Question

QUESTION 5

1. Checking deposits (balances of checking accounts) are:

   	A.	assets of the banks.
   	B.	liabilities of the banks.
   	C.	liabilities of the public.
   	D.	none of the above.

10 points   

QUESTION 6

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

b. liabilities of the bank

Deposits are the funds of public deposited with bank, so these are liabilities of the banks.

b. accept deposits

When banks accept deposit, they make money through credit creation.

b. the Fed lowering the discount rate

Discount rate is the rate at which commercial banks borrow from federal reserve. Lower rates leave banks with higher amount to lend leading to increase in economy.

c. The money supply will decrease by more than $1

Since, increase in reserve leaves bank with lower funds to loan leading to decrease in money supply. Decrease in money supply will be multiplier times the increase in reserve.

c. part of money supply, M

When public deposits in commercial bank, that deposit hepls in credit creation leading to money supply. So, it is a part of money supply.