PSU Econ 104 Final Exam – Brown (Graded A+)

PSU Econ 104 Final Exam – Brown (Graded A+) If the required reserve ration is 20%, the simple deposit multiplier is _______ A. 2 B. 5 C. 10 D. 20 -Answer-B. 5 1/.2 = 5 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and the reserve ratio is 20%. As a result of Kristy's deposit, Bank A's reserves immediately increase by: A. $2,000 B. $8,000 C. $ 10,000 D. $50,000 -Answer-C. $10,000 This is how much money she puts in the bank. Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and the reserve ratio is 20%. As a result of Kristy's deposit, Bank A's required reserves increase by: A. $2,000 B. $8,000 C. $10,000 D. $50,000 -Answer-A. $2,000 If the bank must keep 20%, then $10,000 *.2 = $2,000 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and the reserve ratio is 20%. As a result, of Kristy's deposit, Bank A's excess reserves increase by: A. $2,000 B. $8,000 C. $10,000 D. $50,000 -Answer-B. $8,000 Their excess reserves will increase by however much she put in minus how much they are required to keep. $10,000-$2,000 = $8,000 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and the reserve ratio is 20%. As a result of Kristy's deposit, Bank A's excess reserves increase by: A. $2,000 B. $8,000 C. $10,000 D. $50,000 -Answer-B. $8,000 The bank can only lend out whatever their excess reserves are equal to. From Kristy's deposit alone, the only excess reserves the bank has is equivalent to $8,000 Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and the reserve ratio is 20%. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of: A. $8,000 B. $10,000 C. $50,000 D. $100,000 -Answer-C. $50,000 $10,000/.2 = $50,000 When you open a checking account at Bank of America, Bank of America: A. Has more reserves and more excess reserves B. Has more reserves, but excess reserves remain unchanged C. Has more deposits and less in excess reserves D. Has more deposits, but excess reserves remain unchanged -Answer-A. Has more reserves and more excess reserves Immediately after depositing your money, the bank isn't yet able to loan it out. This means that the reserves will increase (since you deposit money,) and there will be excess reserves because the money you deposited wasn't able to be loaned out yet. Consider the following simplified balance sheet for National City Bank: Assets: Reserves: $10,000 Loans: $90,000 Liabilities: Deposits $100,000 If the required reserve ratio is lowered to 8%, how many additional funds can National City loan out? A. $10,000 B. $8,000 C. $2,000 D. $0 -Answer-C. $2,000 We can assume that the reserve ratio is 10% since $100,000/$10,000=10. Therefore, lowering the ratio to 8% would allow the bank to loan out $2,000 more dollars. If the required reserve ratio is RR, the simple deposit multiplier is defined as: A. 1/(1-RR) B. 1/(RR) C. 1/(RR) * change in bank reserves D. 1/(1-RR)* change in bank reserves -Answer-B. 1/(RR) A decrease in the discount rate ________ bank reserves and _______ the money supply if banks respond appropriately to the change in the rate. A. Increases; increases B. Increases; decreases C. Decreases; increases D. Decreases; decreases -Answer-A. Increases; increases If a bank receives a $1 million discount loan from the Federal Reserve, the the bank's reserves will increase by: A. not change B. increase by $1 million C. increase by less than $1 million D. increase by more than $1 million -Answer-B. increase by $1 million An increase in interest rates: A. decreases investment spending on machinery,