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Question 1(Multiple Choice Worth 5 points) (04.04 MC) A bank decides to increase its holding of deposits in reserve, above the required rate. How will

Question 1(Multiple Choice Worth 5 points)

(04.04 MC) A bank decides to increase its holding of deposits in reserve, above the required rate. How will this action affect the expansion of the money supply?

No impact on the growth potential of the money supplythe behavior of a single bank is irrelevant to the aggregate economy. Decrease the growth potential of the money supplyincreasing the reserve requirement lowers the money multiplier. Decrease the growth potential of the money supplyholding more cash in reserve means less money will be lent to borrowers. Increase the growth potential of the money supplyincreasing the reserve requirement increases the money multiplier. Increase the growth potential of the money supplyholding more cash in reserve means more money will be lent to borrowers.

Question 2(Multiple Choice Worth 5 points)

(04.04 HC) Assume that the required reserve ratio is 10 percent, but banks always keep some excess reserves. A $1 million increase in new reserves will

increase the money supply by precisely $10 million decrease the money supply by precisely $10 million increase the money supply by less than $10 million decrease the money supply by less than $10 million increase the money supply by more than $10 million

Question 3(Multiple Choice Worth 5 points)

(04.04 MC) A bank has the following assets and liabilities:

Assets Liabilities
$50,000 in loans $60,000 in demand deposits
$3,000 in required reserves
$9,000 in excess reserves

Based on this data, what is the maximum amount of additional loans this bank could provide?

$6,000 $9,000 $10,000 $47,000 $50,000

Question 4(Multiple Choice Worth 5 points)

(04.04 MC) A bank is operating in an economy in which the required reserve ratio is 5% and the bank keeps no excess reserves. If it sells $20 million worth of government bonds to the central bank, what will be the impact on the money supply?

A decrease of the money supply of a maximum $1 million An increase of the money supply of a maximum $1 million A decrease of the money supply of a maximum $400 million An increase of the money supply of a maximum $400 million A decrease of the money supply of a maximum $100 million

Question 5(Multiple Choice Worth 5 points)

(04.04 HC) A bank has the following assets and liabilities:

Assets Liabilities
$50,000 in loans $60,000 in demand deposits
$3,000 in required reserves
$9,000 in excess reserves

Based on the data above, what is the money multiplier for this economy?

1 3 5 10 20

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