Week 9 · Quiz

Week 9 — Quiz · Money & the Banking System

Principles of Macroeconomics · ECON 2 Fall 2026 · Prof. Ashford Fictional sample

Course: Principles of Macroeconomics (ECON 2) · Silver Oak University (fictional sample) · Prof. Ashford
Objective 7 · 10 questions · 10 points · closed to AI · one attempt
Auto-graded (Classic QTI): see F-quiz-week-09-qti.xml for the Canvas import. Every numeric answer is pre-computed; every money-multiplier/reserve claim is verified.

The questions (human-readable; answer key below)

Q1. Which of the following is best described as "money" in the economist's technical sense, right now?
A) A $40,000 stock portfolio B) A $20 bill in your wallet C) A house worth $350,000 D) A signed IOU promising future payment

Q2. A bank receives a new $600 deposit. The reserve requirement is 10%. What are the required reserves on this deposit?
A) $600 B) $60 C) $540 D) $6

Q3. Using the same $600 deposit and 10% reserve requirement, how much can the bank lend out?
A) $600, the whole deposit B) $60, the required reserves C) $540, the excess reserves D) Nothing — banks cannot lend deposits

Q4. What is the money multiplier when the reserve requirement (RR) is 20%?
A) 1.25 B) 0.20 C) 5 D) 20

Q5. A new $500 deposit arrives at a bank where the reserve requirement is 20% (multiplier = 5). What is the maximum possible increase in the money supply?
A) $500 B) $100 C) $2,500 D) $5

Q6. A bank manager says: "Our reserve requirement is 20%, so our multiplier must be 1/(1−0.20) = 1.25." What is the error in this reasoning?
A) There is no error — 1/(1−RR) is the correct money-multiplier formula B) The manager used the spending-multiplier formula (1/(1−MPC)) instead of the money-multiplier formula (1/RR); the correct multiplier is 1/0.20 = 5 C) The manager forgot to convert 20% to a fraction D) The manager should have used RR² instead of RR

Q7. (Select all that apply.) Which of the following are TRUE about fractional-reserve banking and the money multiplier?
☑ A) Banks lend out their excess reserves, not their required reserves ☑ B) A lower reserve requirement produces a larger money multiplier ☐ C) The money multiplier (1/RR) guarantees the money supply will expand by exactly that amount, no exceptions ☑ D) The money multiplier (1/RR) represents an upper bound on the possible expansion of the money supply ☐ E) M1 and M2 are the same measure of the money supply

Q8. (True/False) A regular savings-account balance is typically included in M1. → False

Q9. (Matching) Medium of exchange → Widely accepted in trade, so no "double coincidence of wants" is needed; Store of value → Holds purchasing power over time; Unit of account → The common measuring stick prices are quoted in; Excess reserves → The portion of a deposit above the required reserves, available for a bank to lend. (Distractor: "The portion of a deposit a bank is legally required to keep on hand.")

Q10. A $10,000 increase in government spending, with an MPC of 0.8, raises equilibrium output through the spending multiplier (Week 7). A $10,000 new bank deposit, with a reserve requirement of 10%, raises the money supply through the money multiplier (this week). Which statement correctly distinguishes the two?
A) Both use the exact same formula, 1/(1−x) B) The spending multiplier is 1/(1−MPC) and describes rounds of re-spending; the money multiplier is 1/RR and describes rounds of bank lending — different formulas for different mechanisms C) The money multiplier only applies to government spending, not bank deposits D) The spending multiplier and the money multiplier always produce the same numeric value

Answer key & feedback (instructor)

Q	Type	Answer	Feedback (the idea)
1	MC	B	Money must be spendable RIGHT NOW. Stocks, a house, and an IOU are wealth or a future claim — not immediately spendable money.
2	MC	B	Required reserves = deposit × RR = 600 × 0.10 = $60.
3	MC	C	Banks lend the excess reserves (deposit minus required reserves) = 600 − 60 = $540 — never the required reserves, never the full deposit.
4	MC	C	Money multiplier = 1/RR = 1/0.20 = 5.
5	MC	C	Maximum expansion = deposit × multiplier = 500 × 5 = $2,500.
6	MC	B	Classic mix-up: 1/(1−RR) is the spending-multiplier shape, not the money-multiplier formula. The money multiplier is always 1/RR — here, 1/0.20 = 5, not 1.25.
7	MA	A, B, D	C is false — 1/RR is a maximum, not a guarantee (excess reserves; the modern ample-reserves environment). E is false — M1 and M2 are different-sized measures (M2 = M1 + savings/small time deposits).
8	TF	False	Regular savings accounts are the classic M2-but-not-M1 example — still money, but M1 is limited to cash + checking balances.
9	Match	as above	Distractor ("kept on hand") describes required reserves, the opposite of excess reserves — keeps the required/excess distinction sharp.
10	MC	B	Same word "multiplier," two different mechanisms and formulas: spending multiplier (1/(1−MPC), fiscal re-spending) vs. money multiplier (1/RR, bank lending). Confusing them is the classic macro slip this week.

Quantitative gate: PASS — every numeric answer re-computed (see _build/logs/week-09-numbers.txt): Q2 600×0.10=60; Q3 600−60=540; Q4 1/0.20=5; Q5 500×5=2,500; Q6 correct multiplier 1/0.20=5 vs. the flagged wrong value 1/(1−0.20)=1.25.
Graph-logic/conceptual-canon check: PASS — every claim verified against the NUMBERS_PACK canon: banks lend the excess reserves (never required, never the full deposit); the money multiplier (1/RR) is distinct from, and never conflated with, the spending multiplier (1/(1−MPC)); 1/RR is taught and tested as an upper bound, not a guarantee; M1 ⊂ M2, and a regular savings balance sits in M2 but not M1.

Quality gate (self-checked): every single-answer item has exactly one correct option; distractors target the named traps (money vs. wealth, required-vs-excess reserves, money-multiplier-vs-spending-multiplier formula confusion, 1/RR as a false guarantee, M1/M2 conflation). No free numeric entry; no essay.

This is the human-readable quiz with its vetted answer key and rationale. The import-ready Classic-QTI version (F-quiz-week-09-qti.xml) ships inside the course's .imscc package — it lands in the Canvas gradebook on import.

~ Prof. Ashford's edition · Fall 2026 · built with thecoursemaker.com