45) Everything else held constant, an increase in the excess reserves ratio causes the M1 money multiplier to ________ and the money supply to ________.A) decrease; increaseB) increase; increaseC) decrease; decreaseD) increase; decreaseAnswer: CAACSB: Analytical Thinking46) Assuming initially that the required reserve ratio = 15%, the currency-deposit ratio = 40%, and the excess reserve ratio = 5%, a decrease in the excess reserve ratio to 0% causes the M1 money multiplier to ________, everything else held constant.A) increase from 2.33 to 2.55B) decrease from 2.55 to 2.33C) increase from 1.67 to 1.82D) decrease from 1.82 to 1.67Answer: AAACSB: Analytical Thinking47) Assuming initially that the required reserve ratio = 15%, the currency-deposit ratio = 40%, and the excess reserve ratio = 5%, an increase in the excess reserve ratio to 10% causes the M1 money multiplier to ________, everything else held constant.A) increase from 2.15 to 2.33B) decrease from 2.33 to 2.15C) increase from 1.54 to 1.67D) decrease from 1.67 to 1.54Answer: BAACSB: Analytical Thinking48) Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 75%, and the excess reserve ratio = 156%, an increase in the excess reserve ratio to 200% causes the M1 money multiplier to ________, everything else held constant.A) increase from 0.15 to 0.33B) decrease from 0.73 to 0.61C) increase from 0.54 to 0.67D) decrease from 1.67 to 1.54Answer: BAACSB: Analytical Thinking49) Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 75%, and the excess reserve ratio = 156%, an increase in the required reserve ratio to 15% causes the M1 money multiplier to ________, everything else held constant.A) increase from 0.15 to 0.33B) increase from 0.54 to 0.67C) decrease from 0.73 to 0.71D) decrease from 1.67 to 1.54Answer: CAACSB: Analytical Thinking50) Assuming initially that the required reserve ratio = 10%, the currency-deposit ratio = 75%, and the excess reserve ratio = 156%, an increase in the currency-deposit ratio to 150% causes the M1 money multiplier to ________, everything else held constant.A) increase from 0.73 to 0.78B) decrease from 0.73 to 0.61C) increase from 1.54 to 1.67D) decrease from 1.67 to 1.54Answer: AAACSB: Analytical Thinking51) The excess reserves ratio is ________ related to expected deposit outflows, and is ________ related to the market interest rate.A) negatively; negativelyB) negatively; positivelyC) positively; negativelyD) positively; positivelyAnswer: CAACSB: Analytical Thinking52) The money supply is ________ related to expected deposit outflows, and is ________ related to the market interest rate.A) negatively; negativelyB) negatively; positivelyC) positively; negativelyD) positively; positivelyAnswer: BAACSB: Analytical Thinking53) The money multiplier isA) negatively related to high-powered money.B) positively related to the excess reserves ratio.C) negatively related to the required reserve ratio.D) positively related to holdings of excess reserves.Answer: CAACSB: Analytical Thinking54) During the 2007-2009 financial crisis the currency ratioA) increased sharply.B) decreased sharply.C) increased slightly.D) decreased slightly.Answer: DAACSB: Reflective Thinking55) During the 2007-2009 financial crisis the excess reserve ratioA) increased sharply.B) decreased sharply.C) increased slightly.D) decreased slightly.Answer: AAACSB: Reflective Thinking56) Explain the complete formula for the M1 money supply, and explain how changes in required reserves, excess reserves, the currency ratio, the nonborrowed base, and borrowed reserves affect the money supply.Answer: The formula is M = × (MBn + BR). The formula indicates that the money supply is the product of the multiplier times the base. Increases in any of the multiplier components, required reserves, r; excess reserves, e; or the currency ratio, c; reduce the multiplier and the money supply. Increases in the nonborrowed base and borrowed reserves both increase the base and the money supply.Ques Status: Previous EditiojjnAACSB: Reflective Thinking15.8 Web Appendix 1: The Fed's Balance Sheet and the Monetary Base1) Which is the most important category of Fed assets?A) securitiesB) discount loansC) gold and SDR certificatesD) cash items in the process of collectionAnswer: AAACSB: Reflective Thinking2) The two most important categories of assets on the Fed's balance sheet are ________ and ________ because they earn interest.A) discount loans; coinsB) securities; discount loansC) gold; coinsD) cash items in the process of collection; SDR certificate accountsAnswer: BAACSB: Reflective Thinking