Question 1

When you deposit money at a bank, the bank will normally turn around and lend most of it to a borrower.

Accepted Answer

A) True 
 B)False

Question 2

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. If a check for $20,000 is drawn and cleared against this bank, it will then have excess reserves of

Accepted Answer

A)  $15,000. 
B)  $20,000. 
C)  $25,000. 
D)  $30,000. 
A)  $15,000. 
B)  $20,000. 
C)  $25,000. 
D)  $30,000.

Question 3

What are the two signiﬁcant characteristics of the fractional reserve banking system?

Accepted Answer

One characteristic is that ban

Question 4

Banks can lend their excess reserves to other banks in the

Accepted Answer

A)  mutual funds market. 
B)  Treasury funds market. 
C)  federal funds market. 
D)  bank funds market. 
A)  mutual funds market. 
B)  Treasury funds market. 
C)  federal funds market. 
D)  bank funds market.

Question 5

Most modern banking systems are based on

Accepted Answer

A)  money of intrinsic value. 
B)  commodity money. 
C)  100 percent reserves. 
D)  fractional reserves. 
A)  money of intrinsic value. 
B)  commodity money. 
C)  100 percent reserves. 
D)  fractional reserves.

Question 6

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

Accepted Answer

A)  the MPS. 
B)  its actual reserves. 
C)  its excess reserves. 
D)  the reserve ratio. 
A)  the MPS. 
B)  its actual reserves. 
C)  its excess reserves. 
D)  the reserve ratio.

Question 7

While the withdrawal of cash from banks does not affect money supply immediately, it will affect the banking
system's lending capacity, which will eventually lead to a contraction in money supply.

Accepted Answer

A) True 
 B)False

Question 8

The market for immediately available reserve balances at the Federal Reserve is known as the

Accepted Answer

A)  money market. 
B)  long-term bond market. 
C)  short-term bond market. 
D)  federal funds market. 
A)  money market. 
B)  long-term bond market. 
C)  short-term bond market. 
D)  federal funds market.

Question 9

A bank can grant loans up to the amount of its actual reserves.

Accepted Answer

A) True 
 B)False

Question 10

$$\begin{array} { | l | c | } 
\hline { \text { Type of Deposit } } & \text { Reserve Requirement } \
\hline \text { Checkable Deposits } & \
\hline \$ 7.8 \text { - 48.3 Million } & 3 \% \
\hline \text { Over \$48.3 Million } & 10 \
\hline \text { Noncheckable personal savings and time deposits } & 0 \
\hline
\end{array}$$ Refer to the accompanying table. If a bank has $60 million in savings deposits and $40 million in checkable deposits, then its required reserves are

Accepted Answer

A)  $30 million. 
B)  $3 million. 
C)  $1.8 million. 
D)  $1.2 million. 
A)  $30 million. 
B)  $3 million. 
C)  $1.8 million. 
D)  $1.2 million.

Question 11

If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is

Accepted Answer

A)  10. 
B)  4. 
C)  5. 
D)  2. 
A)  10. 
B)  4. 
C)  5. 
D)  2.

Question 12

Banks create money when they

Accepted Answer

A)  allow loans to mature. 
B)  accept deposits of cash. 
C)  buy government bonds from households. 
D)  sell government bonds to households. 
A)  allow loans to mature. 
B)  accept deposits of cash. 
C)  buy government bonds from households. 
D)  sell government bonds to households.

Question 13

Actual reserves equal required reserves plus excess reserves.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the Northwestern Bank has excess reserves of $12,000 and checkable deposits of $125,000. If the reserve requirement is 20 percent, what are the bank's actual reserves?

Accepted Answer

A)  $25,000 
B)  $37,000 
C)  $44,000 
D)  $47,000 
A)  $25,000 
B)  $37,000 
C)  $44,000 
D)  $47,000

Question 15

If the monetary multiplier is 6, then the reserve ratio must be

Accepted Answer

A)  1.67. 
B)  0.6. 
C)  0.167. 
D)  0.06. 
A)  1.67. 
B)  0.6. 
C)  0.167. 
D)  0.06.

Question 16

A bank has reserves of $30,000 and deposits of $120,000. If the reserve ratio is 10 percent, then this bank can
lend out a maximum of $12,000 in new loans.

Accepted Answer

A) True 
 B)False

Question 17

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. If a check for $14,000 is drawn and cleared against this bank, then its reserves and checkable deposits will be

Accepted Answer

A)  $50,000 and $120,000, respectively. 
B)  $50,000 and $106,000, respectively. 
C)  $36,000 and $120,000, respectively. 
D)  $36,000 and $106,000, respectively. 
A)  $50,000 and $120,000, respectively. 
B)  $50,000 and $106,000, respectively. 
C)  $36,000 and $120,000, respectively. 
D)  $36,000 and $106,000, respectively.

Question 18

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

Accepted Answer

A)  $400 million. 
B)  $440 million. 
C)  $550 million. 
D)  $580 million. 
A)  $400 million. 
B)  $440 million. 
C)  $550 million. 
D)  $580 million.

Question 19

Deﬁne the monetary multiplier.

Accepted Answer

The monetary multiplier is the multiple

Question 20

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are

Accepted Answer

A)  $50,000. 
B)  $100,000. 
C)  $900,000. 
D)  $1 million. 
A)  $50,000. 
B)  $100,000. 
C)  $900,000. 
D)  $1 million.

When you deposit money at a bank, the bank will normally turn around and lend most of it to a borrower.

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. If a check for $20,000 is drawn and cleared against this bank, it will then have excess reserves of

What are the two signiﬁcant characteristics of the fractional reserve banking system?

Banks can lend their excess reserves to other banks in the

Most modern banking systems are based on

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

While the withdrawal of cash from banks does not affect money supply immediately, it will affect the banking system's lending capacity, which will eventually lead to a contraction in money supply.

The market for immediately available reserve balances at the Federal Reserve is known as the

A bank can grant loans up to the amount of its actual reserves.

If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is

Banks create money when they

Actual reserves equal required reserves plus excess reserves.

Suppose the Northwestern Bank has excess reserves of $12,000 and checkable deposits of $125,000. If the reserve requirement is 20 percent, what are the bank's actual reserves?

If the monetary multiplier is 6, then the reserve ratio must be

A bank has reserves of $30,000 and deposits of $120,000. If the reserve ratio is 10 percent, then this bank can lend out a maximum of $12,000 in new loans.

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. If a check for $14,000 is drawn and cleared against this bank, then its reserves and checkable deposits will 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 liabilities and net worth totaling

Deﬁne the monetary multiplier.

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank 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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Exam 15: Money Creation

When you deposit money at a bank, the bank will normally turn around and lend most of it to a borrower.

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. If a check for $20,000 is drawn and cleared against this bank, it will then have excess reserves of

What are the two signiﬁcant characteristics of the fractional reserve banking system?

Banks can lend their excess reserves to other banks in the

Most modern banking systems are based on

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

While the withdrawal of cash from banks does not affect money supply immediately, it will affect the banking system's lending capacity, which will eventually lead to a contraction in money supply.

The market for immediately available reserve balances at the Federal Reserve is known as the

A bank can grant loans up to the amount of its actual reserves.

If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is

Banks create money when they

Actual reserves equal required reserves plus excess reserves.

Suppose the Northwestern Bank has excess reserves of $12,000 and checkable deposits of $125,000. If the reserve requirement is 20 percent, what are the bank's actual reserves?

If the monetary multiplier is 6, then the reserve ratio must be

A bank has reserves of $30,000 and deposits of $120,000. If the reserve ratio is 10 percent, then this bank can lend out a maximum of $12,000 in new loans.

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. If a check for $14,000 is drawn and cleared against this bank, then its reserves and checkable deposits will 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 liabilities and net worth totaling

Deﬁne the monetary multiplier.

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank 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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