A decrease in the reserve requirement causes the size of the money multiplier to

• increase, the amount of excess reserves in the banking system to rise, and the money supply to increase
• decrease, the amount of excess reserves in the banking system to rise, and the money supply to increase.
• decrease, the amount of excess reserves in the banking system to rise, and the money supply to decrease.
• increase, the amount of excess reserves in the banking system to rise, and the money supply to decrease.

Alberta Bank is considering making a $50 million loan to a company named Sheet Oil that wants to commercialize a process for turning used blankets, pillowcases, and sheets into oil. This company's chances for success are dubious, but Alberta Bank makes the loan anyway because it believes that the government will bail it out if Sheet Oil goes bankrupt and cannot repay the loan.Alberta Bank's decision to make the loan has been affected by:

• moral hazard
• the productivity paradox
• liquidity
• the paradox of thrift

A goldsmith has $2 million of gold in his vaults. He issues $5 million in gold receipts. What is the ratio of his gold holdings to the amount of paper money he has issued?

• 5/5
• 1/5
• 1/10
• 2/5

A chartered bank has $100 million in demand-deposit liabilities and $12 million in actual reserves. The desired reserve ratio is 0.1. How big are the bank's excess reserves?

• $2 million
• $12 million
• $88 million
• $100 million

A single chartered bank in a multibank banking system can lend only an amount equal to its initial pre-loan _________________.

• excess reserves
• excess deposits
• total deposits
• total reserves

Suppose the desired reserve ratio is 10 percent and that chartered banks collectively have $2 billion in excess reserves. What is the maximum amount of new demand-deposit money that can be created by the banking system?

• $0
• $200 million
• $20 billion
• $2 billion

Assume that Jimmy Cash has $2,300 in his chequing account and uses his chequing account card to withdraw $230 of cash from the bank's automated teller machine.

By what dollar amount did theM1money supply change as a result of this single transaction?

$ _________

Suppose that Serendipity Bank has excess cash reserves of $12,000 and demand deposits of $150,000.

If the desired reserve ratio is 20 percent, what is the size of the bank's actual cash reserves?

$_________

Suppose again that the Bank of Manitoba has cash reserves of $20,000 and deposits of $100,000. The desired reserve ratio is 20 percent. The bank now sells $5,000 in securities to the Bank of Canada, receiving a $5,000 increase in its deposit there in return.

a.What level of excess reserves does the bank now have?

$__________

b.Why does your answer differ from the situation where a household deposits $5,000 of currency into the bank?

• The sale of securites to the Bank of Canada does not change the value of the bank's net worth, thus the level of desired reserves has not changed either.
• The sale of securites to the Bank of Canada does not change the amount of demand deposits, thus the level of desired reserves has not changed either.
• The sale of securites to a securities dealer does not change the amount of assets, thus the level of desired reserves has not changed either.
• The sale of securites to the Bank of Canada does not change the amount of assets, thus the level of desired reserves has not changed either.

a.If the desired reserve ratio is 10 percent, what is the monetary multiplier?

b.If the monetary multiplier is 4, what is the desired reserve ratio?

______percent