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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 bank's
excess reserves will be ____.
A) $1,000
B) $5,000
C) $8,000
D) $9,000
Answer: B
Diff: 2 Type: MC Page Ref: 387 - 388
Skill: Applied
Objective List: 16.4 Utilize a simple model of multiple deposit creation, showing how the
central bank can control the level of deposits by setting the level of reserves
Decisions by depositors to increase their holdings of ____, or of banks to hold
____ will result in a smaller expansion of deposits than the simple model predicts.
A) deposits; desired reserves
B) deposits; excess reserves
C) currency; desired reserves
D) currency; excess reserves
Answer: D
Diff: 1 Type: MC Page Ref: 389
Skill: Recall
Objective List: 16.4 Utilize a simple model of multiple deposit creation, showing how the
central bank can control the level of deposits by setting the level of reserves
Decisions by depositors to increase their holdings of ____, or of banks to hold excess
reserves will result in a ____ expansion of deposits than the simple model predicts.
A) deposits; smaller
B) deposits; larger
C) currency; smaller
D) currency; larger
Answer: C
Diff: 1 Type: MC Page Ref: 389
Skill: Recall
Objective List: 16.4 Utilize a simple model of multiple deposit creation, showing how the
central bank can control the level of deposits by setting the level of reserves