10a.
Over the past fifty years, the money multiplier has varied _________ and velocity has varied _________
| substantially; substantially |
| substantially; only slightly |
| only slightly; substantially |
| only slightly; only slightly |
b.
|
The nation of Doland has demand deposits but no currency. The central bank has imposed a reserve requirement of 12.5 percent on banks. The deposit multiplier’s value is ________ and the money multiplier’s value is _______. |
| 8; equal to 8 |
| 4; greater than 4 |
| 4; equal to 4 |
| 8; greater than 8 |
c.
Which of the following tends to decrease when consumers make withdrawals of currency from their bank deposits
| Total reserves of banks |
| Total liabilities of the central bank (the Fed) |
| Total assets of the central bank (the Fed) |
| The monetary base |
d.
|
If the value of the money multiplier is 5 and the Fed makes a $1 billion open market purchase of securities, the money stock will tend to do which of the following? |
| Increase by $5 billion |
| Increase by $200 million |
| Decrease by $200 million |
| Decrease by $5 billion |
e.
|
Other things being equal, if households decide to increase the amount of currency they hold per dollar of bank deposits, the money multiplier will tend to do which of the following? |
| Decrease |
| Remain unchanged |
| Increase |
| Any of the above is possible depending on the starting value of the variables in the money multiplier |
10.
A
Correct Answer:
B
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B
Correct Answer:
A
Formula of deposit multiplier and money multiplier = 1/RRR = 1/12.5% = 8
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C.
Correct Answer:
A
With withdrawal, required reserve will decrease, that will make total reserve to decrease as well.
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D.
Correct Answer:
A
The purchase of government securities, will add money supply to the economy.
Increase in money stock = 5*1 = $5 Billion
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E.
Correct Answer:
A
There will be leakage in the form of households holding cash with themselves.
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