A. A bank has capital of $200 and a leverage ratio of 5. If the value of the bank’s assets declines by 10 percent, then its capital will be reduced to


a. $100.

b. $150.

c. $180.

d. $185.

B. Which of the following actions by the Fed would tend to increase the money supply?

a. an open-market sale of government bonds

b. a decrease in reserve requirements

c. an increase in the interest rate paid on reserves

d. an increase in the discount rate on Fed lending

C. I f the Fed raises the interest rate it pays on reserves, it will _________ the money supply by increasing _________.

a. decrease; the money multiplier

b. decrease; excess reserves

c. increase; the money multiplier

d. increase; excess reserves

D. I n a system of fractional-reserve banking, even without any action by the central bank, the money supply declines if households choose to hold _________ currency or if banks choose to hold _________ excess reserves.

a. more; more

b. more; less

c. less; more

d. less; less