Question 1

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

Accepted Answer

A)  prime rate. 
B)  discount rate. 
C)  federal funds rate. 
D)  treasury bill rate. 
A)  prime rate. 
B)  discount rate. 
C)  federal funds rate. 
D)  treasury bill rate.

Question 2

Commercial banks create money when they

Accepted Answer

A)  accept cash deposits from the public. 
B)  purchase government securities from the central banks. 
C)  create checkable deposits in exchange for IOUs. 
D)  raise their interest rates. 
A)  accept cash deposits from the public. 
B)  purchase government securities from the central banks. 
C)  create checkable deposits in exchange for IOUs. 
D)  raise their interest rates.

Question 3

When bank loans are repaid and the banks hold on to the funds as additional reserves, then the banking system's
ability to "create" money decreases.

Accepted Answer

A) True 
 B)False

Question 4

When a bank's loan defaults, then the bank's reserves will decrease.

Accepted Answer

A) True 
 B)False

Question 5

The accompanying balance sheet is for the First Federal Bank. Assume the required reserve ratio is 20 percent. The monetary multiplier is

Accepted Answer

A)  3.00. 
B)  4.00. 
C)  5.00. 
D)  6.67. 
A)  3.00. 
B)  4.00. 
C)  5.00. 
D)  6.67.

Question 6

A check for $10,000 drawn on Bank A and deposited at Bank B will increase the excess reserves in Bank B by
$10,000.

Accepted Answer

A) True 
 B)False

Question 7

When a bank grants a loan, the money supply M1 will increase, even if the funds from the loan are not spent.

Accepted Answer

A) True 
 B)False

Question 8

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. The commercial banking system has excess reserves of

Accepted Answer

A)  $9 billion. 
B)  $7 billion. 
C)  $6.1 billion. 
D)  $5 billion. 
A)  $9 billion. 
B)  $7 billion. 
C)  $6.1 billion. 
D)  $5 billion.

Question 9

Maximum checkable-deposit expansion in the banking system is equal to

Accepted Answer

A)  actual reserves minus required reserves. 
B)  assets plus net worth and liabilities. 
C)  excess reserves times the monetary multiplier. 
D)  excess reserves divided by the monetary multiplier. 
A)  actual reserves minus required reserves. 
B)  assets plus net worth and liabilities. 
C)  excess reserves times the monetary multiplier. 
D)  excess reserves divided by the monetary multiplier.

Question 10

If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire when a customer deposits a $12,000 check drawn on another bank?

Accepted Answer

A)  $3,000 
B)  $6,000 
C)  $9,000 
D)  $12,000 
A)  $3,000 
B)  $6,000 
C)  $9,000 
D)  $12,000

Question 11

Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can expand the supply of money by a maximum of

Accepted Answer

A)  $75,000. 
B)  $25,000. 
C)  $5,000. 
D)  $100,000. 
A)  $75,000. 
B)  $25,000. 
C)  $5,000. 
D)  $100,000.

Question 12

The commercial banking system, because of a recent change in the required reserve ratio from 8 percent to 10 percent, ﬁnds that it is $50 million short of reserves. If it is unable to obtain any additional reserves, it must reduce
Deposits and money supply by

Accepted Answer

A)  $250 million. 
B)  $625 million. 
C)  $500 million. 
D)  $50 million. 
A)  $250 million. 
B)  $625 million. 
C)  $500 million. 
D)  $50 million.

Question 13

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

Accepted Answer

A)  $0. 
B)  $6,000. 
C)  $30,000. 
D)  $60,000. 
A)  $0. 
B)  $6,000. 
C)  $30,000. 
D)  $60,000.

Question 14

The two major income-earning assets of commercial banks are

Accepted Answer

A)  checkable deposits and bank reserves. 
B)  loans and securities. 
C)  checkable deposits and securities. 
D)  reserves and loans. 
A)  checkable deposits and bank reserves. 
B)  loans and securities. 
C)  checkable deposits and securities. 
D)  reserves and loans.

Question 15

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. First National Bank can make new loans of up to

Accepted Answer

A)  $50,000. 
B)  $41,000. 
C)  $32,000. 
D)  $27,000. 
A)  $50,000. 
B)  $41,000. 
C)  $32,000. 
D)  $27,000.

Question 16

The use of high leveraging by banks leads to the banking system's

Accepted Answer

A)  competitiveness. 
B)  instability. 
C)  vital role in the economy. 
D)  monopoly power. 
A)  competitiveness. 
B)  instability. 
C)  vital role in the economy. 
D)  monopoly power.

Question 17

If we both have checking accounts in the same commercial bank and I write a check in your favor for $200, the bank's

Accepted Answer

A)  balance sheet will be unchanged. 
B)  reserves and checkable deposits will both decline by $200. 
C)  liabilities will decline by $200, but its net worth will increase by $200. 
D)  assets and liabilities will both decline by $200. 
A)  balance sheet will be unchanged. 
B)  reserves and checkable deposits will both decline by $200. 
C)  liabilities will decline by $200, but its net worth will increase by $200. 
D)  assets and liabilities will both decline by $200.

Question 18

The amount of reserves that a commercial bank is required to hold is equal to

Accepted Answer

A)  the amount of its checkable deposits. 
B)  the sum of its checkable deposits and time deposits. 
C)  its checkable deposits multiplied by the reserve requirement. 
D)  its checkable deposits divided by its total assets. 
A)  the amount of its checkable deposits. 
B)  the sum of its checkable deposits and time deposits. 
C)  its checkable deposits multiplied by the reserve requirement. 
D)  its checkable deposits divided by its total assets.

Question 19

A bank's required reserves can be calculated by

Accepted Answer

A)  dividing its excess reserves by its required reserves. 
B)  dividing its required reserves by its excess reserves. 
C)  multiplying its checkable-deposit liabilities by the reserve ratio. 
D)  multiplying its checkable-deposit liabilities by its excess reserves. 
A)  dividing its excess reserves by its required reserves. 
B)  dividing its required reserves by its excess reserves. 
C)  multiplying its checkable-deposit liabilities by the reserve ratio. 
D)  multiplying its checkable-deposit liabilities by its excess reserves.

Question 20

A commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system
Can increase loans are

Accepted Answer

A)  $30,000 and $150,000, respectively. 
B)  $50,000 and $250,000, respectively. 
C)  $50,000 and $500,000, respectively. 
D)  $100,000 and $500,000, respectively. 
A)  $30,000 and $150,000, respectively. 
B)  $50,000 and $250,000, respectively. 
C)  $50,000 and $500,000, respectively. 
D)  $100,000 and $500,000, respectively.

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

Commercial banks create money when they

When bank loans are repaid and the banks hold on to the funds as additional reserves, then the banking system's ability to "create" money decreases.

When a bank's loan defaults, then the bank's reserves will decrease.

The accompanying balance sheet is for the First Federal Bank. Assume the required reserve ratio is 20 percent. The monetary multiplier is

A check for $10,000 drawn on Bank A and deposited at Bank B will increase the excess reserves in Bank B by $10,000.

When a bank grants a loan, the money supply M1 will increase, even if the funds from the loan are not spent.

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. The commercial banking system has excess reserves of

Maximum checkable-deposit expansion in the banking system is equal to

If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire when a customer deposits a $12,000 check drawn on another bank?

Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can expand the supply of money by a maximum of

The commercial banking system, because of a recent change in the required reserve ratio from 8 percent to 10 percent, ﬁnds that it is $50 million short of reserves. If it is unable to obtain any additional reserves, it must reduce Deposits and money supply by

The two major income-earning assets of commercial banks are

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. First National Bank can make new loans of up to

The use of high leveraging by banks leads to the banking system's

If we both have checking accounts in the same commercial bank and I write a check in your favor for $200, the bank's

The amount of reserves that a commercial bank is required to hold is equal to

A bank's required reserves can be calculated by

A commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system Can increase loans are

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

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

Commercial banks create money when they

When bank loans are repaid and the banks hold on to the funds as additional reserves, then the banking system's ability to "create" money decreases.

When a bank's loan defaults, then the bank's reserves will decrease.

The accompanying balance sheet is for the First Federal Bank. Assume the required reserve ratio is 20 percent. The monetary multiplier is

A check for $10,000 drawn on Bank A and deposited at Bank B will increase the excess reserves in Bank B by $10,000.

When a bank grants a loan, the money supply M1 will increase, even if the funds from the loan are not spent.

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. The commercial banking system has excess reserves of

Maximum checkable-deposit expansion in the banking system is equal to

If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire when a customer deposits a $12,000 check drawn on another bank?

Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can expand the supply of money by a maximum of

The commercial banking system, because of a recent change in the required reserve ratio from 8 percent to 10 percent, ﬁnds that it is $50 million short of reserves. If it is unable to obtain any additional reserves, it must reduce Deposits and money supply by

The two major income-earning assets of commercial banks are

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. First National Bank can make new loans of up to

The use of high leveraging by banks leads to the banking system's

If we both have checking accounts in the same commercial bank and I write a check in your favor for $200, the bank's

The amount of reserves that a commercial bank is required to hold is equal to

A bank's required reserves can be calculated by

A commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system Can increase loans are

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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