CHAPTER 5.1

In a system of 100-percent-reserve banking,

• banks do not make loans.
• currency is the only form of money.
• deposits are banks’ only assets.
• All of the above are correct.

In a system of 100-percent-reserve banking,

• banks do not accept deposits.
• banks do not influence the supply of money.
• loans are the only asset item for banks.
• All of the above are correct.

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $100. If customers deposit $50 into the bank, what is the value of the money supply?

• 50
• 100
• 150
• 200

If a bank has a reserve ratio of 8 percent, then

• government regulation requires the bank to use at least 8 percent of its deposits to make loans.
• the bank’s ratio of loans to deposits is 8 percent.
• the bank keeps 8 percent of its deposits as reserves and loans out the rest.
• the bank keeps 8 percent of its assets as reserves and loans out the rest.

A bank’s reserve ratio is 5 percent and the bank has $1,000 in deposits. Its reserves amount to

• 5
• 50
• 95
• 950

A bank has a 10 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve requirement.

• It has $50 in reserves and $4,950 in loans.
• It has $500 in reserves and $4,500 in loans.
• It has $555 in reserves and $4,445 in loans.
• None of the above is correct.

In the special case of the 100 percent-reserve banking the money multiplier is

• 1 and banks create money.
• 1 and banks do not create money.
• 2 and banks create money
• 2 and banks do not create money.

If the Fed sells government bonds to the public, then reserves

• increase and the money supply increases.
• increase and the money supply decreases.
• decrease and the money supply increases.
• decrease and the money supply decreases.

If the money multiplier is 2 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

• it increases by $100,000
• it increases by $150,000
• it decreases by $100,000
• it decreases by $150,000

The discount rate is the interest rate that

• banks charge one another for loans.
• banks charge the Fed for loans.
• the Fed charges banks for loans.
• the Fed charges Congress for loans.