Exhibit 15-3 Balance sheet of Tucker National Bank
Assets
Liabilities
Required reserves$ 20,000
Checkable deposits$100,000
Excess reserves0
Loans 80,000
Total$100,000
Total$100,000
Assume all banks in the system started with balance sheets as shown in Exhibit 15-3 and the Fed made a $100,000 open market purchase. The result would be a(n):
A. $500,000 expansion of the money supply.
B. $100,000 expansion of the money supply.
C. $20,000 contraction of the money supply.
D. infinite expansion of the money supply.
Answer: A
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Having one central bank responsible for managing the common currency and replacing the national monetary authority provides benefits that include all of the following, EXCEPT:
A) independence and the ability to resist political pressure. B) better performance in keeping inflation stable with no large swings in unemployment. C) the ability to tailor the supply of money for a variety of economic conditions in the member states. D) provision of a stable nominal anchor.
Banks create money by
A) printing currency. B) asking the Fed to print more currency. C) lending to the Fed. D) making loans. E) buying government securities.