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C211 SECOND OA QUIZZES EXAM 2025
QUESTIONS AND ANSWERS.
1. A bank which must hold 100 percent reserves opens in an
economy that had no banks and a currency of $150. If
customers deposit $50 into the bank, what is the value of the
money supply? - correct answer - $150
2. A bank has an 8 percent reserve requirement, $10,000 in
deposits, and has loaned out all it can, given the reserve
requirement. - correct answer - it has $800 in reserves and
$9,200 in loans
3. If the reserve requirement is 10 percent, a bank desires to hold
no excess reserves, and it receives a new deposit of $500, it -
correct answer - must increase required reserves by $50.
4. If the reserve ratio is 5 percent, then $500 of additional
reserves would ultimately generate - correct answer - $10,000
of money
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5. Which of the following increase when the Fed makes open
market purchases? - correct answer - Currency and reserves
6. The banking system currently has $10 billion of reserves, none
of which are excess. People hold only deposits and no
currency, and the reserve requirement is 10 percent. If the Fed
raises the reserve requirement to 12.5 percent and at the same
time buys $1 billion worth of bonds, then by how much does
the money supply change? - correct answer - It falls by $12
billion
7. Metropolis National Bank is holding 2% of its deposits as
excess reserves. Assume that no banks in the economy want
to maintain holdings of excess reserves and that people only
hold deposits and no currency. The Fed makes open market
purchases of $10,000. The person who sold bonds to the Fed
deposits all the funds in Metropolis National Bank. If the bank
now loans out all its excess reserves, by how much will the
money supply increase? - correct answer - $200,000
8. Which of the following will help to prevent bank runs? - correct
answer - 100% reserve banking
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9. A goal of monetary policy and fiscal policy is to - correct answer
- offset shifts in aggregate demand and thereby stabilize the
economy
10. For the U.S. economy, which of the following is the most
important reason for the downward slope of the aggregate-
demand curve? - correct answer - The interest-rate effect
11. While a television news reporter might state that "Today the
Fed raised the federal funds rate from 1 percent to 1.25
percent, " a more precise account of the Fed's action would be
as follows: - correct answer - Today the Fed told its bond
traders to conduct open-market operations in such a way that
the equilibrium federal funds rate would increase to 1.25
percent. "
12. When the Fed buys government bonds, the reserves of the
banking system - correct answer - increase, so the money
supply increases
13. An increase in the money supply will - correct answer -
reduce interest rates, increasing investment and aggregate
demand.
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14. In the short run, open-market purchases - correct answer -
increase investment and real GDP, and decrease interest rates
15. The government builds a new water-treatment plant. The
owner of the company that builds the plant pays her workers.
The workers increase their spending. Firms from which the
workers buy goods increase their output. This type of effect on
spending illustrates - correct answer - the multiplier effect.
16. When taxes decrease, interest rates - correct answer -
increase, making the change in aggregate demand smaller.
17. Suppose there is a tax increase. To stabilize output, the
Federal Reserve could - correct answer - increase the money
supply.
18. Critics of stabilization policy argue that - correct answer -
policy affects aggregate demand with a lag, and the effects on
aggregate demand are long-lived.
C211 SECOND OA QUIZZES EXAM 2025
QUESTIONS AND ANSWERS.
1. A bank which must hold 100 percent reserves opens in an
economy that had no banks and a currency of $150. If
customers deposit $50 into the bank, what is the value of the
money supply? - correct answer - $150
2. A bank has an 8 percent reserve requirement, $10,000 in
deposits, and has loaned out all it can, given the reserve
requirement. - correct answer - it has $800 in reserves and
$9,200 in loans
3. If the reserve requirement is 10 percent, a bank desires to hold
no excess reserves, and it receives a new deposit of $500, it -
correct answer - must increase required reserves by $50.
4. If the reserve ratio is 5 percent, then $500 of additional
reserves would ultimately generate - correct answer - $10,000
of money
, Page | 2
5. Which of the following increase when the Fed makes open
market purchases? - correct answer - Currency and reserves
6. The banking system currently has $10 billion of reserves, none
of which are excess. People hold only deposits and no
currency, and the reserve requirement is 10 percent. If the Fed
raises the reserve requirement to 12.5 percent and at the same
time buys $1 billion worth of bonds, then by how much does
the money supply change? - correct answer - It falls by $12
billion
7. Metropolis National Bank is holding 2% of its deposits as
excess reserves. Assume that no banks in the economy want
to maintain holdings of excess reserves and that people only
hold deposits and no currency. The Fed makes open market
purchases of $10,000. The person who sold bonds to the Fed
deposits all the funds in Metropolis National Bank. If the bank
now loans out all its excess reserves, by how much will the
money supply increase? - correct answer - $200,000
8. Which of the following will help to prevent bank runs? - correct
answer - 100% reserve banking
, Page | 3
9. A goal of monetary policy and fiscal policy is to - correct answer
- offset shifts in aggregate demand and thereby stabilize the
economy
10. For the U.S. economy, which of the following is the most
important reason for the downward slope of the aggregate-
demand curve? - correct answer - The interest-rate effect
11. While a television news reporter might state that "Today the
Fed raised the federal funds rate from 1 percent to 1.25
percent, " a more precise account of the Fed's action would be
as follows: - correct answer - Today the Fed told its bond
traders to conduct open-market operations in such a way that
the equilibrium federal funds rate would increase to 1.25
percent. "
12. When the Fed buys government bonds, the reserves of the
banking system - correct answer - increase, so the money
supply increases
13. An increase in the money supply will - correct answer -
reduce interest rates, increasing investment and aggregate
demand.
, Page | 4
14. In the short run, open-market purchases - correct answer -
increase investment and real GDP, and decrease interest rates
15. The government builds a new water-treatment plant. The
owner of the company that builds the plant pays her workers.
The workers increase their spending. Firms from which the
workers buy goods increase their output. This type of effect on
spending illustrates - correct answer - the multiplier effect.
16. When taxes decrease, interest rates - correct answer -
increase, making the change in aggregate demand smaller.
17. Suppose there is a tax increase. To stabilize output, the
Federal Reserve could - correct answer - increase the money
supply.
18. Critics of stabilization policy argue that - correct answer -
policy affects aggregate demand with a lag, and the effects on
aggregate demand are long-lived.
