Question : 11.4   Regulating the Quantity of Money 1) New money created in : 1227823

 

11.4   Regulating the Quantity of Money

 

1) New money is created in the U.S. economy by

A) increased federal government expenditures.

B) banks that create checkable deposits.

C) the U.S. Treasury.

D) U.S. Department of Mint.

E) the U.S. Congress.

Answer:  B

Topic:  How banks create money

Skill:  Level 1: Definition

Section:  Checkpoint 11.4

Status:  TPS

 

2) Banks create money by

A) printing dollar bills without limit.

B) creating deposits without limit.

C) printing money up to their required reserve limit.

D) making loans and creating deposits, a process that is limited by the size of banks’ excess reserves.

E) buying U.S. government securities with cash.

Answer:  D

Topic:  How banks create money

Skill:  Level 2: Using definitions

Section:  Checkpoint 11.4

Status:  WM

 

3) Banks create money by

A) printing paper money.

B) minting coins.

C) making loans.

D) buying government securities.

E) None of the above because banks cannot create money, only the Federal Reserve can create money.

Answer:  C

Topic:  How banks create money

Skill:  Level 1: Definition

Section:  Checkpoint 11.4

Status:  AA

4) When a bank receives deposits,

A) it must hold the entire amount as reserves in case of withdrawal.

B) the Fed requires it to hold only a small percentage as reserves.

C) it and it alone decides how much it will hold as reserves.

D) its liabilities increase in amount but its assets do not change.

E) its assets increase in amount but its liabilities do not change.

Answer:  B

Topic:  How banks create money

Skill:  Level 2: Using definitions

Section:  Checkpoint 11.4

Status:  WM

 

5) Banks create money by

A) printing currency.

B) asking the Fed to print more currency.

C) lending to the Fed.

D) making loans.

E) buying government securities.

Answer:  D

Topic:  How banks create money

Skill:  Level 1: Definition

Section:  Checkpoint 11.4

Status:  NAU

 

6) The amount of loans that a bank can create is limited by

A) a law enacted by Congress.

B) the bank’s excess reserves.

C) a directive from the Federal Reserve System, which takes into account the bank’s financial stability.

D) the real interest rate.

E) the bank’s government securities.

Answer:  B

Topic:  How banks create money

Skill:  Level 1: Definition

Section:  Checkpoint 11.4

Status:  DMC

 

7) The process of money creation by the banking system is limited, in part, by the

A) number of banks.

B) desired reserve ratio.

C) number of depositors.

D) Comptroller of the Currency.

E) laws passed each year by the U.S. Congress.

Answer:  B

Topic:  How banks create money

Skill:  Level 1: Definition

Section:  Checkpoint 11.4

Status:  DMC

8) Assume the First Bank of Townsville makes a loan of $2,500. This loan will

A) increase the quantity of money initially by $2,500.

B) decrease the quantity of money initially by $2,500.

C) have no change on the quantity of money, just its composition.

D) increase the First Bank of Townville’s liabilities at the Fed.

E) increase the First Bank of Townville’s reserves.

Answer:  A

Topic:  How banks create money

Skill:  Level 2: Using definitions

Section:  Checkpoint 11.4

Status:  WM

 

9) When the First Bank of Townsville makes a loan, it

A) prints money.

B) borrows the money from the Fed.

C) creates a checkable deposit.

D) decreases the quantity of money.

E) increases its reserves.

Answer:  C

Topic:  How banks create money

Skill:  Level 2: Using definitions

Section:  Checkpoint 11.4

Status:  WM

 

10) If the desired reserve ratio is 15 percent, then for every dollar that is deposited in the bank, the bank will

A) keep 15 cents as reserves.

B) keep 85 cents as reserves.

C) keep 85 cents as reserves and loan 85 cents.

D) loan 15 cents.

E) keep 15 cents as reserves and loan 15 cents.

Answer:  A

Topic:  Desired reserve ratio

Skill:  Level 2: Using definitions

Section:  Checkpoint 11.4

Status:  CD new