Extra sheet

Question one: Choose the correct answer:

1) The three players in the money supply process include:
A) banks, depositors, and the U.S. Treasury.
B) banks, depositors, and borrowers.
C) banks, depositors, and the central bank.
D) banks, borrowers, and the central bank.

2) Of the three players in the money supply process, most observers agree that the most
important player is:
A) the depositors.
B) the Central Bank.
C) the FDIC.
D) the Office of Thrift Supervision.

3) The government agency that oversees the banking system and is responsible for the
conduct of monetary policy is
A) the Central Bank.
B) the United States Treasury.
C) the U.S. Gold Commission.
D) the House of Representatives

4) Which of the following are reported as assets on a bankʹs balance sheet?

A) Borrowings
B) Reserves
C) Savings deposits
D) Bank capital

5) Reserves are equal to the sum of

A) required reserves and excess reserves.
B) required reserves and vault cash reserves.
C) excess reserves and vault cash reserves.
D) vault cash reserves and total reserves.

6) Which of the following are reported as liabilities on a bankʹs balance sheet?

A) Reserves
B) Checkable deposits
C) Loans
D) Deposits with other banks

7) All the following items are considered Assets for any commercial bank except:
A) Reserves
B) Loans
C) Cash items in the process of collection
D) Checkable deposits
8) All the following items are considered Liabilities for any commercial bank except:
A) Checkable deposits
B) Non transaction deposits
C) Borrowings
D) Securities

9) Bank capital is equal to ________ minus ________.

A) total assets; total liabilities
B) total liabilities; total assets
C) total assets; total reserves
D) total liabilities; total borrowings

10) The fraction of checkable deposits that banks are required by regulation to hold are
A) excess reserves.
B) required reserves.
C) vault cash.
D) total reserves

11) The amount of deposits that banks must hold in reserve is

A) excess reserves.
B) required reserves.
C) total reserves.
D) vault cash.

12) The percentage of deposits that banks must hold in reserve is the
A) Excess reserve ratio.
B) Required reserve ratio.
C) Total reserve ratio.
D) Currency ratio.

13) Both ________ and ________ are Central Bank assets.

A) currency in circulation; reserves
B) Currency in circulation; government securities
C) Government securities; discount loans
D) Government securities; reserves

14) Both ________ and ________ are Central Bank Liabilities.

A) currency in circulation; reserves
B) Currency in circulation; government securities
C) Government securities; discount loans
D) Government securities; reserves
15) Currency in circulation that is part of the Central Bank`s liabilities must be:
a) Printed by CB but not circulated inside the economy
b) In the hand of the public
c) Inside the banking system
d) Both b and c are correct

16) The interest rate the Fed (CB) charges banks borrowing from the Central Bank is the
A) Federal funds rate.
B) Treasury bill rate.
C) Discount rate.
D) Prime rate.

17) The monetary base consists of

A) Currency in circulation and Central Bank notes.
B) Currency in circulation and the U.S. Treasury’s monetary liabilities.
C) Currency in circulation and reserves.
D) Reserves and Central Bank Notes.

18) High-powered money minus reserves equals

A) Reserves.
B) Currency in circulation.
C) The monetary base.
D) The non - borrowed base.

19) Excess reserves are equal to

A) total reserves minus discount loans.
B) vault cash plus deposits with Federal Reserve banks minus required reserves.
C) vault cash minus required reserves.
D) deposits with the Fed minus vault cash plus required reserves.

20) Suppose that from a new checkable deposit, First National Bank holds two million dollars
in vault cash, eight million dollars on deposit with the Federal Reserve, and nine million dollars in
excess reserves. Given this information, we can say First National Bank has _............. million
dollars in required reserves.
A) one
B) nineteen
C) two
D) ten

21) Purchases and sales of government securities by the Central Bank are called
A) Discount loans.
B) Federal fund transfers.
C) Open market operations.
D) Swap transactions.
22) When the Central Bank purchases a government bond from a bank, reserves in the
banking system ________ and the monetary base ________, everything else held constant.
A) Increase; increases
B) Increase; decreases
C) Decrease; increases
D) Decrease; decreases

23) When the Central Bank sells $100 worth of bonds from First Bank, reserves in the
banking system
A) Increase by $100.
B) Increase by more than $100.
C) Decrease by $100.
D) Decrease by more than $100.

24) If a bank sells bonds to the Central Bank, then reserves ________ and currency in
circulation ________, everything else held constant.
A) Remain unchanged; declines
B) Remain unchanged; increases
C) Decline; remains unchanged
D) Increase; remains unchanged

25) When a member of the nonbank public withdraws currency from her bank account
A) both the monetary base and bank reserves fall.
B) both the monetary base and bank reserves rise.
C) the monetary base falls, but bank reserves remain unchanged.
D) bank reserves fall, but the monetary base remains unchanged.

26) When the Central Bank extends a discount loan to a bank, the monetary base ________ and
reserves ________.
A) remains unchanged; decrease
B) remains unchanged; increase
C) increases; increase
D) increases; remain unchanged

27) There are two ways in which the Central Bank can provide additional reserves to the banking
system: it can ________ government bonds or it can ________ discount loans to commercial
banks.
A) sell; extend
B) sell; call in
C) purchase; extend
D) purchase; call in
28) Suppose your payroll check is directly deposited to your checking account. Everything
else held constant, total reserves in the banking system ________ and the monetary base
________.
A) remain unchanged; remains unchanged
B) remain unchanged; increases
C) decrease; increases
D) decrease; decreases

29) An increase in the non-borrowed monetary base, everything else held constant, will cause
A) the money supply to fall.
B) the money supply to rise.
C) no change in the money supply.
D) demand deposits to fall.

30) The money supply is ________ related to the nonborrowed monetary base, and ________
related to the level of borrowed reserves.
A) positively; negatively
B) negatively; not
C) positively; positively
D) negatively; negatively

31) The relationship between borrowed reserves, the nonborrowed monetary base, and the
monetary base is
A) MB = MBn - BR.
B) BR = MBn - MB.
C) BR = MB - MBn.
D) MB = BR - MBn.

32) The Fed can exert more precise control over ________ than it can over ________.
A) high-powered money; reserves
B) high-powered money; the monetary base
C) the monetary base; high-powered money
D) reserves; high-powered money

33) When the Fed supplies the banking system with an extra dollar of reserves, deposits increase
by more than one dollar, a process called
A) extra deposit creation.
B) multiple deposit creation.
C) expansionary deposit creation.
D) stimulative deposit creation.

34) If the required reserve ratio is equal to 10 percent, a single bank can increase its loans up
to a maximum amount equal to
A) its excess reserves.
B) 10 times its excess reserves.
C) 10 percent of its excess reserves.
D) its total reserves.
35) The formula for the simple deposit multiplier can be expressed as
A) △R = 1/r× △T
B) △D = 1/r× △R
C) △r = 1/R× △T
D) △R = 1/r × △D

36) If reserves in the banking system increase by $100, then checkable deposits will increase by
$1000 in the simple model of deposit creation when the required reserve ratio is
A) 0.01.
B) 0.10.
C) 0.05.
D) 0.20.

37) If reserves in the banking system increase by $100, then checkable deposits will increase by
$500 in the simple model of deposit creation when the required reserve ratio is
A) 0.01.
B) 0.10.
C) 0.05.
D) 0.20

38) If the required reserve ratio is 10 percent, the simple deposit multiplier is
A) 5.0.
B) 2.5.
C) 100.0.
D) 10.0

39) If a bank has excess reserves of $15,000 and demand deposit liabilities of $80,000, and if the
reserve requirement is 20 percent, then the bank has total reserves of
A) $11,000.
B) $21,000.
C) $31,000.
D) $41,000.

40) A bank has excess reserves of $1,000 and demand deposit liabilities of $80,000 when the
reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent, the bankʹs
excess reserves will be
A) $1,000.
B) $5,000.
C) $8,000.
D) $9,000.

41) The formula linking the money supply to the monetary base is
A) M = m/MB.
B) M = m × MB.
C) m = M × MB.
D) MB = M × m.
42) If reserves in the banking system increase by $200, then checkable deposits will increase by
$500 in the simple model of deposit creation when the required reserve ratio is
A) 0.04.
B) 0.25.
C) 0.40.
D) 0.50.

43) The variable that reflects the effect on the money supply of changes in factors other than the
monetary base is the
A) currency-checkable deposits ratio.
B) required reserve ratio.
C) money multiplier.
D) nonborrowed base.

44) The total amount of reserves in the banking system is equal to the ________ required reserves
and excess reserves.
A) sum of
B) difference between
C) product of
D) ratio between

45) An increase in the monetary base that goes into ________ is not multiplied, while an increase
that goes into ________ is multiplied.
A) deposits; currency
B) excess reserves; currency
C) currency; excess reserves
D) currency; deposits

46) The formula that links checkable deposits to the monetary base is
A) m = 1/r + e + c
B) M = 1/ r + e + c
C) M = 1 + c/ r + e + c
D) D = 1/ r + e + c
E) D = 1/ r + e + c × MB.

47) If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable
deposits are $800 billion, and excess reserves total $0.8 billion, then the monetary base is
A) $480 billion.
B) $480.8 billion.
C) $80 billion.
D) $80.8 billion.

48) Everything else held constant, a decrease in the required reserve ratio on checkable deposits
will mean
A) a decrease in the money supply.
B) an increase in the money supply.
C) a decrease in checkable deposits.
D) an increase in discount loans.

49) Everything else held constant, an increase in the required reserve ratio on checkable deposits
causes the M1 money multiplier to ________ and the money supply to ________.
A) decrease; increase
B) increase; increase
C) decrease; decrease
D) increase; decrease

50) Assuming initially that r = 10%, c = 40%, and e = 0, an increase in r to 15% causes the M1
money multiplier to ________, everything else held constant.
A) increase from 2.55 to 2.8
B) decrease from 2.8 to 2.55
C) increase from 1.82 to 2
D) decrease from 2 to 1.82

51) Everything else held constant, an increase in the currency ratio causes the M1 money multiplier
to ________ and the money supply to ________.
A) decrease; increase
B) increase; decrease
C) decrease; decrease
D) increase; increase

52) Assuming initially that r = 15%, c = 40%, and e = 5%, a decrease in e to 0% causes the M1
money multiplier to ________, everything else held constant.
A) increase from 2.33 to 2.55
B) decrease from 2.55 to 2.33
C) increase from 1.67 to 1.82
D) decrease from 1.82 to 1.67

53) The money multiplier is

A) negatively related to high-powered money.
B) positively related to the excess reserves ratio.
C) negatively related to the required reserve ratio.
D) positively related to holdings of excess reserves.

54) Recognizing the distinction between borrowed reserves and the nonborrowed monetary base,
the money supply model is specified as
A) M = m × (MBn - BR).
B) M = m × (MBn + BR).
C) M = m + (MBn - BR).
D) M = m - (MBn + BR).
55) If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable
deposits are $800 billion, and excess reserves total $0.8 billion, the M1 money multiplier is:
A) 2.5
B) 2
C) 3.2
D) none of the above are correct

56) If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable
deposits are $1000 billion, and excess reserves total $1 billion, the money multiplier is …… and
the money supply ………
A) 2.5 and 1250
B) 2.8 and 1402.8
C) 2.3 and 1368
D) 2.9 and 1498.

57) If the required reserve ratio is 10 percent, currency in circulation is $400 billion, checkable
deposits are $1000 billion, and excess reserves total $1 billion, the currency ratio
A) 0.7
B) 0.4
C) 0.56
D) 0.21

Question Two: True or False:

1) Open Market Sale is completely controlled by the CB while the amount of
borrowing by banks from it cannot be perfectly predicted or determined T
2) While Borrowed reserves are controlled Completely by the central bank, the non –
borrowed monetary base are less controlled by CB. F

3) The CB can completely control the Non – borrowed reserves through the open market
operations. T
4) The Monetary base is the sum of BR + Non – Borrowed Reserves. T
5) The Non – Borrowed reserves (MBn ) is defined as MB – BR.T

6) The Money supply is positively related to both BR and MBn T

7) A single bank can create deposits equal only to the amount of its excess reserves. T
8) A single bank cannot make loans greater in amount than its excess reserves. T

9) The Ultimate objectives of the CBE is inflation targeting T

10) The ultimate objective of the CBE is Price stability T
11) There are different objectives of the Monetary policy but the ultimate goal high
economic growth false price stability

12) The operational objectives are the least efficient objective false most efficient

13) The operational objectives are a set of instruments through which the CBE use to affect
the intermediate objectives
14) The operational objectives are overnight lending facility and overnight deposit facility.
15) The Interest rate of lending and deposit facility determine the corridor within which the
 overnight rate can fluctuate.
16) The central bank can reach the ultimate goals directly.

17) To reach the ultimate goals (objectives) the central bank must set operational and
intermediate objectives
18) The operational objectives can affect the ultimate objectives directly
19) The intermediate objectives are Money supply and credit
20) The intermediate objectives influenced by operational objectives
21) The intermediate objectives can affect the ultimate objectives directly
22) Headline inflation reflects the increase in the price level of all goods and services.
23) The core inflation is a variant of headline inflation.
24) The core inflation is headline inflation minus change in prices of some goods.
25) The headline inflation excludes the impact of the temporary price shocks.
26) The headline inflation is published and calculated by CAPMAS

27) The exclusion approach is used in Egypt to calculate the core inflation
28) The statistical approach is the most accurate approach.