Eco372 principles of macroeconomic week 4 macro quiz answer key



THIS IS AN INDIVIDUAL ASSIGNMENT.  It is a violation of the academic code of conduct to solicit or accept help from any outside source, including a tutor, online assistance, or any other resource.  Evidence of cheating on the quiz will be met with very dire consequences. You may use your textbook, video lessons, and class discussion.  Clearly mark your answers by changing the color of your choices, using highlighting, or bold. 


Section One:  Multiple Choice – select the best response; each response is worth 1 point


1.         In the U.S. banking system, banks are required to hold:

a.         a fraction of total deposits on reserve.

b.         a multiple of total deposits on reserve.

c.         whatever amount of cash they feel is prudent.

d.         enough cash to back every dollar of deposits.


2.         In the U.S. banking system, depository institutions (banks) may hold required reserves:

            a.         only as vault cash.

            b.         only on deposit at a Federal Reserve Bank.

            c.         as government bonds so they can be easily liquidated.

            d.         as either vault cash or on deposit at a Federal Reserve Bank.


3.         In a fractional reserve banking system, money is created when:

            a.         banks accept cash deposits.

            b.         the Treasury Department prints new coins.

            c.         banks make new loans.

            d.         the U.S. Mint issues new paper money.


4.         Mr. Jones deposited $10,000 cash into his account at Bank A.  If the required reserve ratio is 5%, Bank A has to keep _____ in the form of required reserves and can make a loan equal to  _____.

a.         $500; $9,500

b.         $500; $10,000

c.         $9,500; $500

d.         $9,500; $10,000


5.         If the required reserve ratio is 10%, the banking system has total reserves in the amount

            of $40 billion, there are no currency leakages, and each bank makes loans until excess

            reserves equal zero, then total checkable deposits for the banking system will equal:

a.         $10 billion.

b.         $40 billion.

c.         $100 billion.

d.         $400 billion.

6.         The primary responsibility of the Federal Reserve System is to:

a.         make loans to businesses and consumers.

b.         provide currency to banks and automated teller machines (ATMs).

c.         control the nation’s money supply and add stability to the financial system.

d.         issue government bonds to finance the government budget deficit.


7.         The Federal Reserve:

a.         determines U.S. fiscal policy.

b.         cannot legally provide loans to banks.

c.         is responsible for monetary policy in the United States.

d.         is responsible for tax policy in the United States.


8.         When it was first created by Congress in 1913, the primary role of the Federal Reserve      System was to:

            a.         make loans to small businesses and farmers in the agricultural sector of the                                     economy.

            b.         act as lender of last resort to the banking community.

            c.         regulate business practices by granting loans only to those businesses that met                                federal competitive guidelines.

            d.         provide a safe bank for the government to store the tax revenue it collected as a                             result of the establishment of a permanent federal income tax.


9.         Suppose the Board of Governors has determined that continued increases in consumption             and investment spending are likely to be inflationary.  To control inflation, the Fed would        most likely pursue policies that promote:

a.         lower interest rates and a contraction of bank lending activity.

b.         lower interest rates and an expansion of bank lending activity.

c.         higher interest rates and a contraction of bank lending activity.

d.         higher interest rates and an expansion of bank lending activity.


10.       The discount rate is the rate of interest that:

a.         a bank pays to the Fed for an overnight loan of reserves.

b.         one bank pays another for an overnight loan of reserves.

c.         the best corporate customers pay on short-term business loans.

d.         depositors earn on Eurodollars.


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