratio is the ratio of:

Federal Reserve member banks to nonmember bank

Federal Reserve nonmember banks to member banks.

Federal Reserve member banks to all U.s Banks

a banks total deposits to its reserves

a banks reserves tp its total deposits

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Banks want to minimize their holdings of excess reserves because:

they will be penalized by the Federal Reserve System if excess reserves are too high.

required reserves are also minimized when banks minimize their holdings of excess reserves.

the money multiplier becomes too large if the excess reserves are high.

they want to borrow more on the federal funds market.

excess reserves earn no intrest

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Banks help to overcome the problem of asymmetric information by

lending to a single rich borrower and not diversifying their portfolio.

acquiring expertise in evaluating the credit histories of borrowers.

threatening borrowers.

offering only one type of loan.

providing information to lenders.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

In the federal funds market, _____.

banks make loans to the Fed

banks make short-term loans to other banks

banks make long-term loans to other banks

the Fed makes short-term loans to private borrowers

the Fed makes long-term loans to commercial banks

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Econ Exam #2

​Barter is the direct exchange of goods and services for:

​An important function of commercial banks is to _____.

​Exchange is necessary in an economy if:

The reserve ratio is the ratio of:

Banks want to minimize their holdings of excess reserves because:

Banks help to overcome the problem of asymmetric information by

In the federal funds market, _____.​

On a bank's balance sheet, the value of its assets must equal the value of its:

Suppose a bank has $8,000 in checkable deposits and the required reserve ratio is 0.2. If actual reserves equal $3,000, then excess reserves equal:​

Suppose the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent. Which of the following is true?​

Access all questions and much more by creating a free account

Similar Resources on Wayground

Popular Resources on Wayground

Discover more resources for Business

Barter is the direct exchange of goods and services for:

An important function of commercial banks is to _____.

Exchange is necessary in an economy if:

In the federal funds market, _____.

Suppose a bank has $8,000 in checkable deposits and the required reserve ratio is 0.2. If actual reserves equal $3,000, then excess reserves equal:

Suppose the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent. Which of the following is true?