MONETARY SYSTEM

1. Given the following information, what are the values of M1 and M2?
Small time deposits $600 billion
Demand deposits and other checkable deposits $400 billion
Savings deposits $800 billion
Money market mutual funds $700 billion
Traveler's checks $30 billion
Large time deposits $400 billion
Currency $250 billion
Miscellaneous categories in M2 $20 billion

a. M1 = $650 billion, M2 = $2,830 billion.

b. M1 = $400 billion, M2 = $3,080 billion.
c. M1 = $680 billion, M2 = $2,800 billion.
d. M1 = $680 billion, M2 = $3,200 billion.

2. A bank which must hold 100 percent reserves opens in an economy that had no banks and a
currency of $150. If customers deposit $50 into the bank, what is the value of the money supply?
a. $50
b. $100
c. $150
d. $200

3. Suppose the banking system currently has $400 billion in reserves, the reserve requirement is
8 percent, and excess reserves amount to $5 billion. What is the level of deposits?
a. $5,000 billion
b. $4,937.5 billion
c. $5,062.5 billion
d. $4,995 billion

4. The manager of the bank where you work tells you that your bank has $6 million in excess
reserves. She also tells you that the bank has $400 million in deposits and $362 million dollars
in loans. Given this information you find that the reserve requirement must be
a. 44/400.
b. 6/362.
c. 38/400.
d. 32/400.

5. Suppose the banking system currently has $300 billion in reserves, the reserve requirement is
5 percent, and excess reserves are $30 billion. What is the level of loans?
 a. $270 billion
b. $5,400 billion
c. $6,000 billion
d. $5,100 billion

6. The reserve requirement is 12 percent. Lucy deposits $600 into a bank. By how much do excess
reserves change?
a. $600
b. $528 (600 – (12% x 600))
c. $72
d. $12

7. Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has
$18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does
this bank now have to lend out if it decides to hold only required reserves?
a. $27,000
b. $27,190
c. $26,190
d. $9,000

8. If the reserve ratio is 4 percent, then the money multiplier is

a. 24.
b. 25.
c. 26.
d. 4.

9. If the reserve ratio is 5 percent, then $500 of additional reserves can create up to
a. $10,500 of new money.
b. $10,000 of new money.
c. $9,500 of new money.
d. $2,500 of new money.

10. An economy starts with $50,000 in currency. All of this currency is deposited into a single
bank, and the bank then makes loans totaling $45,750. The T-account of the bank is shown
below.

Assets Liabilities
Reserves $4,250 Deposits $50,000
Loans 45,750
If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves
 of $150 for this bank has the potential to increase deposits for all banks by
a. $287.25.
b. $1,614.71.
c. $1,764.71.
d. $2,000 or more.

11.
Bank of Springfield

Assets Liabilities
Reserves $19,800 Deposits $180,000
Loans 160,200

Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what
is the value of the money multiplier?
a. 1.1
b. 12.3
c. 8.1
d. 9.1

If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does
the Bank of Springfield now hold?
a. $9,600
b. $10,800
c. $10,200
d. $9,000

Assume the Fed’s reserve requirement is 10 percent and that the Bank of Springfield makes
new loans so as to make its new reserve ratio 10 percent. From then on, no bank holds any
excess reserves. Assume also that people hold only deposits and no currency. Then by what
amount does the economy’s money supply increase?
a. $37,800
b. $18,000
c. $2,000
d. $16,300