Question 1

Deﬁne the reserve ratio.

Accepted Answer

The reserve ratio is the speciﬁed percen

Question 2

The commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be

Accepted Answer

A)  10 percent. 
B)  20 percent. 
C)  25 percent. 
D)  30 percent. 
A)  10 percent. 
B)  20 percent. 
C)  25 percent. 
D)  30 percent.

Question 3

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million incess reserves. The maximum amount of new money that the banking system could create is about
A) $110 million.
B) $330 million.
C) $660 million.
D) $1,353 million.

Accepted Answer

cess reserves. The maximum amo

Question 4

Which of the following factors can contribute to a reduction in the money supply?

Accepted Answer

A)  bank purchases of Treasury bonds from the Fed 
B)  bank sales of government bonds to meet liquidity demands 
C)  banks expanding the approval and granting of loans 
D)  a decrease in the required reserve ratio 
A)  bank purchases of Treasury bonds from the Fed 
B)  bank sales of government bonds to meet liquidity demands 
C)  banks expanding the approval and granting of loans 
D)  a decrease in the required reserve ratio

Question 5

A banker must strike a balance in the pursuit of two conﬂicting goals: proﬁts and liquidity. In terms of asset management, this translates into achieving a balance between holding

Accepted Answer

A)  loans and securities on one hand and reserves on the other. 
B)  loans on one hand and securities on the other. 
C)  checkable deposits on one hand and securities on the other. 
D)  checkable deposits on one hand and reserves on the other. 
A)  loans and securities on one hand and reserves on the other. 
B)  loans on one hand and securities on the other. 
C)  checkable deposits on one hand and securities on the other. 
D)  checkable deposits on one hand and reserves on the other.

Question 6

When cash is deposited in a checkable-deposit account at a bank, there is

Accepted Answer

A)  a decrease in the money supply M1. 
B)  an increase in the money supply M1. 
C)  an increase in the bank's net worth. 
D)  an increase in the bank's liabilities. 
A)  a decrease in the money supply M1. 
B)  an increase in the money supply M1. 
C)  an increase in the bank's net worth. 
D)  an increase in the bank's liabilities.

Question 7

When a check is drawn against bank A and deposited in another bank, the ﬁrst bank loses reserves as the check
is cleared. Yet the check collection involves no loss of reserves by the banking system. Explain what signiﬁcance
this has for the lending ability of the system as a whole.

Accepted Answer

The other bank in the system has had an

Question 8

A commercial bank buys a $50,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. The money supply has

Accepted Answer

A)  not been affected. 
B)  decreased by $50,000. 
C)  increased by $50,000. 
D)  increased by $50,000 multiplied by the reserve ratio. 
A)  not been affected. 
B)  decreased by $50,000. 
C)  increased by $50,000. 
D)  increased by $50,000 multiplied by the reserve ratio.

Question 9

When a bank grants a loan to a customer who gets the funds and keeps them at home for a while, the money supply will

Accepted Answer

A)  not change because demand deposits did not go up. 
B)  not change because the money was not spent. 
C)  increase. 
D)  decrease. 
A)  not change because demand deposits did not go up. 
B)  not change because the money was not spent. 
C)  increase. 
D)  decrease.

Question 10

The claims of the owners of a bank against the bank's assets are called

Accepted Answer

A)  working capital. 
B)  assets. 
C)  net worth. 
D)  liabilities. 
A)  working capital. 
B)  assets. 
C)  net worth. 
D)  liabilities.

Question 11

cess reserves are the amount by which required reserves exceed actual reserves.

Accepted Answer

A) True 
 B)False

Question 12

A commercial bank has checkable-deposit liabilities of $50,000 and a required reserve ratio of 20 percent. What is the amount of required reserves?

Accepted Answer

A)  $10,000 
B)  $50,000 
C)  $250,000 
D)  $1 million 
A)  $10,000 
B)  $50,000 
C)  $250,000 
D)  $1 million

Question 13

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All ﬁgures are in billions. The commercial banking system has excess reserves of

Accepted Answer

A)  $0 billion. 
B)  $30 billion. 
C)  $60 billion. 
D)  $70 billion. 
A)  $0 billion. 
B)  $30 billion. 
C)  $60 billion. 
D)  $70 billion.

Question 14

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 claims of owners in the commercial banking
System are equal to

Accepted Answer

A)  $60 billion. 
B)  $100 billion. 
C)  $135 billion. 
D)  $150 billion. 
A)  $60 billion. 
B)  $100 billion. 
C)  $135 billion. 
D)  $150 billion.

Question 15

The Norfolk Bank has $18,000 in excess reserves, and the reserve ratio is 20 percent. How much checkable deposits and reserves does this bank hold?

Accepted Answer

A)  $160,000 in checkable-deposit liabilities and $48,000 in reserves 
B)  $140,000 in checkable-deposit liabilities and $46,000 in reserves 
C)  $120,000 in checkable-deposit liabilities and $32,000 in reserves 
D)  $100,000 in checkable-deposit liabilities and $30,000 in reserves 
A)  $160,000 in checkable-deposit liabilities and $48,000 in reserves 
B)  $140,000 in checkable-deposit liabilities and $46,000 in reserves 
C)  $120,000 in checkable-deposit liabilities and $32,000 in reserves 
D)  $100,000 in checkable-deposit liabilities and $30,000 in reserves

Question 16

Which of the following is correct?

Accepted Answer

A)  Both the granting and repaying of bank loans expand the aggregate money supply. 
B)  Granting and repaying bank loans do not affect the money supply. 
C)  Granting a bank loan destroys money; repaying a bank loan creates money. 
D)  Granting a bank loan creates money; repaying a bank loan destroys money. 
A)  Both the granting and repaying of bank loans expand the aggregate money supply. 
B)  Granting and repaying bank loans do not affect the money supply. 
C)  Granting a bank loan destroys money; repaying a bank loan creates money. 
D)  Granting a bank loan creates money; repaying a bank loan destroys money.

Question 17

When banks borrow and lend reserves in the federal funds market,

Accepted Answer

A)  the total reserves of the banking system increase. 
B)  the total reserves of the banking system shrink. 
C)  the total reserves of the banking system stay the same. 
D)  the reserves of the banking system become part of M1. 
A)  the total reserves of the banking system increase. 
B)  the total reserves of the banking system shrink. 
C)  the total reserves of the banking system stay the same. 
D)  the reserves of the banking system become part of M1.

Question 18

Which one of the following is presently a major deterrent to bank panics in the United States?

Accepted Answer

A)  the legal reserve requirement 
B)  the fractional reserve system 
C)  the gold standard 
D)  deposit insurance 
A)  the legal reserve requirement 
B)  the fractional reserve system 
C)  the gold standard 
D)  deposit insurance

Question 19

A depositor places $5,000 in cash in a commercial bank, and the reserve ratio is 20 percent; the bank sends the $5,000 to the Federal Reserve Bank. As a result, the reserves and excess reserves of the bank have been
Increased by

Accepted Answer

A)  $5,000 and $1,000, respectively. 
B)  $5,000 and $4,000, respectively. 
C)  $5,000 and $5,000, respectively. 
D)  $4,000 and $4,000, respectively. 
A)  $5,000 and $1,000, respectively. 
B)  $5,000 and $4,000, respectively. 
C)  $5,000 and $5,000, respectively. 
D)  $4,000 and $4,000, respectively.

Question 20

If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement, the bank will

Accepted Answer

A)  have $45 of additional excess reserves. 
B)  be capable of lending an additional $500. 
C)  be capable of lending no more than an additional $50. 
D)  have $50 of required reserves. 
A)  have $45 of additional excess reserves. 
B)  be capable of lending an additional $500. 
C)  be capable of lending no more than an additional $50. 
D)  have $50 of required reserves.

Exam 15: Money Creation

Deﬁne the reserve ratio.

The commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million incess reserves. The maximum amount of new money that the banking system could create is about A) $110 million. B) $330 million. C) $660 million. D) $1,353 million.

Which of the following factors can contribute to a reduction in the money supply?

A banker must strike a balance in the pursuit of two conﬂicting goals: proﬁts and liquidity. In terms of asset management, this translates into achieving a balance between holding

When cash is deposited in a checkable-deposit account at a bank, there is

When a check is drawn against bank A and deposited in another bank, the ﬁrst bank loses reserves as the check is cleared. Yet the check collection involves no loss of reserves by the banking system. Explain what signiﬁcance this has for the lending ability of the system as a whole.

A commercial bank buys a $50,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. The money supply has

When a bank grants a loan to a customer who gets the funds and keeps them at home for a while, the money supply will

The claims of the owners of a bank against the bank's assets are called

cess reserves are the amount by which required reserves exceed actual reserves.

A commercial bank has checkable-deposit liabilities of $50,000 and a required reserve ratio of 20 percent. What is the amount of required reserves?

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All ﬁgures are in billions. The commercial banking system has excess reserves of

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 claims of owners in the commercial banking System are equal to

The Norfolk Bank has $18,000 in excess reserves, and the reserve ratio is 20 percent. How much checkable deposits and reserves does this bank hold?

Which of the following is correct?

When banks borrow and lend reserves in the federal funds market,

Which one of the following is presently a major deterrent to bank panics in the United States?

A depositor places $5,000 in cash in a commercial bank, and the reserve ratio is 20 percent; the bank sends the $5,000 to the Federal Reserve Bank. As a result, the reserves and excess reserves of the bank have been Increased by

If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement, the bank will

The Market System and the Circular Flow

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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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