Question 1

When cash is withdrawn from a checkable-deposit account at a bank,

Accepted Answer

A)  the money supply M1 increases. 
B)  the money supply M1 decreases. 
C)  the money supply M1 does not change, but its composition changes. 
D)  the composition of money supply M1 does not change. 
A)  the money supply M1 increases. 
B)  the money supply M1 decreases. 
C)  the money supply M1 does not change, but its composition changes. 
D)  the composition of money supply M1 does not change.

Question 2

The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of
reserves to the banking system as a whole.

Accepted Answer

A) True 
 B)False

Question 3

How does the reserve requirement change for banks and thrifts as the size of the bank changes?

Accepted Answer

As the size of the bank increases, so do

Question 4

Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City. She then deposits the funds in her checking account at First Commerce Bank. Her checking account had a $150,000
Balance before this deposit. The reserves of First Commerce Bank would

Accepted Answer

A)  increase by $4,750,000. 
B)  increase by $4,600,000. 
C)  decrease by $4,600,000. 
D)  decrease by $4,450,000. 
A)  increase by $4,750,000. 
B)  increase by $4,600,000. 
C)  decrease by $4,600,000. 
D)  decrease by $4,450,000.

Question 5

(Last Word) How is the term "leverage" used in ﬁnance? Do modern banks use leverage?

Accepted Answer

The term "leverage" is used in ﬁnance to

Question 6

When a check is drawn and cleared, the

Accepted Answer

A)  reserves and deposits of both the bank against which the check is cleared and the bank receiving the check are unchanged by this transaction. 
B)  bank against which the check is cleared loses reserves and deposits equal to the amount of the check. 
C)  bank receiving the check loses reserves and deposits equal to the amount of the check. 
D)  bank against which the check is cleared acquires reserves and deposits equal to the amount of the check. 
A)  reserves and deposits of both the bank against which the check is cleared and the bank receiving the check are unchanged by this transaction. 
B)  bank against which the check is cleared loses reserves and deposits equal to the amount of the check. 
C)  bank receiving the check loses reserves and deposits equal to the amount of the check. 
D)  bank against which the check is cleared acquires reserves and deposits equal to the amount of the check.

Question 7

$$\begin{array} { | l | c | } 
\hline \text { Reserves } & \$ 100 \
\hline \text { Checkable Deposits } & 1,000 \
\hline \text { Loans (to customers) } & 300 \
\hline \text { Property } & 400 \
\hline \text { Securities (owned) } & 300 \
\hline \text { Stock Shares } & 100 \
\hline
\end{array}$$ Refer to the accompanying table of information for the Moolah Bank. If Moolah Bank is legally "loaned up," the banking system's monetary multiplier must be

Accepted Answer

A)  5. 
B)  8. 
C)  10. 
D)  20. 
A)  5. 
B)  8. 
C)  10. 
D)  20.

Question 8

$$\begin{array} { | l | r | l | l | } 
\hline & & \text { Assets } & \text { Liabilities and Net Worth } \
\hline \text { Stock Shares } & \$ 400 & & \
\hline \text { Reserves } & 40 & & \
\hline \text { Property } & 300 & & \
\hline \text { Securities } & 160 & & \
\hline \text { Loans } & 80 & & \
\hline \text { Demand Deposits } & 180 & & \
\hline
\end{array}$$ The ?gures in the table are for a single commercial bank. All ?gures are in thousands of dollars. This bank has total assets of

Accepted Answer

A)  $340 million. 
B)  $440 million. 
C)  $520 million. 
D)  $580 million. 
A)  $340 million. 
B)  $440 million. 
C)  $520 million. 
D)  $580 million.

Question 9

Cash held by a bank in its vault is a part of the bank's

Accepted Answer

A)  reserves. 
B)  liabilities. 
C)  money supply. 
D)  net worth. 
A)  reserves. 
B)  liabilities. 
C)  money supply. 
D)  net worth.

Question 10

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.

Question 11

Since 2009, how much has been borrowed through the federal funds market?

Accepted Answer

A)  $0 
B)  $43 billion 
C)  $1,148 billion 
D)  $787 million 
A)  $0 
B)  $43 billion 
C)  $1,148 billion 
D)  $787 million

Question 12

Commercial bank reserves are an asset to commercial banks but a liability to the Federal Reserve Bank holding
them.

Accepted Answer

A) True 
 B)False

Question 13

One way to enhance the stability of the banking system is to

Accepted Answer

A)  require higher bank capitalization, or net worth. 
B)  increase the federal funds rate. 
C)  reduce the required reserve ratio. 
D)  require more leveraging by banks. 
A)  require higher bank capitalization, or net worth. 
B)  increase the federal funds rate. 
C)  reduce the required reserve ratio. 
D)  require more leveraging by banks.

Question 14

$$\begin{array} { | c | c | c | } 
\hline \text { (1) } & ( 2 ) & ( 3 ) \
\hline \text { Legal Reserve Ratio (\%) } & \text { Checkable Deposits } & \text { Actual Reserves } \
\hline 10 & \$ 40,000 & \$ 10,000 \
\hline 20 & 40,000 & 10,000 \
\hline 25 & 40,000 & 10,000 \
\hline 30 & 40,000 & 10,000 \
\hline
\end{array}$$ The accompanying table gives data for a commercial bank or thrift. When the legal reserve ratio is 20 percent, the money-creating potential of the entire banking system is

Accepted Answer

A)  $4,000. 
B)  $6,000. 
C)  $8,000. 
D)  $10,000. 
A)  $4,000. 
B)  $6,000. 
C)  $8,000. 
D)  $10,000.

Question 15

The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system

Accepted Answer

A)  has been able to reduce the vulnerability of banks to "runs" or "panics." 
B)  can increase its demand deposits by a multiple of its excess reserves. 
C)  cannot increase its demand deposits by a multiple of its excess reserves. 
D)  has been based on the fractional reserve system of banking. 
A)  has been able to reduce the vulnerability of banks to "runs" or "panics." 
B)  can increase its demand deposits by a multiple of its excess reserves. 
C)  cannot increase its demand deposits by a multiple of its excess reserves. 
D)  has been based on the fractional reserve system of banking.

Question 16

If Bank A has excess reserves of $1 million and all other banks in the system do not have any excess reserves, then the amount of additional loans that can be made by the banking system will be

Accepted Answer

A)  $1 million also. 
B)  a fraction of $1 million. 
C)  a multiple of $1 million. 
D)  $1 million times the required reserve ratio. 
A)  $1 million also. 
B)  a fraction of $1 million. 
C)  a multiple of $1 million. 
D)  $1 million times the required reserve ratio.

Question 17

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and
Checkable deposits could have been expanded by a maximum of

Accepted Answer

A)  $8,000. 
B)  $15,000. 
C)  $48,000. 
D)  $25,000. 
A)  $8,000. 
B)  $15,000. 
C)  $48,000. 
D)  $25,000.

Question 18

The last transaction in the federal funds market occurred in 2008 because

Accepted Answer

A)  the Federal Reserve closed down the federal funds market. 
B)  in response to the ﬁnancial crisis, the Federal Reserve raised the reserve ratio to 100 percent. 
C)  the federal funds rate has been set too high. 
D)  since the ﬁnancial crisis, nearly every bank has signiﬁcant excess reserves. 
A)  the Federal Reserve closed down the federal funds market. 
B)  in response to the ﬁnancial crisis, the Federal Reserve raised the reserve ratio to 100 percent. 
C)  the federal funds rate has been set too high. 
D)  since the ﬁnancial crisis, nearly every bank has signiﬁcant excess reserves.

Question 19

What are the major assets and the major claims (liabilities) on a commercial bank's balance sheet?

Accepted Answer

The major assets on a bank's b

Question 20

Refer to the accompanying balance sheet for the First National Bank of Bunco. All ﬁgures are in millions. Suppose that this bank currently has $6 million in excess reserves and that customers of this bank collectively write checks
For cash at the bank in the amount of $6 million. As a result, the bank's excess reserves diminish to

Accepted Answer

A)  $0. 
B)  $6 million. 
C)  $0.72 million. 
D)  $0.84 million. 
A)  $0. 
B)  $6 million. 
C)  $0.72 million. 
D)  $0.84 million.

When cash is withdrawn from a checkable-deposit account at a bank,

The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of reserves to the banking system as a whole.

How does the reserve requirement change for banks and thrifts as the size of the bank changes?

Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City. She then deposits the funds in her checking account at First Commerce Bank. Her checking account had a $150,000 Balance before this deposit. The reserves of First Commerce Bank would

(Last Word) How is the term "leverage" used in ﬁnance? Do modern banks use leverage?

When a check is drawn and cleared, the

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. If Moolah Bank is legally "loaned up," the banking system's monetary multiplier must be

Assets Liabilities and Net Worth Stock Shares \ 400 Reserves 40 Property 300 Securities 160 Loans 80 Demand Deposits 180 The ?gures in the table are for a single commercial bank. All ?gures are in thousands of dollars. This bank has total assets of

Cash held by a bank in its vault is a part of the bank's

A bank's net worth is equal to its

Since 2009, how much has been borrowed through the federal funds market?

Commercial bank reserves are an asset to commercial banks but a liability to the Federal Reserve Bank holding them.

One way to enhance the stability of the banking system is to

The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system

If Bank A has excess reserves of $1 million and all other banks in the system do not have any excess reserves, then the amount of additional loans that can be made by the banking system will be

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and Checkable deposits could have been expanded by a maximum of

The last transaction in the federal funds market occurred in 2008 because

What are the major assets and the major claims (liabilities) on a commercial bank's balance sheet?

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 cash is withdrawn from a checkable-deposit account at a bank,

The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of reserves to the banking system as a whole.

How does the reserve requirement change for banks and thrifts as the size of the bank changes?

Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City. She then deposits the funds in her checking account at First Commerce Bank. Her checking account had a $150,000 Balance before this deposit. The reserves of First Commerce Bank would

(Last Word) How is the term "leverage" used in ﬁnance? Do modern banks use leverage?

When a check is drawn and cleared, the

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. If Moolah Bank is legally "loaned up," the banking system's monetary multiplier must be

Assets Liabilities and Net Worth Stock Shares \ 400 Reserves 40 Property 300 Securities 160 Loans 80 Demand Deposits 180 The ?gures in the table are for a single commercial bank. All ?gures are in thousands of dollars. This bank has total assets of

Cash held by a bank in its vault is a part of the bank's

A bank's net worth is equal to its

Since 2009, how much has been borrowed through the federal funds market?

Commercial bank reserves are an asset to commercial banks but a liability to the Federal Reserve Bank holding them.

One way to enhance the stability of the banking system is to

The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system

If Bank A has excess reserves of $1 million and all other banks in the system do not have any excess reserves, then the amount of additional loans that can be made by the banking system will be

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and Checkable deposits could have been expanded by a maximum of

The last transaction in the federal funds market occurred in 2008 because

What are the major assets and the major claims (liabilities) on a commercial bank's balance sheet?

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