Question 1

The claims of creditors of a bank against the bank's assets are called

Accepted Answer

A) loans. 
B) net worth. 
C) liabilities. 
D) required reserves. 
A) loans. 
B) net worth. 
C) liabilities. 
D) required reserves.

Question 2

If a portion of the loans extended by commercial banks is taken as cash rather than as checkable deposits, the maximum money-creating potential of the commercial banking system will

Accepted Answer

A) be equal to twice the reciprocal of the reserve ratio. 
B) be unaffected. 
C) increase. 
D) decrease. 
A) be equal to twice the reciprocal of the reserve ratio. 
B) be unaffected. 
C) increase. 
D) decrease.

Question 3

The federal funds rate is the rate that banks pay for loans from

Accepted Answer

A) the Fed. 
B) the U.S.Treasury. 
C) other banks. 
D) large corporations. 
A) the Fed. 
B) the U.S.Treasury. 
C) other banks. 
D) large corporations.

Question 4

A commercial bank has checkable-deposit liabilities of $50,000 and a required reserve ratio of 20 percent.What is the amount of required reserves?

Accepted Answer

A) $10,000 
B) $50,000 
C) $250,000 
D) $1 million 
A) $10,000 
B) $50,000 
C) $250,000 
D) $1 million

Question 5

One way to enhance the stability of the banking system is to

Accepted Answer

A) require higher bank capitalization, or net worth. 
B) increase the federal funds rate. 
C) reduce the required reserve ratio. 
D) require more leveraging by banks. 
A) require higher bank capitalization, or net worth. 
B) increase the federal funds rate. 
C) reduce the required reserve ratio. 
D) require more leveraging by banks.

Question 6

What is one significant consequence of fractional reserve banking?

Accepted Answer

A) Banks are vulnerable to "panics" or "bank runs." 
B) Banks can only lend an amount equal to their deposits. 
C) Banks hold a portion of their deposits in gold. 
D) Banks can serve the withdrawals of all their depositors. 
A) Banks are vulnerable to "panics" or "bank runs." 
B) Banks can only lend an amount equal to their deposits. 
C) Banks hold a portion of their deposits in gold. 
D) Banks can serve the withdrawals of all their depositors.

Question 7

The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system

Accepted Answer

A) has been able to reduce the vulnerability of banks to "runs" or "panics." 
B) can increase its demand deposits by a multiple of its excess reserves. 
C) cannot increase its demand deposits by a multiple of its excess reserves. 
D) has been based on the fractional reserve system of banking. 
A) has been able to reduce the vulnerability of banks to "runs" or "panics." 
B) can increase its demand deposits by a multiple of its excess reserves. 
C) cannot increase its demand deposits by a multiple of its excess reserves. 
D) has been based on the fractional reserve system of banking.

Question 8

When a bank's loan defaults, then the bank's reserves will decrease.

Accepted Answer

A) True 
 B)False

Question 9

A bank is in the position to make loans when required reserves

Accepted Answer

A) equal actual reserves. 
B) equal excess reserves. 
C) are less than actual reserves. 
D) are greater than actual reserves. 
A) equal actual reserves. 
B) equal excess reserves. 
C) are less than actual reserves. 
D) are greater than actual reserves.

Question 10

A bank's required reserves can be calculated by

Accepted Answer

A) dividing its excess reserves by its required reserves. 
B) dividing its required reserves by its excess reserves. 
C) multiplying its checkable-deposit liabilities by the reserve ratio. 
D) multiplying its checkable-deposit liabilities by its excess reserves. 
A) dividing its excess reserves by its required reserves. 
B) dividing its required reserves by its excess reserves. 
C) multiplying its checkable-deposit liabilities by the reserve ratio. 
D) multiplying its checkable-deposit liabilities by its excess reserves.

Question 11

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system,

Accepted Answer

A) m = R − 1. 
B) R = m/1. 
C) R = m − 1. 
D) m = 1/R. 
A) m = R − 1. 
B) R = m/1. 
C) R = m − 1. 
D) m = 1/R.

Question 12

In essence, which of the following groups "creates" money?

Accepted Answer

A) banks' loan officers when they grant loans 
B) consumers when they go shopping 
C) depositors when they deposit or withdraw money from their banks 
D) firms when they pay workers their wages and salaries 
A) banks' loan officers when they grant loans 
B) consumers when they go shopping 
C) depositors when they deposit or withdraw money from their banks 
D) firms when they pay workers their wages and salaries

Question 13

Assume that a bank initially has no excess reserves.If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be

Accepted Answer

A) zero. 
B) 10 percent. 
C) 20 percent. 
D) 25 percent. 
A) zero. 
B) 10 percent. 
C) 20 percent. 
D) 25 percent.

Question 14

Other things being equal, an expansion of commercial bank lending

Accepted Answer

A) changes the composition, but not the size, of the money supply. 
B) is desirable during a period of demand-pull inflation. 
C) reduces the money supply. 
D) increases the money supply. 
A) changes the composition, but not the size, of the money supply. 
B) is desirable during a period of demand-pull inflation. 
C) reduces the money supply. 
D) increases the money supply.

Question 15

A bank has $2 million in checkable deposits.In the bank's balance sheet, this would be part of

Accepted Answer

A) assets. 
B) liabilities. 
C) capital stock. 
D) net worth. 
A) assets. 
B) liabilities. 
C) capital stock. 
D) net worth.

Question 16

Bank panics

Accepted Answer

A) occur frequently in fractional reserve banking systems. 
B) are a risk of fractional reserve banking but are unlikely when banks are highly regulated and lend prudently. 
C) cannot occur in a fractional reserve banking system. 
D) occur more frequently when the monetary system is backed by gold. 
A) occur frequently in fractional reserve banking systems. 
B) are a risk of fractional reserve banking but are unlikely when banks are highly regulated and lend prudently. 
C) cannot occur in a fractional reserve banking system. 
D) occur more frequently when the monetary system is backed by gold.

Question 17

Maximum checkable-deposit expansion in the banking system is equal to

Accepted Answer

A) actual reserves minus required reserves. 
B) assets plus net worth and liabilities. 
C) excess reserves times the monetary multiplier. 
D) excess reserves divided by the monetary multiplier. 
A) actual reserves minus required reserves. 
B) assets plus net worth and liabilities. 
C) excess reserves times the monetary multiplier. 
D) excess reserves divided by the monetary multiplier.

Question 18

Which of the following are all assets to a commercial bank?

Accepted Answer

A) demand deposits, stock shares, and reserves 
B) vault cash, property, and reserves 
C) vault cash, property, and stock shares 
D) vault cash, stock shares, and demand deposits 
A) demand deposits, stock shares, and reserves 
B) vault cash, property, and reserves 
C) vault cash, property, and stock shares 
D) vault cash, stock shares, and demand deposits

Question 19

The two major income-earning assets of commercial banks are

Accepted Answer

A) checkable deposits and bank reserves. 
B) loans and securities. 
C) checkable deposits and securities. 
D) reserves and loans. 
A) checkable deposits and bank reserves. 
B) loans and securities. 
C) checkable deposits and securities. 
D) reserves and loans.

Question 20

If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves; E equals the amount of excess reserves; and m is the monetary multiplier, then

Accepted Answer

A) m = E/D. 
B) D = E ×m. 
C) D = E − 1/m. 
D) D = m/E. 
A) m = E/D. 
B) D = E ×m. 
C) D = E − 1/m. 
D) D = m/E.

Exam 35: Money Creation

The claims of creditors of a bank against the bank's assets are called

If a portion of the loans extended by commercial banks is taken as cash rather than as checkable deposits, the maximum money-creating potential of the commercial banking system will

The federal funds rate is the rate that banks pay for loans from

A commercial bank has checkable-deposit liabilities of $50,000 and a required reserve ratio of 20 percent.What is the amount of required reserves?

One way to enhance the stability of the banking system is to

What is one significant consequence of fractional reserve banking?

The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system

When a bank's loan defaults, then the bank's reserves will decrease.

A bank is in the position to make loans when required reserves

A bank's required reserves can be calculated by

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system,

In essence, which of the following groups "creates" money?

Assume that a bank initially has no excess reserves.If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be

Other things being equal, an expansion of commercial bank lending

A bank has $2 million in checkable deposits.In the bank's balance sheet, this would be part of

Bank panics

Maximum checkable-deposit expansion in the banking system is equal to

Which of the following are all assets to a commercial bank?

The two major income-earning assets of commercial banks are

If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves; E equals the amount of excess reserves; and m is the monetary multiplier, then

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

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