Question

Assets	Liabilities
$10 (R.R)	$250 (Deposits)
$240 (loans)

1) Use the table above. Consider the following T-account for a bank. If you deposited $10 into the bank, how much additional money would the banking sector create?

Select one:

$220

$250

$240

$230

2)Again, use the table above. What will happen if you deposit an additional $100?

Select one:

a. Loans increase by $100

b. Required reserves increase by $5

c. Assets increase by $100

d. None of the other answers is correct

3)The Fed wants to increase money supply in the U.S. without utilizing open market operations. Which of the following policies will encourage banks to loan more money and increase the money supply?

Select one:

a. Sell Bonds.

b. Increase the reserve requirement for banks.

c. Decrease the discount rate.

d. Increase the discount rate.

Answer 1

1) Option 2: $250

Explaantion: Total deposits = $250. Required reserve = $10. So, reserve ration = required reserve/ total deposits $10/$250 = 0.04

Money mulriplier = 1/reserve ratio = 1/0.04 = 25

So, the new money created because of the $10 deposits = deposits * money multiplier = $10 * 25 = $250.

2) Option D. None of the other answres is correct

Explanation: Deposists are liabilities for a bank. An additional $100 deposits will increase the bank's liabilities by $100.

3) c. Decrease the discount rate.

Explanation: Discount rate is the rate which the Fed lends money to the commercial banks. A lower discount rate allows banks to borrow more from the Fed and lend more.