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Assume that the Paris First National Bank has deposits of $20 million If the legal reserve requirement is raised from

Assume that the Paris First National Bank has deposits of $20 million. If the legal
                            reserve requirement is raised from 20 percent to 40 percent,

a.excess reserves will automatically decrease by $20 million

b.required reserves will decrease from $16 million to $12 million

c.excess reserves will automatically increase by $20 million

d.Paris First National Bank must close out 4 million in loans

e.Paris First National Bank must increase its required reserves from $4 million to $8
million

82.              Assume that the loans made by the Paris First National Bank contracted from $16 million
                            to $12 million. If the legal reserve requirement was increased from 20 percent to 40
                            percent, how much would the money supply shrink?

a.$5 million

b.$10 million

c.$15 million

d.$20 million

e.$24 million

83.              Who provides insurance for all demand deposit accounts up to $250,000 in banks
                            choosing its protection?

a.Federal Deposit Insurance Corporation

b.Federal Reserve

c.Office of Management and Budget

d.Treasury

e.Securities and Exchange Commission

84.              The Federal Deposit Insurance Corporation (FDIC)

a.insures all demand deposit accounts up to $10 million in banks choosing FDIC
protection

b.was created as a government-owned corporation following the creation of the World
Bank and the International Monetary Fund after World War II

c.provides insurance to all participating corporations and government agencies such as
the Federal Reserve

d.creates monetary policy in conjunction with the Federal Reserve Board

e.was created to reduce the risk of bank failure and thereby insuring the stability of the
banking system

85.              Paradoxically, when the economy most needs injections of money, the economic
                            conditions are such that

a.borrowers are particularly eager to go to banks for loans

b.borrowers are most reluctant to borrow (demand loans) from banks

c.the FDIC will insist that banks raise the interest rate they charge borrowers

d.the FSLIC and FDIC will insist that banks lower the interest rate they charge
borrowers

e.the Federal Reserve will print less money

86.              Banks’ views of the economy change from confidence to caution when they expect

a.wage rates to fall

b.employment to increase

c.consumer spending to fall

d.a recession to occur

e.economic expansion

87.              During recession, banks become increasingly hesitant to make loans

a.because they typically hold zero excess reserves

b.because borrowers are more numerous than in any other phase of the business cycle

c.because they want to create lower consumer spending

d.because they expect the recovery phase that follows will cause inflation

e.and are more willing to hold greater excess reserves

88.              The legal reserve requirement that banks must adhere to is set by

a.Congress

b.the FDIC

c.the Treasury Department

d.the banking system

e.the Federal Reserve

89.              If your bank receives a demand deposit of $4,000 and the legal reserve requirement is 20
                            percent, then it can make additional loans of

a.$800

b.$3,200

c.$4,000

d.$16,000

e.$20,000

90.              Suppose you get a tax refund of $4,000 and instead of spending it on items that had been
                            on your wish list for two years, you put it all in your checking account at the First
                            National Bank of Urbana. And if the legal reserve requirement was 20 percent, your cash
                            deposit of $4,000 in the Urbana bank makes it possible for the banking system to
                            potentially create (including your $4,000) a total amount of money of

a.$800

b.$3,200

c.$4,000

d.$16,000

e.$20,000

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