Exam 35: Money Creation

Henry deposits $2,000 in currency in the First Street Bank.Later that same day, Jane Harris negotiates a loan for $5,400 at the same bank.After these transactions, the supply of money has

When cash is withdrawn from a checkable-deposit account at a bank,

Suppose the reserve requirement is 10 percent.If a bank has $5 million of checkable deposits and actual reserves of $500,000, the bank

When Bank A borrows reserves in the federal funds market, it causes the total reserves in the banking system to increase.

When you deposit money at a bank, the bank will normally turn around and lend most of it to a borrower.

The goldsmith's ability to create money was based on the fact that

If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetarymultiplier for the bankingsystemwill be

Which of the following is correct?

Balance sheets always balance because reserves must always equal liabilities plus net worth.

Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City.She then deposits the funds in her checking account at First Commerce Bank.Her checking accounthad a $150,000 balance before this deposit.The reserves of First Commerce Bank would

Banks can lend their excess reserves to other banks in the

A banker must strike a balance in the pursuit of two conflicting goals: profits and liquidity.In terms of asset management, this translates into achieving a balance between holding

A commercial bank has no excess reserves until a depositor places $5,000 in cash at the bank.The commercial bank then lends $4,000 to a borrower.As a consequence of these transactions, the size of the money supply has

Suppose a credit union has checkable deposits of $500,000 and the legal reserve ratio is 10 percent.If the institution has excess reserves of $4,000, then its actual reserves are

If banks borrow from the Fed, the banking system's reserves will increase, but if banks borrow from one another, the banking system's reserves will not change.

Which of the following statements is correct?

A commercial bank has excess reserves of $5,000 and a required reserve ratio of 20 percent.It makes a loan of $6,000 to a borrower.The borrower writes a check for $6,000 that is deposited in another commercial bank.After the check clears, the first bank will be short of reserves in the amount of

The use of high leveraging by banks leads to the banking system's

A bank owns a 10-story office building.In the bank's balance sheet, this would be listed as part of

A commercial bank has excess reserves of $10,000 and a required reserve ratio of 20 percent.It grants a loan of $8,000 to a customer, who then writes out a check for $8,000 that is deposited in another bank.The first bank will find its reserves decrease by