Question 1

Commercial banks monetize claims when they

Accepted Answer

A) collect checks through the Federal Reserve System. 
B) make loans to the public. 
C) accept repayment of outstanding loans. 
D) borrow from the Federal Reserve Banks. 
A) collect checks through the Federal Reserve System. 
B) make loans to the public. 
C) accept repayment of outstanding loans. 
D) borrow from the Federal Reserve Banks.

Question 2

A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank.The reserve ratio is 10 percent.The bank then lends $1,500 to a borrower.As a consequence of these transactions, the bank's excess reserves are

Accepted Answer

A) not affected. 
B) increased by $200. 
C) increased by $300. 
D) increased by $500. 
A) not affected. 
B) increased by $200. 
C) increased by $300. 
D) increased by $500.

Question 3

Excess reserves refer to the

Accepted Answer

A) difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank. 
B) minimum amount of actual reserves a bank must keep on hand to back up its customers deposits. 
C) difference between actual reserves and loans. 
D) difference between actual reserves and required reserves. 
A) difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank. 
B) minimum amount of actual reserves a bank must keep on hand to back up its customers deposits. 
C) difference between actual reserves and loans. 
D) difference between actual reserves and required reserves.

Question 4

In an unregulated environment, the commercial banking system would tend to vary the supply of money in a way that

Accepted Answer

A) increased the money supply to the maximum at all times. 
B) decreased the money supply to the minimum at all times. 
C) emphasized the use of currency over demand deposits. 
D) reinforced cyclical variations in the economy. 
A) increased the money supply to the maximum at all times. 
B) decreased the money supply to the minimum at all times. 
C) emphasized the use of currency over demand deposits. 
D) reinforced cyclical variations in the economy.

Question 5

A commercial bank's checkable-deposit liabilities can be estimated by

Accepted Answer

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

Question 6

If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would

Accepted Answer

A) increase by $5 billion 
B) decrease by $5 billion. 
C) be added to net worth. 
D) remain the same. 
A) increase by $5 billion 
B) decrease by $5 billion. 
C) be added to net worth. 
D) remain the same.

Question 7

When a bank accepts additional deposits, its required reserves and excess reserves will both increase.

Accepted Answer

A) True 
 B)False

Question 8

The basic purpose of imposing legal reserve requirements on commercial banks is to

Accepted Answer

A) assure the liquidity of commercial banks. 
B) provide a device through which the credit-creating activities of banks can be controlled. 
C) provide a proper ratio between earning and no-earning bank assets. 
D) provide the central banks with necessary working capital. 
A) assure the liquidity of commercial banks. 
B) provide a device through which the credit-creating activities of banks can be controlled. 
C) provide a proper ratio between earning and no-earning bank assets. 
D) provide the central banks with necessary working capital.

Question 9

If the reserve requirement is 10 percent, what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

Accepted Answer

A) $450 
B) $400 
C) $5,000 
D) $550 
A) $450 
B) $400 
C) $5,000 
D) $550

Question 10

The amount of required reserves that a bank must hold is computed as a certain fraction of the bank's assets.

Accepted Answer

A) True 
 B)False

Question 11

A checkable deposit at a commercial bank is a(n)

Accepted Answer

A) liability to the depositor and an asset to the bank. 
B) liability to both the depositor and the bank. 
C) asset to the depositor and a liability to the bank. 
D) asset to both the depositor and the bank. 
A) liability to the depositor and an asset to the bank. 
B) liability to both the depositor and the bank. 
C) asset to the depositor and a liability to the bank. 
D) asset to both the depositor and the bank.

Question 12

The reserves of a commercial bank consist of

Accepted Answer

A) the amount of money market funds it holds. 
B) deposits at the Federal Reserve Bank and vault cash. 
C) government securities that the bank holds. 
D) the bank's net worth. 
A) the amount of money market funds it holds. 
B) deposits at the Federal Reserve Bank and vault cash. 
C) government securities that the bank holds. 
D) the bank's net worth.

Question 13

The supply of money increases when the public buys government securities from commercial banks.

Accepted Answer

A) True 
 B)False

Question 14

The market for immediately available reserve balances at the Federal Reserve is known as the

Accepted Answer

A) money market. 
B) long-term bond market. 
C) short-term bond market. 
D) federal funds market.Topic: Money-Creating Transactions of a Commercial Bank 
A) money market. 
B) long-term bond market. 
C) short-term bond market. 
D) federal funds market.Topic: Money-Creating Transactions of a Commercial Bank

Question 15

Commercial banks create money when they

Accepted Answer

A) accept cash deposits from the public. 
B) purchase government securities from the central banks. 
C) create checkable deposits in exchange for IOUs. 
D) raise their interest rates. 
A) accept cash deposits from the public. 
B) purchase government securities from the central banks. 
C) create checkable deposits in exchange for IOUs. 
D) raise their interest rates.

Question 16

When a bank sells capital stock (equity shares) in return for cash,

Accepted Answer

A) the capital stock increases the assets side and the cash increases the liabilities side. 
B) the capital stock decreases the liabilities and the cash increases the assets side. 
C) the capital stock increases the net worth and the cash increases the liabilities. 
D) the capital stock increases the net worth and the cash increases the assets side. 
A) the capital stock increases the assets side and the cash increases the liabilities side. 
B) the capital stock decreases the liabilities and the cash increases the assets side. 
C) the capital stock increases the net worth and the cash increases the liabilities. 
D) the capital stock increases the net worth and the cash increases the assets side.

Question 17

A bank's net worth is equal to its

Accepted Answer

A) assets plus its liabilities. 
B) assets minus its liabilities. 
C) liabilities minus its assets. 
D) profits plus its assets. 
A) assets plus its liabilities. 
B) assets minus its liabilities. 
C) liabilities minus its assets. 
D) profits plus its assets.

Exam 35: Money Creation

Commercial banks monetize claims when they

A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank.The reserve ratio is 10 percent.The bank then lends $1,500 to a borrower.As a consequence of these transactions, the bank's excess reserves are

Excess reserves refer to the

In an unregulated environment, the commercial banking system would tend to vary the supply of money in a way that

A commercial bank's checkable-deposit liabilities can be estimated by

If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would

When a bank accepts additional deposits, its required reserves and excess reserves will both increase.

The basic purpose of imposing legal reserve requirements on commercial banks is to

If the reserve requirement is 10 percent, what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

The amount of required reserves that a bank must hold is computed as a certain fraction of the bank's assets.

A checkable deposit at a commercial bank is a(n)

The reserves of a commercial bank consist of

The supply of money increases when the public buys government securities from commercial banks.

The market for immediately available reserve balances at the Federal Reserve is known as the

Commercial banks create money when they

When a bank sells capital stock (equity shares) in return for cash,

A bank's net worth is equal to its

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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