Exam 15: Money Creation

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. If the commercial banking system actually loans out The maximum amount it is able to lend, excess reserves will fall

Describe "bank runs." How can "bank runs" be avoided?

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

When commercial banks use excess reserves to buy government securities from the public,

Suppose the reserve requirement is 20 percent. If a bank has checkable deposits of $4 million and actual reserves of $1 million, it can safely lend out

A depositor places $10,000 in cash in a commercial bank, where the required reserve ratio is 10 percent. The bank sends the $10,000 to its Federal Reserve Bank. As a result, the actual reserves, required reserves, andcess reserves of the bank have been increased by A) $10,000, $9,000, and $1,000, respectively. B) $10,000, $500, and $4,500, respectively. C) $10,000, $1,000, and $9,000, respectively. D) $1,000, $10,000, and $9,000, respectively.

Assume that the required reserve ratio is 20 percent. A business deposits a $50,000 check at Bank A; the check is drawn against Bank B. What happens to the reserves at Bank A and Bank B?

What is the effect on the money supply when a commercial bank buys government securities from the public?

In prosperous times, commercial banks are likely to hold very small amounts of excess reserves because

The federal funds rate is the interest rate that the Fed charges banks for its loans to them.

A commercial bank can expand its excess reserves by

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

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

Only one commercial bank in the banking system has any excess reserves, and its excess reserves are $400,000. This bank makes a new loan of $300,000 and keeps excess reserves of $100,000. If the required reserve ratio for All banks is 12.5 percent, the potential expansion of the money supply from this new loan is

Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. The commercial banking system has excess Reserves of

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

The multiple by which the commercial banking system can expand the supply of money is equal to

(Last Word) Leverage in the financial system