MCQs on deposit creation, money supply and stagflation.

ABC Bank is one of many banks in a banking system, and it has reserves of $50,000 and transaction accounts (e.g., demand deposits) of $300,000.

1) If the required reserve ratio is 10 percent, the maximum potential deposit creation (money supply expansion) for the banking system is

a) $100,000. b) $200,000. c) $400,000. d) $500,000.

2) If the required reserve ratio is 15 percent, ABC Bank would have excess reserves of

a) $15,000. b) $10,000. c) $5,000. d) zero.

3) Stagflation can occur when

a) Aggregate productivity increases dramatically

b) An input price shock adversely affects the nation's productive capacity

c) consumer spending increases dramatically due to increased wealth

d) none of the above

4) Monetary policy which attempts to increase employment and output in the short run involves:

a) Increasing the money supply

b) Increasing the discount rate

c) Increasing the required reserves ratio

d) Selling existing US Treasury securities to banks

5) Over time, the best indicator of increasing productivity in the national economy is

a) an increase in real GDP

b) an increase in nominal GDP

c) an increase in per capita real GDP

d) an increase in the Consumer Price Index.