Bance Solida has, in the past, always operated with a reserve ratio of 25 percent. It has now been taken over by Gung-Ho Bank Which operates with a reserve ration of 12½ percent, Assuming that Banca Solida adopts the business practices of its new owner, What will be the effect on money supply in the country in which Banca Solida operates ?

Related Mcqs:

1. Suppose the State Bank purchases a Rs 1,000 government bond from you. If you deposit the entire Rs 1,000 in you bank what is the total potential change in the money supply as a result of the State Bank’s action if the your bank’s reserve ratio is 20 percent ?

   A. Rs 4,000
   B. Rs 5,000
   C. Rs 1,000
   D. Rs 0

2. Suppose Imtiaz moves his Rs1,000 demand deposit from Bank A to Bank B. If both banks operate with a reserve ratio of 10 percent What is the potential change in money supply as a result of Gerard’s action ?

   A. Rs 10,00
   B. Rs 1,000
   C. Rs 9,000
   D. Rs 0

3. Reserve requirements that may be imposed on an economy’s banks by its central bank specify that banks by its central bank specify that banks reserve must be a minimum percentage of them ?

   A. assets
   B. deposits
   C. loans
   D. government bonds

4. If the banks in an economy operate with a reserve ratio of 20 percent then the money multiplier is ?

   A. 4
   B. 20
   C. 25
   D. 5

5. Suppose the central bank purchases a government bond from a person who deposits the entire amount received from the sale in her bank the money supply will ?

   A. rise by an amount that depends on the bank’s reserve ratio
   B. rise by less than the amount of the deposit
   C. fall by exactly the amount of the deposit as long as the bank does not change its reserve ratio
   D. fall by exactly the amount of the deposit as long as the bank does not change its reserve ratio
   E. be unchanged

6. Suppose all banks maintain a 100 percent reserve ratio. If an individual deposits Rs 1,000 of currency in a bank ?

   A. the money supply increases by more than Rs 1,000
   B. the money supply increase by less than Rs 1,000
   C. the money supply decrease by less than Rs 1,000
   D. the money supply decrease by more than Rs 1,000
   E. The money supply is unaffected

7. For the United States suppose the annual interest rate on government securities equals 8 percent while the annual inflation rate equals 4 percent, For Switzerland the annual interest rate on government securities equal 10 percent while the annual inflation rate equals 7 percent the above variables would cause investment funds to flow from ?

   A. the United States to Switzerland causing the dollar to depreciate
   B. the United States to Switzerland causing the dollar to appreciate
   C. Switzerland to the United States causing the franc to depreciate
   D. Switzerland to the United States causing the franc to appreciate

8. For the United States suppose the annual interest rate on government securities equals 12 percent while the annual inflation rate equals 8 percent For Japan the annual interest rate on government securities equals 10 percent while the annual inflation rate equals 5 percent the above variables would cause investment funds to flow from ?

   A. The United States to Japan causing the dollar to depreciate
   B. The United States to Japan causing the dollar to appreciate
   C. The Japan to United States, causing the dollar to depreciate
   D. The Japan to United States, causing the dollar to appreciate

9. Starting from a position where the nation’s money demand equals the money supply and its balance of payments is in equilibrium its balance of payments would move into a surplus position if there occurred in the nation a (an) ?

   A. decrease in the money supply
   B. increase in the money supply
   C. decrease in the money demand
   D. None of the above

10. If the Bank of England reduces the money supply to reduce inflation a floating exchange rate will aid the Bank of England in fighting inflation because ?

    A. as the money supply is decreased the interest rate will increase and the price of UK exports will rise and the Price of UK imports will fall
    B. as the money supply is decreased the interest rate will increase, and the price of UK exports will fall and the price of UK imports will rise
    C. as the money supply is decreased the interest rate will increase and the price of UK exports and UK imports will fall.
    D. as the money supply is decreased the interest rate will increase and the price of both UK exports and UK imports will rise