Question 1

Commercial banks monetize claims when they

Accepted Answer

A)  collect checks through the Federal Reserve System. 
B)  make loans to the public. 
C)  accept repayment of outstanding loans. 
D)  borrow from the Federal Reserve Banks. 
A)  collect checks through the Federal Reserve System. 
B)  make loans to the public. 
C)  accept repayment of outstanding loans. 
D)  borrow from the Federal Reserve Banks.

Question 2

Explain what is meant by fractional reserve banking.

Accepted Answer

A fractional reserve system of banking m

Question 3

If the banking system has $20 billion in excess reserves and the reserve ratio is 10 percent, the system can
increase its loans by a maximum of $22 billion.

Accepted Answer

A) True 
 B)False

Question 4

The amount of required reserves that a bank must hold is computed as a certain fraction of the bank's assets.

Accepted Answer

A) True 
 B)False

Question 5

Consider the following information about a banking system: new currency deposited in the system = $40 billion, legal reserve ratio = 0.20, excess reserves prior to the currency deposit = $0. With the $40 billion deposit, the
Banking system will be able to expand the money supply through loans by

Accepted Answer

A)  $160 billion. 
B)  $200 billion. 
C)  $40 billion. 
D)  $128 billion. 
A)  $160 billion. 
B)  $200 billion. 
C)  $40 billion. 
D)  $128 billion.

Question 6

A bank that has assets of $85 billion and a net worth of $10 billion must have

Accepted Answer

A)  liabilities of $75 billion. 
B)  excess reserves of $10 billion. 
C)  liabilities of $10 billion. 
D)  excess reserves of $75 billion. 
A)  liabilities of $75 billion. 
B)  excess reserves of $10 billion. 
C)  liabilities of $10 billion. 
D)  excess reserves of $75 billion.

Question 7

Assume Company X deposits $100,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can increase the money supply by a maximum of

Accepted Answer

A)  $50,000. 
B)  $180,000. 
C)  $80,000. 
D)  $500,000. 
A)  $50,000. 
B)  $180,000. 
C)  $80,000. 
D)  $500,000.

Question 8

Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction,

Accepted Answer

A)  the supply of money is increased by $5,000. 
B)  the supply of money declines by the amount of the loan. 
C)  a claim has been "demonetized." 
D)  the Metro Bank acquires reserves from other banks. 
A)  the supply of money is increased by $5,000. 
B)  the supply of money declines by the amount of the loan. 
C)  a claim has been "demonetized." 
D)  the Metro Bank acquires reserves from other banks.

Question 9

Which of the following are liabilities to a bank?

Accepted Answer

A)  capital stock and reserves 
B)  property and capital stock 
C)  vault cash and demand deposits 
D)  demand and time deposits 
A)  capital stock and reserves 
B)  property and capital stock 
C)  vault cash and demand deposits 
D)  demand and time deposits

Question 10

Consider the following information about a banking system: new currency deposited in the system = $40 billion, legal reserve ratio = 0.20, excess reserves prior to the currency deposit = $0. The $40 billion deposit of currency
Into checking accounts will create excess reserves of

Accepted Answer

A)  $20 billion. 
B)  $32 billion. 
C)  $40 billion. 
D)  $0. 
A)  $20 billion. 
B)  $32 billion. 
C)  $40 billion. 
D)  $0.

Question 11

A commercial bank's checkable-deposit liabilities can be estimated by

Accepted Answer

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

Question 12

Money is destroyed when

Accepted Answer

A)  loans are made. 
B)  checks written on one bank are deposited in another bank. 
C)  loans are repaid. 
D)  the net worth of the banking system declines. 
A)  loans are made. 
B)  checks written on one bank are deposited in another bank. 
C)  loans are repaid. 
D)  the net worth of the banking system declines.

Question 13

When cash is deposited at a bank, the composition of the money supply is changed but the total supply of money
is not.

Accepted Answer

A) True 
 B)False

Question 14

Suppose that a bank's actual reserves are $5 million, its checkable deposits are $5 million, and its excess reserves are $3 million. The reserve requirement must be

Accepted Answer

A)  40 percent. 
B)  20 percent. 
C)  10 percent. 
D)  5 percent. 
A)  40 percent. 
B)  20 percent. 
C)  10 percent. 
D)  5 percent.

Question 15

Which of the following is correct?

Accepted Answer

A)  Required reserves minus actual reserves equal excess reserves. 
B)  Required reserves equal excess reserves minus actual reserves. 
C)  Required reserves equal actual reserves plus excess reserves. 
D)  Actual reserves minus required reserves equal excess reserves. 
A)  Required reserves minus actual reserves equal excess reserves. 
B)  Required reserves equal excess reserves minus actual reserves. 
C)  Required reserves equal actual reserves plus excess reserves. 
D)  Actual reserves minus required reserves equal excess reserves.

Question 16

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This commercial bank has excess reserves of

Accepted Answer

A)  $0. 
B)  $3,000. 
C)  $12,000. 
D)  $5,000. 
A)  $0. 
B)  $3,000. 
C)  $12,000. 
D)  $5,000.

Question 17

If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetary multiplier for the
Banking system will be

Accepted Answer

A)  3. 
B)  4. 
C)  5. 
D)  6. 
A)  3. 
B)  4. 
C)  5. 
D)  6.

Question 18

$$\begin{array} { | l | c | } 
\hline \text { Reserves } & \$ 100 \
\hline \text { Checkable Deposits } & 1,000 \
\hline \text { Loans (to customers) } & 300 \
\hline \text { Property } & 400 \
\hline \text { Securities (owned) } & 300 \
\hline \text { Stock Shares } & 100 \
\hline
\end{array}$$ Refer to the accompanying table of information for the Moolah Bank, and assume that Moolah bank is "loaned up." If it receives a $100 deposit of currency, it could safely expand its loans by

Accepted Answer

A)  $100. 
B)  $90. 
C)  $900. 
D)  $1,000. 
A)  $100. 
B)  $90. 
C)  $900. 
D)  $1,000.

Question 19

What is the history behind the idea of a fractional reserve banking system?

Accepted Answer

The fractional reserve system of banking

Question 20

A bank owns a 10-story oﬃce building. In the bank's balance sheet, this would be listed as part of

Accepted Answer

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

Commercial banks monetize claims when they

Explain what is meant by fractional reserve banking.

If the banking system has $20 billion in excess reserves and the reserve ratio is 10 percent, the system can increase its loans by a maximum of $22 billion.

The amount of required reserves that a bank must hold is computed as a certain fraction of the bank's assets.

Consider the following information about a banking system: new currency deposited in the system = $40 billion, legal reserve ratio = 0.20, excess reserves prior to the currency deposit = $0. With the $40 billion deposit, the Banking system will be able to expand the money supply through loans by

A bank that has assets of $85 billion and a net worth of $10 billion must have

Assume Company X deposits $100,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can increase the money supply by a maximum of

Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction,

Which of the following are liabilities to a bank?

Consider the following information about a banking system: new currency deposited in the system = $40 billion, legal reserve ratio = 0.20, excess reserves prior to the currency deposit = $0. The $40 billion deposit of currency Into checking accounts will create excess reserves of

A commercial bank's checkable-deposit liabilities can be estimated by

Money is destroyed when

When cash is deposited at a bank, the composition of the money supply is changed but the total supply of money is not.

Suppose that a bank's actual reserves are $5 million, its checkable deposits are $5 million, and its excess reserves are $3 million. The reserve requirement must be

Which of the following is correct?

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This commercial bank has excess reserves of

If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetary multiplier for the Banking system will be

What is the history behind the idea of a fractional reserve banking system?

A bank owns a 10-story oﬃce building. In the bank's balance sheet, this would be listed as part of

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

Commercial banks monetize claims when they

Explain what is meant by fractional reserve banking.

If the banking system has $20 billion in excess reserves and the reserve ratio is 10 percent, the system can increase its loans by a maximum of $22 billion.

The amount of required reserves that a bank must hold is computed as a certain fraction of the bank's assets.

Consider the following information about a banking system: new currency deposited in the system = $40 billion, legal reserve ratio = 0.20, excess reserves prior to the currency deposit = $0. With the $40 billion deposit, the Banking system will be able to expand the money supply through loans by

A bank that has assets of $85 billion and a net worth of $10 billion must have

Assume Company X deposits $100,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can increase the money supply by a maximum of

Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction,

Which of the following are liabilities to a bank?

Consider the following information about a banking system: new currency deposited in the system = $40 billion, legal reserve ratio = 0.20, excess reserves prior to the currency deposit = $0. The $40 billion deposit of currency Into checking accounts will create excess reserves of

A commercial bank's checkable-deposit liabilities can be estimated by

Money is destroyed when

When cash is deposited at a bank, the composition of the money supply is changed but the total supply of money is not.

Suppose that a bank's actual reserves are $5 million, its checkable deposits are $5 million, and its excess reserves are $3 million. The reserve requirement must be

Which of the following is correct?

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This commercial bank has excess reserves of

If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetary multiplier for the Banking system will be

What is the history behind the idea of a fractional reserve banking system?

A bank owns a 10-story oﬃce building. In the bank's balance sheet, this would be listed as part of

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