1.The size of the money multiplier:

A) is determined only by the currency-deposit ratio

B) is determined only by the reserve-deposit ratio

C) decreases as the currency-deposit ratio decreases

D) increases as the reserve-deposit ratio decreases

E) increases as the reserve requirement is increased

2.While the RBF can influence the money supply, the ratio of currency to deposits in the country at any given time is determined:

A) by the Treasury

B) jointly by the Treasury and the RBA

C) by all lending institutions that provide banking services

D) by the public, as households and businesses hold money in the form they prefer

E) only by the actions of commercial banks

3.Banks tend to hold some excess reserves:

A) for precautionary purposes to reduce the probability of illiquidity

B) to avoid the costs of borrowing from other financial institutions

C) to avoid the costs of borrowing from the RBA at the discount rate

D) all of the above

E) none of the above

4.If the currency-deposit ratio is 23% and the reserve-deposit ratio is 7%, then the size of the money multiplier is:

A) 0.3

B) 2.0

C) 3.0

D) 3.3

E) 4.1

CONCEPTUAL

5.The Reserve Bank of Fiji wants to increase the money supply. What are the main instruments available to it, and how can each, specifically, increase the money supply?

6.Under what circumstances should the Reserve Bank Fiji conduct monetary policy by targeting mainly

a. interest rate or b. money supply.

7.What is an exchange settlement account?

TECHNICAL

8.A proposal for '100 per cent banking' involves a reserve-deposit ratio of unity. Such a scheme has been proposed for the United Sates in order to enhance the Fed's control over the money supply.

a.Indicate why such a scheme would help the monetary control.

b.Indicate what bank balance sheets would look under the scheme.

c.Under 100 percent banking, how would banking remain profitable?