Fact 1

Assume that the banking system does not keep any excess reserves, there is no currency drain and all deposits are chequable deposits. Suppose that the consolidated balance sheet of the chartered banks was as follows (all figures are in millions of dollars):

1. 14)Refer to Fact 1. Based on the initial consolidated balance sheet, what is its desired reserve ratio? A) 4 percent
2. B) 8 percent
3. C) 12.5 percent D) 25 percent E) 40 percent
4. 15)Refer to Fact 1. If the currency in circulation is $20 billion, then the money supply, defined as M1 is
5. A)$20 billion
6. B)$60 billion
7. C)$480 billion
8. D)$500 billion
9. E)$520 billion
10. 16)Refer to Fact 1. Huck Finn comes along and deposits $100 into his demand deposit. After Huck's deposit, but before any other adjustments occur, the total amount of money in the economy
11. A) has stayed the same, with its components unchanged.
12. B) has risen, with currency unchanged and deposits increasing.
13. C) has stayed the same, with currency decreasing and deposits increasing. D) has fallen, with currency decreasing and deposits staying the same.
14. E) has fallen, with currency decreasing and deposits unchanged.

4

1. 17)Refer to Fact 1. Huck Finn comes along and deposits $100 into his demand deposit. After the banking system has had the time to adjust reserves will have _________________and total deposits will have ______________________
2. A) stayed the same; stayed the same
3. B) increased by $100 million; increased by $1,250 C) stayed the same; increased by $100
4. D) decreased by $100; increased by $100
5. E) increased by $1,250; increased by $100.
6. 18)Refer to Fact 1. Huck Finn comes along and deposits $100 into his demand deposit. After the banking system has had the time to adjust the money supply will
7. A) stayed the same;
8. B) increased by $1,250
9. C) increased by $1,150 D) decreased by $100 E) increased by $100.
10. 19)Refer to Fact 1. Brunhilda Crumble takes out $1,000 from her bank account and adds it to the currency that she carries in h wallet. After the banking system has had the time to adjust, reserves will have _________________and total deposits will have ______________________ A) stayed the same; stayed the same
11. B) stayed the same; increased by $1,000
12. C) decreased by $1000; decreased by $12,500 D) decreased by $1,000; decreased by $1,000 E) increased by $1,000; decreased by $1,000.
13. 20)Refer to Fact 1. Anton Aragon gets into a disagreement with Casper Rumble, the teller in chartered bank A, and transfers the $10,000 that he has in his chequing account in chartered Bank A to a chequing account in chartered Bank B. As a result, overall the money supply
14. A)increases by $10,000
15. B)could go up or down depending on the competence of the managers of the two banks
16. C)remains unchanged
17. D)decreases but by less than $10,000
18. E)increases but by more than $10,000
19. 21)Refer to Fact 1. The money market multiplier, based on the way it is calculated in the notes on moodle, is
20. A) .08 B) 1
21. C) 11.5 D) 12.5 E) 40