Question

Suppose that the reserve ratio is 8.5 percent. An additional $10,000 of excess reserves has the potential to increase the money supply by more than $100,000.

Select one:

True

False

f the public decides to hold more currency and, therefore, less money as deposits in banks, then bank reserves decrease and the money supply eventually decreases.

Select one:

True

False

Currency held by the public is part of the money supply, but currency held by banks in the bank vault is not part of the money supply.

Select one:

True

False

The Fed acts as a lender of last resort to the banking system

Select one:

True

False

Roberta keeps a stack of $20 bills in her fire-proof safe for safe-keeping until she decides to use it to buy some goods or services. Roberta is demonstrating the store of value function of money.

Select one:

True

False

Answer 1

Q. Suppose that the reserve ratio is 8.5 percent. An additional $10,000 of excess reserves has the potential to increase the money supply by more than $100,000.

TRUE

Since reserve ratio is 8.5%, the reserve ratio multiplier is 1/(1-RR) = 1/ (1-0.085) >10.

Therefore, a reserve of $10,000 would increase the money supply by more than $100,000.

Q. If the public decides to hold more currency and, therefore, less money as deposits in banks, then bank reserves decrease and the money supply eventually decreases.

TRUE

Q. Currency held by the public is part of the money supply, but currency held by banks in the bank vault is not part of the money supply.

FALSE

Q. The Fed acts as a lender of last resort to the banking system

TRUE

Q. Roberta keeps a stack of $20 bills in her fire-proof safe for safe-keeping until she decides to use it to buy some goods or services. Roberta is demonstrating the store of value function of money.

TRUE