Question 1

Which of the following statements is correct?

Accepted Answer

A)  When borrowers repay bank loans, the money supply is increased. 
B)  When borrowers take out bank loans, the money supply is decreased. 
C)  A single bank can legally lend an amount equal to its total reserves. 
D)  A bank can grant loans to customers only if it has excess reserves. 
A)  When borrowers repay bank loans, the money supply is increased. 
B)  When borrowers take out bank loans, the money supply is decreased. 
C)  A single bank can legally lend an amount equal to its total reserves. 
D)  A bank can grant loans to customers only if it has excess reserves. D

Question 2

A bank can get additional excess reserves by doing any of the following except

Accepted Answer

A)  borrowing from other banks. 
B)  buying Treasury securities from the Fed. 
C)  receiving additional deposits. 
D)  borrowing from the Fed. 
A)  borrowing from other banks. 
B)  buying Treasury securities from the Fed. 
C)  receiving additional deposits. 
D)  borrowing from the Fed. B

Question 3

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 B

Question 4

When a bank buys government securities from the Fed, then the bank's ability to "create money" will be reduced.

Accepted Answer

A) True 
 B)False

Question 5

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. 
A)  $1,250. 
B)  $120,000. 
C)  $5,000. 
D)  $3,750.

Question 6

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 7

$$\begin{array} { | c | c | c | c | c | } 
\hline & \text { Reserve Requirement (\%) } & \text { Checkable Deposits } & \text { Actual Reserves } & \text { Excess Reserves } \
\hline ( 1 ) & \underline { W } & \$ 100,000 & \$ 10,000 & \$ 0 \
\hline ( 2 ) & 8 & \underline { X }&20,000 & 12,000 \
\hline ( 3 ) & 12 & 200,000 & \underline { Y } & 8,000 \
\hline ( 4 ) & 20 & 300,000 & 70,000 & \underline { Z } \
\hline
\end{array}$$ The accompanying table gives data for a commercial bank or thrift. In row 2, the number appropriate for space X is

Accepted Answer

A)  $20,000. 
B)  $60,000. 
C)  $200,000. 
D)  $100,000. 
A)  $20,000. 
B)  $60,000. 
C)  $200,000. 
D)  $100,000.

Question 8

The primary reason commercial banks must keep required reserves on deposit at the Fed is to

Accepted Answer

A)  add to the liquidity of the commercial bank. 
B)  allow the Fed to control the amount of bank lending. 
C)  protect the deposits in the commercial bank against losses. 
D)  ensure that depositors can withdraw their money if they wish to. 
A)  add to the liquidity of the commercial bank. 
B)  allow the Fed to control the amount of bank lending. 
C)  protect the deposits in the commercial bank against losses. 
D)  ensure that depositors can withdraw their money if they wish to.

Question 9

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 10

Is the purpose of required bank reserves to enhance liquidity and protect commercial bank depositors from
losses? Explain.

Accepted Answer

No, the purpose of required reserves is

Question 11

When a check is cleared against a bank, the bank will lose

Accepted Answer

A)  cash and securities. 
B)  checkable deposits and reserves. 
C)  reserves and capital stock. 
D)  loans and demand deposits. 
A)  cash and securities. 
B)  checkable deposits and reserves. 
C)  reserves and capital stock. 
D)  loans and demand deposits.

Question 12

Assume that the reserve ratio is 20 percent and banks in the system are loaning out all their excess reserve. If people collectively cash out $10 billion from their checking accounts, then the lending ability of the banking
System will be

Accepted Answer

A)  increased by $10 billion. 
B)  decreased by $10 billion. 
C)  decreased by $40 billion. 
D)  decreased by $50 billion. 
A)  increased by $10 billion. 
B)  decreased by $10 billion. 
C)  decreased by $40 billion. 
D)  decreased by $50 billion.

Question 13

$$\begin{array} { | c | c | c | } 
\hline \text { (1) } & \text { (2) } & ( 3 ) \
\hline \text { Legal Reserve Ratio (\%) } & \text { Checkable Deposits } & \text { Actual Reserves } \
\hline 10 & \$ 40,000 & \$ 10,000 \
\hline 20 & 40,000 & 10,000 \
\hline 25 & 40,000 & 10,000 \
\hline 30 & 40,000 & 10,000 \
\hline
\end{array}$$ The accompanying table gives data for a commercial bank or thrift. When the legal reserve ratio is 25 percent, thecess reserves of this single bank are 
A) $0.
B) $1,000.
C) $5,000.
D) $30,000.

Accepted Answer

cess reser

Question 14

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.

Question 15

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 16

$$\begin{array} { | c | c | c | c | c | } 
\hline & \text { Reserve Requirement (\%) } & \text { Checkable Deposits } & \text { Actual Reserves } & \text { Excess Reserves } \
\hline ( 1 ) & \underline { W } & \$ 100,000 & \$ 10,000 & \$ 0 \
\hline ( 2 ) & 8 & \underline { X } & 20,000 & 12,000 \
\hline ( 3 ) & 12 & 200,000 & \underline { Y } & 8,000 \
\hline ( 4 ) & 20 & 300,000 & 70,000 & \underline { Z } \
\hline
\end{array}$$ The accompanying table gives data for a commercial bank or thrift. In row 1, the number appropriate for space W is

Accepted Answer

A)  4. 
B)  6. 
C)  10. 
D)  12. 
A)  4. 
B)  6. 
C)  10. 
D)  12.

Question 17

One major component of money supply M1 is part of a bank's

Accepted Answer

A)  assets. 
B)  reserves. 
C)  liabilities. 
D)  net worth. 
A)  assets. 
B)  reserves. 
C)  liabilities. 
D)  net worth.

Question 18

Requiring banks to use less leveraging is equivalent to

Accepted Answer

A)  expanding the loan portfolio of banks. 
B)  reducing the banks' reserve ratio. 
C)  requiring a higher level of bank net worth. 
D)  requiring banks to accept more deposits. 
A)  expanding the loan portfolio of banks. 
B)  reducing the banks' reserve ratio. 
C)  requiring a higher level of bank net worth. 
D)  requiring banks to accept more deposits.

Question 19

A bank temporarily short of required reserves may be able to remedy this situation by

Accepted Answer

A)  borrowing funds in the federal funds market. 
B)  granting new loans. 
C)  shifting some of its vault cash to its reserve account at the Federal Reserve. 
D)  buying bonds from the public. 
A)  borrowing funds in the federal funds market. 
B)  granting new loans. 
C)  shifting some of its vault cash to its reserve account at the Federal Reserve. 
D)  buying bonds from the public.

Question 20

$$\begin{array} { | l | r | l | l | } 
\hline & & \text { Assets } & \text { Liabilities and Net Worth } \
\hline \text { Stock Shares } & \$ 400 & & \
\hline \text { Reserves } & 40 & & \
\hline \text { Property } & 300 & & \
\hline \text { Securities } & 160 & & \
\hline \text { Loans } & 80 & & \
\hline \text { Demand Deposits } & 180 & & \
\hline
\end{array}$$ The ?gures in the table are for a single commercial bank, Bank A. All ?gures are in thousands of dollars. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of Bank B, then Bank A will end
Up with excess reserves of

Accepted Answer

A)  $8,000. 
B)  $12,000. 
C)  $13,000. 
D)  $18,000. 
A)  $8,000. 
B)  $12,000. 
C)  $13,000. 
D)  $18,000.

Which of the following statements is correct?

A bank can get additional excess reserves by doing any of the following except

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

When a bank buys government securities from the Fed, then the bank's ability to "create money" will be reduced.

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

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

Reserve Requirement (\%) Checkable Deposits Actual Reserves Excess Reserves (1) \ 100,000 \ 10,000 \ 0 (2) 8 20,000 12,000 (3) 12 200,000 8,000 (4) 20 300,000 70,000 The accompanying table gives data for a commercial bank or thrift. In row 2, the number appropriate for space X is

The primary reason commercial banks must keep required reserves on deposit at the Fed is to

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?

Is the purpose of required bank reserves to enhance liquidity and protect commercial bank depositors from losses? Explain.

When a check is cleared against a bank, the bank will lose

Assume that the reserve ratio is 20 percent and banks in the system are loaning out all their excess reserve. If people collectively cash out $10 billion from their checking accounts, then the lending ability of the banking System will be

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

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

Reserve Requirement (\%) Checkable Deposits Actual Reserves Excess Reserves (1) \ 100,000 \ 10,000 \ 0 (2) 8 20,000 12,000 (3) 12 200,000 8,000 (4) 20 300,000 70,000 The accompanying table gives data for a commercial bank or thrift. In row 1, the number appropriate for space W is

One major component of money supply M1 is part of a bank's

Requiring banks to use less leveraging is equivalent to

A bank temporarily short of required reserves may be able to remedy this situation by

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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

Exam 15: Money Creation

Which of the following statements is correct?

A bank can get additional excess reserves by doing any of the following except

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

When a bank buys government securities from the Fed, then the bank's ability to "create money" will be reduced.

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

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

Reserve Requirement (\%) Checkable Deposits Actual Reserves Excess Reserves (1) \ 100,000 \ 10,000 \ 0 (2) 8 20,000 12,000 (3) 12 200,000 8,000 (4) 20 300,000 70,000 The accompanying table gives data for a commercial bank or thrift. In row 2, the number appropriate for space X is

The primary reason commercial banks must keep required reserves on deposit at the Fed is to

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?

Is the purpose of required bank reserves to enhance liquidity and protect commercial bank depositors from losses? Explain.

When a check is cleared against a bank, the bank will lose

Assume that the reserve ratio is 20 percent and banks in the system are loaning out all their excess reserve. If people collectively cash out $10 billion from their checking accounts, then the lending ability of the banking System will be

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

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

Reserve Requirement (\%) Checkable Deposits Actual Reserves Excess Reserves (1) \ 100,000 \ 10,000 \ 0 (2) 8 20,000 12,000 (3) 12 200,000 8,000 (4) 20 300,000 70,000 The accompanying table gives data for a commercial bank or thrift. In row 1, the number appropriate for space W is

One major component of money supply M1 is part of a bank's

Requiring banks to use less leveraging is equivalent to

A bank temporarily short of required reserves may be able to remedy this situation by

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures Caused by Externalities Asymmetric Information

Public Goods, Public Choice, and Government Failure

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