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20.5Â Â Appendix: Monetary Effects of Treasury Financing 1) When the Treasury borrows from the non-bank public and makes an expenditure of an equal amount, the money supply A) rises by a multiple of the expenditure. B) rises by an amount equal to the expenditure. C) rises by an amount less than the expenditure. D) is unaffected. 2) If the Treasury borrows from the public and makes an expenditure of an equal amount, it will affect A) the supply of currency. B) the money supply. C) the supply of government securities. D) bank reserves. 3) Which of these government financing methods is generally the least inflationary? A) Printing currency B) Borrowing from the banking system C) Borrowing from the central bank D) Borrowing from the non-bank public 4) Assume the deposit expansion multiplier is 3.0. If the Treasury borrows $5 billion from the Non-bank public and spends it on the public, bank reserves will A) rise by $5 billion. B) fall by $5 billion. C) rise by $15 billion. D) not change. 5) Assume the Treasury borrows $5 billion from the non-bank public and spends it. The effect on bank reserves is that they will __________ by $5 billion when the Treasury borrows and then bank reserves will __________ by $5 billion when the Treasury spends the money. A) rise; fall B) fall; rise C) rise; rise D) fall; fall 6) If the Treasury finances an expenditure by borrowing from the banking system, the money supply will not be affected if the banks A) borrowed from the discount window to buy the government bonds. B) had no excess reserves when they bought the bonds. C) were not members of the Federal Reserve System. D) had no other government securities in their portfolios. 7) Assuming a fully loaned-up banking system and a deposit expansion multiplier of 2, a $10 million government expenditure financed by sales of securities to the banking system will cause the money supply to A) remain unchanged. B) rise by $5 million. C) rise by $10 million. D) rise by $20 million. 8) If the Treasury finances an expenditure by borrowing from banks with excess reserves, the money supply will A) remain unchanged. B) rise by an amount equal to the expenditure. C) rise by a multiple of the expenditure. D) fall by a multiple of the expenditure. 9) Assume a money multiplier of 4 and a government expenditure of $20 million. If the Treasury borrows $20 million from the banking system while the banks have excess reserves, the money supply will A) rise by $5 million. B) rise by $20 million. C) rise by $80 million. D) not be affected. 10) Assume a demand deposit multiplier of 2 and a government expenditure of $10 million. If the Treasury borrows that much from the banking system, bank reserves will A) rise by $2 million. B) rise by $10 million. C) rise by $20 million. D) remain unchanged.

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