AUGUST 25 - ECO1200 Revision Test 1

What is the effect of a reserve requirement of 20% on the money multiplier in a fractional reserve banking system?

• The money multiplier is 10

• The money multiplier is 2

• The money multiplier is 5

• The money multiplier is 0.2

Suppose Jacob moves his €5,000 demand deposit from Bank A to Bank B. If both banks operate with a reserve ratio of 10 percent, what is the potential change in the money supply as a result of Jacob's action?

• €10,000

• €0

• €1,000  

• €9,000

____ refers to a system in which commercial banks are mandated to keep only a fraction of their deposits in reserve, with the remainder available for lending to borrowers.

• Money Multiplier

• Excess Reserve

• Money Supply

• Fractional Reserve Banking System

Which characteristic of money refers to its ability to maintain value over time and not degrade or wear out quickly?

• Durability

• Acceptability

• Portability

• Divisibility

Which function of the central bank is responsible for managing the country’s money supply and interest rates?

• Debt management

• Banking supervision

• Monetary policy

• Currency issuance

When the central bank raises the reserve requirement, what is the effect on the excess reserves of commercial banks?

• They decrease

• They increase

• They become more volatile

• They remain unchanged

Assume Bank Negara Malaysia buys a RM 1,000 government bond from you. If you deposit the full RM 1,000 into your bank, what is the total potential impact on the money supply, given that your bank has a reserve ratio of 20 percent?

• RM 5,000

• RM 0

• RM 4,000

• RM 1,000

Assume the central bank buys a RM 500 government bond from you. If you deposit the full RM 500 into your bank, what is the total potential impact on the money supply, given that your bank has a reserve ratio of 25 percent?

• RM 1,500

• RM 500

• RM 0

• RM 2,000

Which of the following policy actions by a central bank is likely to increase the money supply?

• Selling government bonds in open market operations.

• Increasing reserve requirements.

• Decreasing the interest rate

• All of these will increase the money supply.

If Lily deposits $500 in cash into her savings account and the bank keeps the entire $500 as reserves, the money supply ____. However, if the bank lends out a portion of the $500, the money supply ____.

• increases, increases by a larger amount

• remains unchanged, increases

• decreases, decreases by a larger amount

• increases, increases by a smaller amount