Question 1

When bankers hold excess reserves,

Accepted Answer

A)  the size of the monetary multiplier increases. 
B)  the money-creating potential of the banking system increases. 
C)  the money-creating potential of the banking system decreases. 
D)  there is no change in the money-creating potential of the banking system. 
A)  the size of the monetary multiplier increases. 
B)  the money-creating potential of the banking system increases. 
C)  the money-creating potential of the banking system decreases. 
D)  there is no change in the money-creating potential of the banking system.

Question 2

The required reserve ratio is equal to

Accepted Answer

A)  a commercial bank's checkable-deposit liabilities divided by its required reserves. 
B)  a commercial bank's required reserves divided by its checkable-deposit liabilities. 
C)  a commercial bank's checkable-deposit liabilities multiplied by its excess reserves. 
D)  a commercial bank's excess reserves divided by its required reserves. 
A)  a commercial bank's checkable-deposit liabilities divided by its required reserves. 
B)  a commercial bank's required reserves divided by its checkable-deposit liabilities. 
C)  a commercial bank's checkable-deposit liabilities multiplied by its excess reserves. 
D)  a commercial bank's excess reserves divided by its required reserves.

Question 3

One bank can borrow reserves from another bank, and the interest on the loan is called the federal funds rate.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess
Reserves equal

Accepted Answer

A)  $0 million. 
B)  $2 million. 
C)  $5 million. 
D)  $6 million. 
A)  $0 million. 
B)  $2 million. 
C)  $5 million. 
D)  $6 million.

Question 6

"Leverage" in ﬁnance refers to the

Accepted Answer

A)  increase in proﬁts or losses from an investment. 
B)  use of one's own money in an investment. 
C)  use of borrowing money in order to magnify returns from an investment. 
D)  shifting of ﬁnancial risk onto an insurer. 
A)  increase in proﬁts or losses from an investment. 
B)  use of one's own money in an investment. 
C)  use of borrowing money in order to magnify returns from an investment. 
D)  shifting of ﬁnancial risk onto an insurer.

Question 7

A commercial bank's reserves are

Accepted Answer

A)  liabilities to both the commercial bank and the Federal Reserve Bank holding them. 
B)  liabilities to the commercial bank and assets to the Federal Reserve Bank holding them. 
C)  assets to both the commercial bank and the Federal Reserve Bank holding them. 
D)  assets to the commercial bank and liabilities to the Federal Reserve Bank holding them. 
A)  liabilities to both the commercial bank and the Federal Reserve Bank holding them. 
B)  liabilities to the commercial bank and assets to the Federal Reserve Bank holding them. 
C)  assets to both the commercial bank and the Federal Reserve Bank holding them. 
D)  assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

Question 8

The goldsmith's ability to create money was based on the fact that

Accepted Answer

A)  withdrawals of gold tended to exceed deposits of gold in any given time period. 
B)  consumers and merchants preferred to use gold for transactions, rather than paper money. 
C)  the goldsmith was required to keep 100 percent gold reserves. 
D)  paper money in the form of gold receipts was rarely redeemed for gold. 
A)  withdrawals of gold tended to exceed deposits of gold in any given time period. 
B)  consumers and merchants preferred to use gold for transactions, rather than paper money. 
C)  the goldsmith was required to keep 100 percent gold reserves. 
D)  paper money in the form of gold receipts was rarely redeemed for gold.

Question 9

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

Accepted Answer

A)  $24,000. 
B)  $32,000. 
C)  $48,000. 
D)  $96,000. 
A)  $24,000. 
B)  $32,000. 
C)  $48,000. 
D)  $96,000.

Question 10

In an uncontrolled or unregulated system, commercial bank lending will tend to intensify the business cycle.

Accepted Answer

A) True 
 B)False

Question 11

The accompanying table is the consolidated balance sheet for the commercial banking system. All ﬁgures are in billions. Assume that the required reserve ratio is 10 percent. The maximum amount by which this commercial
Banking system can expand the supply of money by lending is

Accepted Answer

A)  $120,000 billion. 
B)  $300,000 billion. 
C)  $600,000 billion. 
D)  $900,000 billion. 
A)  $120,000 billion. 
B)  $300,000 billion. 
C)  $600,000 billion. 
D)  $900,000 billion.

Question 12

A bank has excess reserves of $5,000 and demand deposits of $50,000; the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, then this bank can lend a maximum of

Accepted Answer

A)  $1,000. 
B)  $1,500. 
C)  $2,000. 
D)  $2,500. 
A)  $1,000. 
B)  $1,500. 
C)  $2,000. 
D)  $2,500.

Question 13

If a commercial banking system has $200,000 in checkable deposits, actual reserves of $70,000, and a reserve
ratio of 20 percent, then the banking system can expand the supply of money by a maximum of $180,000.

Accepted Answer

A) True 
 B)False

Question 14

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of itscess reserves is that
A) reserves lost by any particular bank will be gained by some other bank.
B) the central banks follow policies that prevent reserves from falling below the level required by law.
C) the MPC of borrowers is greater than zero but less than 1.
D) the banking system must keep reserves equal to 100 percent of its checkable-deposit liabilities.

Accepted Answer

cess reserves is tha

Question 15

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are

Accepted Answer

A)  zero. 
B)  $1,000. 
C)  $2,000. 
D)  $500. 
A)  zero. 
B)  $1,000. 
C)  $2,000. 
D)  $500.

Question 16

How are bank customers protected against bank failures? Explain.

Accepted Answer

In the U.S., bank customers are protecte

Question 17

Given a 25 percent reserve ratio, assume the commercial banking system is loaned up. Now assume the reserve ratio is reduced to 20 percent. As a result of this reduction,

Accepted Answer

A)  we can expect bank lending and bank proﬁts to decline. 
B)  each dollar of bank reserves will now support a maximum of $5 of checkable deposits. 
C)  the banking system must now reduce outstanding loans by 5 percent. 
D)  the banking system can now increase lending by 5 percent. 
A)  we can expect bank lending and bank proﬁts to decline. 
B)  each dollar of bank reserves will now support a maximum of $5 of checkable deposits. 
C)  the banking system must now reduce outstanding loans by 5 percent. 
D)  the banking system can now increase lending by 5 percent.

Question 18

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent. How much are the commercial bank's checkable-deposit liabilities?

Accepted Answer

A)  $120 million 
B)  $900 million 
C)  $300 million 
D)  $1,200 million 
A)  $120 million 
B)  $900 million 
C)  $300 million 
D)  $1,200 million

Question 19

A commercial bank has no excess reserves until a depositor places $5,000 in cash at the bank. The commercial bank then lends $4,000 to a borrower. As a consequence of these transactions, the size of the money supply has

Accepted Answer

A)  not been affected. 
B)  increased by $4,000. 
C)  increased by $5,000. 
D)  decreased by $5,000. 
A)  not been affected. 
B)  increased by $4,000. 
C)  increased by $5,000. 
D)  decreased by $5,000.

Question 20

When required reserves exceed actual reserves, commercial banks will be forced to have borrowers

Accepted Answer

A)  use credit cards. 
B)  withdraw some of their deposits. 
C)  repay loans. 
D)  take out more loans. 
A)  use credit cards. 
B)  withdraw some of their deposits. 
C)  repay loans. 
D)  take out more loans.

When bankers hold excess reserves,

The required reserve ratio is equal to

One bank can borrow reserves from another bank, and the interest on the loan is called the federal funds rate.

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

Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess Reserves equal

"Leverage" in ﬁnance refers to the

A commercial bank's reserves are

The goldsmith's ability to create money was based on the fact that

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 3, the number appropriate for space Y is

In an uncontrolled or unregulated system, commercial bank lending will tend to intensify the business cycle.

The accompanying table is the consolidated balance sheet for the commercial banking system. All ﬁgures are in billions. Assume that the required reserve ratio is 10 percent. The maximum amount by which this commercial Banking system can expand the supply of money by lending is

A bank has excess reserves of $5,000 and demand deposits of $50,000; the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, then this bank can lend a maximum of

If a commercial banking system has $200,000 in checkable deposits, actual reserves of $70,000, and a reserve ratio of 20 percent, then the banking system can expand the supply of money by a maximum of $180,000.

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are

How are bank customers protected against bank failures? Explain.

Given a 25 percent reserve ratio, assume the commercial banking system is loaned up. Now assume the reserve ratio is reduced to 20 percent. As a result of this reduction,

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent. How much are the commercial bank's checkable-deposit liabilities?

A commercial bank has no excess reserves until a depositor places $5,000 in cash at the bank. The commercial bank then lends $4,000 to a borrower. As a consequence of these transactions, the size of the money supply has

When required reserves exceed actual reserves, commercial banks will be forced to have borrowers

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

When bankers hold excess reserves,

The required reserve ratio is equal to

One bank can borrow reserves from another bank, and the interest on the loan is called the federal funds rate.

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

Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess Reserves equal

"Leverage" in ﬁnance refers to the

A commercial bank's reserves are

The goldsmith's ability to create money was based on the fact that

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 3, the number appropriate for space Y is

In an uncontrolled or unregulated system, commercial bank lending will tend to intensify the business cycle.

The accompanying table is the consolidated balance sheet for the commercial banking system. All ﬁgures are in billions. Assume that the required reserve ratio is 10 percent. The maximum amount by which this commercial Banking system can expand the supply of money by lending is

A bank has excess reserves of $5,000 and demand deposits of $50,000; the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, then this bank can lend a maximum of

If a commercial banking system has $200,000 in checkable deposits, actual reserves of $70,000, and a reserve ratio of 20 percent, then the banking system can expand the supply of money by a maximum of $180,000.

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are

How are bank customers protected against bank failures? Explain.

Given a 25 percent reserve ratio, assume the commercial banking system is loaned up. Now assume the reserve ratio is reduced to 20 percent. As a result of this reduction,

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent. How much are the commercial bank's checkable-deposit liabilities?

A commercial bank has no excess reserves until a depositor places $5,000 in cash at the bank. The commercial bank then lends $4,000 to a borrower. As a consequence of these transactions, the size of the money supply has

When required reserves exceed actual reserves, commercial banks will be forced to have borrowers

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