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134) If proceeds from loans NOT deposited back in the

Question : 134) If proceeds from loans NOT deposited back in the

134) If proceeds from loans are NOT deposited back in the banking system, then

A) the magnitude of the multiplier process is reduced.

B) there is no effect on the magnitude of the multiplier process.

C) the magnitude of the multiplier process is increased.

D) the Fed intervenes by selling more Federal government bonds.

135) The value of the money multiplier depends on

A) the reserve ratio.

B) the ratio of total assets to total liabilities for the banking system as a whole.

C) the interest rate offered on bonds currently being sold by the Fed.

D) the interest rate offered on bonds currently being purchased by the Fed.

136) If the reserve ratio decreases from 20 percent to 10 percent, then the potential money multiplier

A) increases from 5 to 10.

B) decreases from 10 to 5.

C) does not change.

D) decreases from 20 to 10.

137) An increase in the reserve ratio

A) has an expansionary effect on the money supply.

B) has a contractionary effect on the money supply.

C) increases the money multiplier.

D) will cause banks to make more loans.

138) Suppose that the Fed purchases $1,000,000 worth of bonds and that the reserve ratio is 25 percent.  Then, the maximum potential expansion of deposits is

A) $4,000,000.

B) $10,000,000.

C) $400,000.

D) $25,000,000.

139) What is a fractional reserve banking system? How long has the fractional reserve banking system been in existence?

140) What are reserves? Discuss the various types of reserves used in the U.S. banking system.

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