Money Multiplier Practice

Front

How does the FED get reserves?

Back

They make it up out of thin air.

Answer explanation

The FED gets theses reserves by making them up literally out of thin air.

Front

What is a bank’s asset?

Back

Cash, loans, investments, and physical property

Answer explanation

An asset is any physical property or financial claim that is owned.

Front

What is the required reserve ratio?

Back

The required reserve ratio is the portion of depositors' balances that banks must have on hand as cash.

Answer explanation

Because the required reserve ratio is 0.1, Fidelity Bank sets side $1,000 of the new deposit as reserves and lends the remaining $9,000 for a computer purchase by increasing the borrower’s checking account.

Front

What cycle repeats after round one? Options: life cycle, water cycle, cycle of the moon, Borrowing, spending, and depositing.

Back

Borrowing, spending, and depositing.

Front

What is the money multiplier?

Back

The maximum multiple by which the money supply increases as a results of an increase in the banking system’s excess reserves.

Answer explanation

The money multiplier is the maximum multiple by which the money supply increases as a results of an increase in the banking system’s excess reserves.

Front

We can hold money as a form of wealth until we find something we want to buy with it.

Back

Store of Value

Front

Assume the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is

Back

8,000

Front

Casey deposits $500 to Chase Bank. How much will this increase the money supply if the RR is 10%?

Back

$4500

Front

Ronald deposited $1,000 into Texas Regional Bank. If the Reserve Requirement is 10%, how much “new” money has been created due to Ronald's deposit?

Back

9000

Front

When the Federal Reserve buys government securities on the open market, which of the following will decrease in the short run?
interest rates, Taxes, Investment, The amount of money loaned by banks, The money supply

Back

interest rates