1. Suppose DDO total $1,000 billion and C^p totals $100 billion. Then k is

a. 0.08

b. 0.001

c. 0.1

d. 0.081
 
 

2. Holding other factors constant, an increase in which of the following will reduce the size of the money supply multiplier?

a. R

b. B

c. C^p

d. none of the above
 
 

3. If the public comes to fear major bank failures and a breakdown of the deposit insurance system, then

a. k would fall

b. B would fall

c. B would rise

d. r_e would rise
 
 

4. At a recent FOMC meeting, the discount rate was increased by one-half percent. Given other factors, this should lead to

a. an increase in r_e

b. a decrease in r_e

c. no change in r_e
 
 

5. Given other factors, which of the following will increase the money supply multiplier (M1/B)?

a. the Fed reduces reserve requirements

b. banks become more aggressive lenders, reducing r_e

c. the currency ratio falls as banks boost rates paid on deposits

d. all of the above
 
 

ANSWER KEY 1b, 2c, 3d, 4a, 5d