Question

A bank has a reserve requirement of 10 percent. This means that if a customer deposits $10,000, the bank may increase lending by:
A. $1,000.
B. $9,000.
C. $10,000.
D. $11,000.

If the reserve ratio is 0.10, the money multiplier is equal to 5.

T F

Money is a unit of account because:

A. it is liquid.
B. it is a store of value.
C. goods and assets are priced in terms of it.
D. barter would be impossible without it

Which of the following will be affected if consumers take money out of checking accounts to pay their credit cards?

A. M1
B. M2
C. M3
D. M4

What is exchanged in the financial sector?
A. Money only
B. Goods and services
C. All financial assets
D. Only assets with a money price

The interest rate is the price paid for the use of a:
A. real liability.
B. real asset.
C. financial liability.
D. financial asset.
20. The short-term interest rate is determined in the:
A. loanable funds market.
B. stock market.
C. exchange rate market.
D. money market.

Answer 1

Question 1

New deposit = $10,000

Reserve requirement = 10% or 0.10

Required reserves = $10,000 * 0.10 = $1,000

Excess reserves created = $10,000 - $1,000 = $9,000

A bank can lend an amount equal to excess reserves it held.

So, bank may increase lending by $9,000.

Hence, the correct answer is the option (B).

Question 2

Reserve ratio (rr) = 0.10

Money multiplier = 1/rr = 1/0.10 = 10

If the reserve ratio is 0.10, the money multiplier is 10.

Thus,

The given statement is False.

Question 3

Unit of account function of money implies that money can be used for determining the value of various goods and services.

So, money is a unit of account because goods and assets are priced in terms of it.

Hence, the correct answer is the option (c).