Which of the Following Is False

question 64

Multiple Choice

Which of the following is false?

• A)​The Fed controls the supply of money, even though privately owned commercial banks actually create and destroy money by making loans.
• B)​With a 10% required reserve ratio, a $10,000 cash deposit in a bank would result in an increase in the bank's excess reserves by $1000.
• C)​With a 10% required reserve ratio, a $1,000 bond purchase by the Fed directly creates $1,000 in money in the form of bank deposits, and indirectly permits up to $9,000 in additional money to be created through the multiple expansion in bank deposits.
• D)​When the Fed sells government bonds, it will tend to cause a multiple contraction of bank deposits.

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Definitions:

Net Exports

The difference between a country's total value of exports and its total value of imports, indicating whether it has a trade surplus or deficit.

Purchasing-power Parity

A theory in economics that states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries.

Nominal Exchange Rate

The rate at which one currency can be exchanged for another without adjusting for inflation.

Prices

The amount of money required to purchase a good or service.