Question

1. banks create money when they:

   	A.	make new loans to the public.
   	B.	accept deposits.
   	C.	transfer checking balances from one customer to the checking account of another customer.
   	D.	none of the above.

10 points   

QUESTION 7

1. Which of the following would increase money supply in the economy?

   	A.	increasing the reserve requirement.
   	B.	the Fed lowering the discount rate.
   	C.	the Fed sells bonds in the open market.
   	D.	none of the above.

10 points   

QUESTION 8

1. If the reserves of the banks increase by $1, we expect:

   	A.	the money supply will increase by more than $1.
   	B.	the money supply will decrease by $1.
   	C.	the money supply will decrease by more than $1,
   	D.	none of the above.

10 points   

QUESTION 9

1. Banks' deposits with the Fed are  

   	A.	liabilities of the banks.
   	B.	part of the reserves of the banks.
   	C.	part of money supply, M.
   	D.	none of the above.

Answer 1

6. Banks create money when they make new loans to the public. Hence,option(A) is correct.

7. By lowering the reserve requirement , the Fed lowering the discount rate and the Fed purchases bonds in the open market would increase the money supply in the economy. Hence, option(B) is correct.

8. If the reserves of the banks increase by $1 , we expect the money supply will decrease by more than $1. Hence, option(C) is correct.

9. Bank's deposits with the Fed are part of the reserves of the banks. Hence, option(B) is correct.