Multiple Choice Questions
1. The money supply includes all of the following EXCEPT
a. Metal coins.
b. Paper currency.
c. Lines of credit accessible with credit cards.
d. Bank balances accessible with debit cards.
2. Chloe takes $100 of currency from her wallet and deposits it into her checking account. If the bank adds the entire $100 to reserves, the money supply _________, but if the bank lends out some of the $100, the money supply _________.
a. Increases, increases even more
b. Increases, increases by less
c. Is unchanged, increases
d. Decreases, decreases by less
3. If the reserve ratio is ¼ and the central bank increases the quantity of reserves in the banking system by $120, the money supply increases by
a. $90.
b. $150.
c. $160.
d. $480.
4. A bank has capital of $200 and a leverage ratio of 5. If the value of the bank's assets decline by 10 percent, then its capital will be reduced to
a. $100.
b. $150.
c. $180.
d. $185.
5. Which of the following actions by the Fed would reduce the money supply?
a. An open-market purchase of government bonds
b. A reduction in banks' reserve requirements
c. An increase in the interest rate paid on reserves
d. A decrease in the discount rate on Fed lending
6. In a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold _________ currency or if banks choose to hold _________ excess reserves.
a. More, more
b. More, less
c. Less, more
d. Less, less