Question 1

When a bank has a check drawn and cleared against it,

Accepted Answer

A) excess reserves in the banking system decline. 
B) the nation's total money supply falls. 
C) the bank's balance sheet does not change. 
D) the amount of required reserves the bank must have will fall. 
A) excess reserves in the banking system decline. 
B) the nation's total money supply falls. 
C) the bank's balance sheet does not change. 
D) the amount of required reserves the bank must have will fall. D

Question 2

When cash is deposited at a bank, the composition of the money supply is changed but the total supply of money is not.

Accepted Answer

A) True 
 B)False  True

Question 3

A bank that has liabilities of $150 billion and a net worth of $20 billion must have

Accepted Answer

A) excess reserves of $130 billion. 
B) assets of $150 billion. 
C) excess reserves of $150 billion. 
D) assets of $170 billion. 
A) excess reserves of $130 billion. 
B) assets of $150 billion. 
C) excess reserves of $150 billion. 
D) assets of $170 billion. D

Question 4

A single commercial bank must meet a 25 percent reserve requirement.If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of

Accepted Answer

A) $1,250. 
B) $120,000. 
C) $5,000. 
D) $3,750.Topic: Money-Creating Transactions of a Commercial Bank 
A) $1,250. 
B) $120,000. 
C) $5,000. 
D) $3,750.Topic: Money-Creating Transactions of a Commercial Bank

Question 5

When a bank loan is repaid, the supply of money

Accepted Answer

A) is constant, but its composition will have changed. 
B) is decreased. 
C) is increased. 
D) may either increase or decrease. 
A) is constant, but its composition will have changed. 
B) is decreased. 
C) is increased. 
D) may either increase or decrease.

Question 6

Suppose that the reserve ratio is 6 percent, and applies only to checkable deposits.A bank has noncheckable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million.What are the excess reserves of this bank?

Accepted Answer

A) $5.6 million 
B) $6 million 
C) $2 million 
D) $2.4 million 
A) $5.6 million 
B) $6 million 
C) $2 million 
D) $2.4 million

Question 7

The required reserve ratio is equal to

Accepted Answer

A) a commercial bank's checkable-deposit liabilities divided by its required reserves. 
B) a commercial bank's required reserves divided by its checkable-deposit liabilities. 
C) a commercial bank's checkable-deposit liabilities multiplied by its excess reserves. 
D) a commercial bank's excess reserves divided by its required reserves. 
A) a commercial bank's checkable-deposit liabilities divided by its required reserves. 
B) a commercial bank's required reserves divided by its checkable-deposit liabilities. 
C) a commercial bank's checkable-deposit liabilities multiplied by its excess reserves. 
D) a commercial bank's excess reserves divided by its required reserves.

Question 8

When a bank grants a loan to a customer who gets the funds and keeps them at home for a while, the money supply will

Accepted Answer

A) not change because demand deposits did not go up. 
B) not change because the money was not spent. 
C) increase. 
D) decrease. 
A) not change because demand deposits did not go up. 
B) not change because the money was not spent. 
C) increase. 
D) decrease.

Question 9

The monetary multiplier and the spending multiplier are two ways of referring to the same concept.

Accepted Answer

A) True 
 B)False

Question 10

Other things equal, if the required reserve ratio was lowered,

Accepted Answer

A) banks would have to reduce their lending. 
B) the size of the monetary multiplier would increase. 
C) the actual reserves of banks would increase. 
D) the federal funds interest rate would rise. 
A) banks would have to reduce their lending. 
B) the size of the monetary multiplier would increase. 
C) the actual reserves of banks would increase. 
D) the federal funds interest rate would rise.

Question 11

When commercial banks retire outstanding loans, the supply of money is increased.

Accepted Answer

A) True 
 B)False

Question 12

The ABC Commercial Bank has $5,000 in excess reserves, and the reserve ratio is 30 percent.This information is consistent with the bank having

Accepted Answer

A) $90,000 in outstanding loans and $35,000 in reserves. 
B) $90,000 in checkable deposit liabilities and $32,000 in reserves. 
C) $20,000 in checkable deposit liabilities and $10,000 in reserves. 
D) $90,000 in checkable deposit liabilities and $35,000 in reserves. 
A) $90,000 in outstanding loans and $35,000 in reserves. 
B) $90,000 in checkable deposit liabilities and $32,000 in reserves. 
C) $20,000 in checkable deposit liabilities and $10,000 in reserves. 
D) $90,000 in checkable deposit liabilities and $35,000 in reserves.

Question 13

Which of the following describes the identity embodied in a balance sheet?

Accepted Answer

A) Net worth plus assets equal liabilities. 
B) Assets plus liabilities equal net worth. 
C) Assets equal liabilities plus net worth. 
D) Assets plus reserves equal net worth. 
A) Net worth plus assets equal liabilities. 
B) Assets plus liabilities equal net worth. 
C) Assets equal liabilities plus net worth. 
D) Assets plus reserves equal net worth.

Question 14

The amount of reserves that a commercial bank is required to hold is equal to

Accepted Answer

A) the amount of its checkable deposits. 
B) the sum of its checkable deposits and time deposits. 
C) its checkable deposits multiplied by the reserve requirement. 
D) its checkable deposits divided by its total assets. 
A) the amount of its checkable deposits. 
B) the sum of its checkable deposits and time deposits. 
C) its checkable deposits multiplied by the reserve requirement. 
D) its checkable deposits divided by its total assets.

Question 15

In the federal funds market, a bank that needs to meet reserve requirements can borrow reserves, usually for

Accepted Answer

A) overnight. 
B) one week. 
C) one month. 
D) six months. 
A) overnight. 
B) one week. 
C) one month. 
D) six months.

Question 16

In a fractional reserve banking system,

Accepted Answer

A) bank panics cannot occur. 
B) the monetary system must be backed by gold. 
C) banks can create money through the lending process. 
D) the Federal Reserve has no control over the amount of money in circulation. 
A) bank panics cannot occur. 
B) the monetary system must be backed by gold. 
C) banks can create money through the lending process. 
D) the Federal Reserve has no control over the amount of money in circulation.

Question 17

When the receipts given by goldsmiths to depositors were used to make purchases,

Accepted Answer

A) the gold standard was created. 
B) existing banking laws were violated. 
C) the receipts became in effect paper money. 
D) a fractional reserve banking system was created. 
A) the gold standard was created. 
B) existing banking laws were violated. 
C) the receipts became in effect paper money. 
D) a fractional reserve banking system was created.

Question 18

What percentage of the money that a typical modern bank invests comes from borrowing?

Accepted Answer

A) about 50 percent 
B) about 33 percent 
C) about 75 percent 
D) about 95 percent 
A) about 50 percent 
B) about 33 percent 
C) about 75 percent 
D) about 95 percent

Question 19

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million in excess reserves.The maximum amount of new money that the banking system could create is about

Accepted Answer

A) $110 million. 
B) $330 million. 
C) $660 million. 
D) $1,353 million. 
A) $110 million. 
B) $330 million. 
C) $660 million. 
D) $1,353 million.

Question 20

When a bank accepts a checkable deposit from a customer, its deposits will increase and its excess reserves will

Accepted Answer

A) increase by the same amount as deposits. 
B) increase by less than the deposits. 
C) increase by more than the deposits. 
D) decrease.Blooms: Understand 
A) increase by the same amount as deposits. 
B) increase by less than the deposits. 
C) increase by more than the deposits. 
D) decrease.Blooms: Understand

Exam 35: Money Creation

When a bank has a check drawn and cleared against it,

When cash is deposited at a bank, the composition of the money supply is changed but the total supply of money is not.

A bank that has liabilities of $150 billion and a net worth of $20 billion must have

A single commercial bank must meet a 25 percent reserve requirement.If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of

When a bank loan is repaid, the supply of money

Suppose that the reserve ratio is 6 percent, and applies only to checkable deposits.A bank has noncheckable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million.What are the excess reserves of this bank?

The required reserve ratio is equal to

When a bank grants a loan to a customer who gets the funds and keeps them at home for a while, the money supply will

The monetary multiplier and the spending multiplier are two ways of referring to the same concept.

Other things equal, if the required reserve ratio was lowered,

When commercial banks retire outstanding loans, the supply of money is increased.

The ABC Commercial Bank has $5,000 in excess reserves, and the reserve ratio is 30 percent.This information is consistent with the bank having

Which of the following describes the identity embodied in a balance sheet?

The amount of reserves that a commercial bank is required to hold is equal to

In the federal funds market, a bank that needs to meet reserve requirements can borrow reserves, usually for

In a fractional reserve banking system,

When the receipts given by goldsmiths to depositors were used to make purchases,

What percentage of the money that a typical modern bank invests comes from borrowing?

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million in excess reserves.The maximum amount of new money that the banking system could create is about

When a bank accepts a checkable deposit from a customer, its deposits will increase and its excess reserves will

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

Elasticity

Utility Maximization

Behavioral Economics

Businesses and the Costs of Production

Pure Competition in the Short Run

Pure Competition in the Long Run

Pure Monopoly

Monopolistic Competition

Oligopoly and Strategic Behavior

Technology, Rd, and Efficiency

The Demand for Resources

Wage Determination

Rent, Interest, and Profit

Natural Resource and Energy Economics

Public Finance: Expenditures and Taxes

Antitrust Policy and Regulation

Agriculture: Economics and Policy

Income Inequality, Poverty, and Discrimination

Health Care

Immigration

An Introduction to Macroeconomics

Measuring Domestic Output and National Income

Economic Growth

Business Cycles, Unemployment, and Inflation

Basic Macroeconomic Relationships

The Aggregate Expenditures Model

Aggregate Demand and Aggregate Supply

Fiscal Policy, Deficits, and Debt

Money, Banking, and Financial Institutions

Interest Rates and Monetary Policy

Financial Economics

Extending the Analysis of Aggregate Supply

Current Issues in Macro Theory and Policy

International Trade

The Balance of Payments, Exchange Rates, and Trade Deficits

The Economics of Developing Countries

Filters