Question 1

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 2

Banks' borrowed funds come mostly from

Accepted Answer

A)  buying bonds and loans. 
B)  buying stocks and selling Treasury bonds. 
C)  issuing stocks and buying Treasury bonds. 
D)  issuing bonds and accepting deposits. 
A)  buying bonds and loans. 
B)  buying stocks and selling Treasury bonds. 
C)  issuing stocks and buying Treasury bonds. 
D)  issuing bonds and accepting deposits.

Question 3

A bank's checkable deposits shrink from $40 million to $33 million. What happens to its required reserves if the required reserve ratio is 3 percent?

Accepted Answer

A)  They fall by about $1.2 million. 
B)  They fall by about $10 million. 
C)  They fall by about $7 million. 
D)  They fall by about $0.2 million. 
A)  They fall by about $1.2 million. 
B)  They fall by about $10 million. 
C)  They fall by about $7 million. 
D)  They fall by about $0.2 million.

Question 4

Describe the basic features of a commercial bank's balance sheet.

Accepted Answer

The bank's balance sheet is a statement

Question 5

If a bank has excess reserves of $100,000, then it can lend out only up to $100,000; but if the banking system has cess reserves of $100,000, then the system can make additional loans totaling more than $100,000.

Accepted Answer

A) True 
 B)False

Question 6

$$\begin{array} { | l | c | } 
\hline \text { Reserves } & \$ 100 \
\hline \text { Checkable Deposits } & 1,000 \
\hline \text { Loans (to customers) } & 300 \
\hline \text { Property } & 400 \
\hline \text { Securities (owned) } & 300 \
\hline \text { Stock Shares } & 100 \
\hline
\end{array}$$ Refer to the accompanying table of information for the Moolah Bank. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's

Accepted Answer

A)  assets are $1,100. 
B)  liabilities are $1,100. 
C)  net worth is $300. 
D)  pro?t is $1,000. 
A)  assets are $1,100. 
B)  liabilities are $1,100. 
C)  net worth is $300. 
D)  pro?t is $1,000.

Question 7

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All ﬁgures are in billions. If the commercial banking system actually loans the maximum
Amount it is able to lend,

Accepted Answer

A)  reserves and deposits equal to that amount will be gained. 
B)  excess reserves will be $2.6 billion. 
C)  excess reserves will fall to $1.7 billion. 
D)  excess reserves will be reduced to zero. 
A)  reserves and deposits equal to that amount will be gained. 
B)  excess reserves will be $2.6 billion. 
C)  excess reserves will fall to $1.7 billion. 
D)  excess reserves will be reduced to zero.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Which of the following transactions has the immediate effect of increasing the money supply M1?

Accepted Answer

A)  A commercial bank accepts deposits from its customers. 
B)  A commercial bank lends some excess reserves in the federal funds market. 
C)  A commercial bank increases its reserve holdings. 
D)  A commercial bank buys government securities from the general public. 
A)  A commercial bank accepts deposits from its customers. 
B)  A commercial bank lends some excess reserves in the federal funds market. 
C)  A commercial bank increases its reserve holdings. 
D)  A commercial bank buys government securities from the general public.

Question 10

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 11

What is meant by the "federal funds market," and what is the federal funds rate?

Accepted Answer

The federal funds market is the market i

Question 12

The monetary multiplier can also be called the spending multiplier.

Accepted Answer

A) True 
 B)False

Question 13

$$\begin{array} { | l | r | r | r | } 
\hline & & \text { Assets } & \text { Liabilities and Net Worth } \
\hline \text { Stock Shares } & \$ 400 & & \
\hline \text { Reserves } & 40 & & \
\hline \text { Property } & 300 & & \
\hline \text { Securities } & 160 & & \
\hline \text { Loans } & 80 & & \
\hline \text { Demand Deposits } & 180 & & \
\hline
\end{array}$$ 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 the actual
Reserves of Bank A will

Accepted Answer

A)  still be $40,000. 
B)  decrease $10,000. 
C)  decrease $11,000. 
D)  decrease $9,000. 
A)  still be $40,000. 
B)  decrease $10,000. 
C)  decrease $11,000. 
D)  decrease $9,000.

Question 14

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This bank can safely expand its loans by a maximum of

Accepted Answer

A)  $7,000. 
B)  $25,000. 
C)  $12,000. 
D)  $5,000. 
A)  $7,000. 
B)  $25,000. 
C)  $12,000. 
D)  $5,000.

Question 15

An individual bank can safely lend out a multiple of its excess reserves, but the banking system can safely lend
out only an amount equal to the excess reserves in the banking system.

Accepted Answer

A) True 
 B)False

Question 16

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

Question 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

If the reserve ratio is 100 percent, the value of the monetary multiplier is

Accepted Answer

A)  0. 
B)  1. 
C)  10. 
D)  100. 
A)  0. 
B)  1. 
C)  10. 
D)  100.

Question 20

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.

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

Banks' borrowed funds come mostly from

A bank's checkable deposits shrink from $40 million to $33 million. What happens to its required reserves if the required reserve ratio is 3 percent?

Describe the basic features of a commercial bank's balance sheet.

If a bank has excess reserves of $100,000, then it can lend out only up to $100,000; but if the banking system has cess reserves of $100,000, then the system can make additional loans totaling more than $100,000.

Reserves \ 100 Checkable Deposits 1,000 Loans (to customers) 300 Property 400 Securities (owned) 300 Stock Shares 100 Refer to the accompanying table of information for the Moolah Bank. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All ﬁgures are in billions. If the commercial banking system actually loans the maximum Amount it is able to lend,

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

Which of the following transactions has the immediate effect of increasing the money supply M1?

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

What is meant by the "federal funds market," and what is the federal funds rate?

The monetary multiplier can also be called the spending multiplier.

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This bank can safely expand its loans by a maximum of

An individual bank can safely lend out a multiple of its excess reserves, but the banking system can safely lend out only an amount equal to the excess reserves in the banking system.

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

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

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

If the reserve ratio is 100 percent, the value of the monetary multiplier is

Other things being equal, an expansion of commercial bank lending

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

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Exam 15: Money Creation

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

Banks' borrowed funds come mostly from

A bank's checkable deposits shrink from $40 million to $33 million. What happens to its required reserves if the required reserve ratio is 3 percent?

Describe the basic features of a commercial bank's balance sheet.

If a bank has excess reserves of $100,000, then it can lend out only up to $100,000; but if the banking system has cess reserves of $100,000, then the system can make additional loans totaling more than $100,000.

Reserves \ 100 Checkable Deposits 1,000 Loans (to customers) 300 Property 400 Securities (owned) 300 Stock Shares 100 Refer to the accompanying table of information for the Moolah Bank. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All ﬁgures are in billions. If the commercial banking system actually loans the maximum Amount it is able to lend,

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

Which of the following transactions has the immediate effect of increasing the money supply M1?

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

What is meant by the "federal funds market," and what is the federal funds rate?

The monetary multiplier can also be called the spending multiplier.

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This bank can safely expand its loans by a maximum of

An individual bank can safely lend out a multiple of its excess reserves, but the banking system can safely lend out only an amount equal to the excess reserves in the banking system.

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

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

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

If the reserve ratio is 100 percent, the value of the monetary multiplier is

Other things being equal, an expansion of commercial bank lending

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

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