FREE Master of Economics: Money, Banks, and Interest Rates Questions and Answers
Assume banks want a 4% ratio of reserves to deposits. And let's assume that the general public wants a 2% cash-to-deposit ratio. Which of the following statements is true?
1. The bank deposit multiplier is 25.
2. The money multiplier is 17.
In comparison to d, which is 2 or 2/100, or 0.02, r is 4%, or 4/100. The multiplier for bank deposits is 1/r, or 25 or 1/0.04. The multiplier for money is (1+d)/(r+d), or 1.02/0.06 or 17.
Suppose the multiplier is four and the first increase in projected investment is £100 billion annually. Which of the subsequent claims is untrue?
By £400 billion annually, the IS curve will veer to the right.
Which of the subsequent would result in a bank losing reserves?
In this scenario, the bank is required to transfer reserves to the bank of the recipient of the check.
Which of the following would not cause a rightward change in the money demand curve?
A motion along the money demand curve, not a shift of the curve, illustrates the impact of a change in interest rates on the amount of money demanded.
Which of the aforementioned claims regarding the IS curve is untrue?
The economy is moved to a lower point on the IS curve but not moved by a decline in interest rates.
Which of the following claims regarding bank money generation is untrue?
Banks do not want this ratio to drop below a level they deem prudent since the more money they produce, the lower the ratio of their reserves to deposits gets.
Which of the LM curve's following claims is untrue?
A leftward shift in LM is the outcome of increased interest rates at each level of output due to an increase in the demand for money.