SOLVED

21) Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of A) $0. B) $5 million. C) $15 million. D) $20 million. 22) Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve reduces the required reserve ratio to 8 percent, then the bank can make a maximum loan of A) $0. B) $2 million. C) $8 million. D) $10 million. 23) Suppose a bank has $100,000 in checking account deposits with no excess reserves and the required reserve ratio is 10 percent. If the Federal Reserve raises the required reserve ratio to 12 percent, then the bank will now have excess reserves of A) $12,000. B) $0. C) -$2,000. D) -$12,000. 24) A decrease in the reserve requirement ________ bank reserves and ________ the money supply. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases 25) Which of the following is not a consequence of the Fed changing the reserve requirement? A) Changes in the ratio are easily incorporated into banks’ routine management. B) Decreasing the ratio will increase excess reserves. C) Increasing the ratio will decrease the amount of reserves banks have to loan. D) Changes in the ratio effectively places a tax on banks’ deposit taking and lending activities. 26) To offset the effect of households and firms deciding to hold less of their money in checking account deposits and more in currency, the Federal Reserve could A) raise the required reserve ratio. B) buy Treasury securities. C) raise the discount rate. D) lower bank taxes. 27) To offset the effect of households and firms deciding to hold more of their money in checking account deposits and less in currency, the Federal Reserve could A) raise bank taxes. B) sell Treasury securities. C) raise government spending. D) lower the required reserve ratio. 28) The process of bundling loans together and buying and selling these bundles in a secondary financial market is called A) open market operations. B) securitization. C) fractional reserve lending. D) seigniorage. 29) One way investment banks differ from commercial banks is that investment banks A) lend exclusively to households. B) do not take in deposits. C) only buy and sell mortgages. D) trade only in foreign exchange markets. 30) Money market mutual funds sell shares to investors and use the money to buy A) mortgage-backed securities. B) foreign currency. C) short-term securities. D) overseas assets through foreign direct investment.