Question 1

The basic purpose of imposing legal reserve requirements on commercial banks is to

Accepted Answer

A)  assure the liquidity of commercial banks. 
B)  provide a device through which the credit-creating activities of banks can be controlled. 
C)  provide a proper ratio between earning and no-earning bank assets. 
D)  provide the central banks with necessary working capital. 
A)  assure the liquidity of commercial banks. 
B)  provide a device through which the credit-creating activities of banks can be controlled. 
C)  provide a proper ratio between earning and no-earning bank assets. 
D)  provide the central banks with necessary working capital.

Question 2

The commercial banking system can lend by a multiple of its excess reserves primarily because

Accepted Answer

A)  its reserves are on deposit with the Federal Reserve Banks. 
B)  its reserves are highly liquid assets. 
C)  it loses reserves when it extends credit. 
D)  its required reserves are fractional. 
A)  its reserves are on deposit with the Federal Reserve Banks. 
B)  its reserves are highly liquid assets. 
C)  it loses reserves when it extends credit. 
D)  its required reserves are fractional.

Question 3

The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to

Accepted Answer

A)  the reciprocal of the required reserve ratio. 
B)  1 minus the required reserve ratio. 
C)  the reciprocal of the income velocity of money. 
D)  1/MPS. 
A)  the reciprocal of the required reserve ratio. 
B)  1 minus the required reserve ratio. 
C)  the reciprocal of the income velocity of money. 
D)  1/MPS.

Question 4

Give an equation that shows the relationship between actual, required, and excess reserves.

Accepted Answer

A bank's excess reserves are f

Question 5

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

Accepted Answer

A)  rise by $6,000 and the monetary multiplier will increase from 4 to 10. 
B)  rise by $60,000 and the monetary multiplier will increase from 4 to 10. 
C)  fall by $6,000 and the monetary multiplier will decline from 30 to 10. 
D)  fall by $2,000 and the monetary multiplier will decline from 10 to 4. 
A)  rise by $6,000 and the monetary multiplier will increase from 4 to 10. 
B)  rise by $60,000 and the monetary multiplier will increase from 4 to 10. 
C)  fall by $6,000 and the monetary multiplier will decline from 30 to 10. 
D)  fall by $2,000 and the monetary multiplier will decline from 10 to 4.

Question 6

Money is "created" when

Accepted Answer

A)  a depositor gets cash from the bank's ATM. 
B)  a bank accepts deposits from its customers. 
C)  people receive loans from their banks. 
D)  people spend the incomes that they receive. 
A)  a depositor gets cash from the bank's ATM. 
B)  a bank accepts deposits from its customers. 
C)  people receive loans from their banks. 
D)  people spend the incomes that they receive.

Question 7

The granting of a $10,000 loan and the purchase of a $10,000 government bond from a securities dealer by a
commercial bank would have the same effect on the money supply.

Accepted Answer

A) True 
 B)False

Question 8

The reserve ratio refers to the ratio of a bank's

Accepted Answer

A)  reserves to its liabilities and net worth. 
B)  capital stock to its total assets. 
C)  checkable deposits to its total liabilities. 
D)  required reserves to its checkable-deposit liabilities. 
A)  reserves to its liabilities and net worth. 
B)  capital stock to its total assets. 
C)  checkable deposits to its total liabilities. 
D)  required reserves to its checkable-deposit liabilities.

Question 9

$$\begin{array} { | l | r | } 
\hline \text { Reserves } & \$ 100 \
\hline \text { Checkable Deposits } & 1,000 \
\hline \text { Loans (to customers) } & 300 \
\hline \text { Property } & 400 \
\hline \text { Securities (owned) } & 300 \
\hline \text { Stock Shares } & 100 \
\hline
\end{array}$$ Refer to the accompanying table of information for the Moolah Bank. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's

Accepted Answer

A)  assets are $1,000. 
B)  liabilities are $300. 
C)  net worth is $100. 
D)  annual pro?t is $200. 
A)  assets are $1,000. 
B)  liabilities are $300. 
C)  net worth is $100. 
D)  annual pro?t is $200.

Question 10

When the receipts given by goldsmiths to depositors were used to make purchases,

Accepted Answer

A)  the gold standard was created. 
B)  existing banking laws were violated. 
C)  the receipts became in effect paper money. 
D)  a fractional reserve banking system was created. 
A)  the gold standard was created. 
B)  existing banking laws were violated. 
C)  the receipts became in effect paper money. 
D)  a fractional reserve banking system was created.

Question 11

Assume the Continental National Bank's balance statement is as shown in the accompanying table. Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000
Was drawn and cleared against it?

Accepted Answer

A)  $3,000 
B)  $24,000 
C)  $6,000 
D)  $16,000 
A)  $3,000 
B)  $24,000 
C)  $6,000 
D)  $16,000

Question 12

(Last Word) Suppose Balin has $100 to invest in an opportunity that returns, for every $100 invested, $120 if it goes well but only $80 if it goes poorly. If leverage allows Balin to borrow $90 for every $10 he invests, what are
His rates of proﬁt and loss, respectively, if he borrows the full amount to invest in the opportunity?

Accepted Answer

A)  20 percent proﬁt; 20 percent loss 
B)  33.3 percent proﬁt; 50 percent loss 
C)  200 percent proﬁt; 100 percent loss 
D)  1,100 percent proﬁt; 100 percent loss 
A)  20 percent proﬁt; 20 percent loss 
B)  33.3 percent proﬁt; 50 percent loss 
C)  200 percent proﬁt; 100 percent loss 
D)  1,100 percent proﬁt; 100 percent loss

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. After the deposit of $10 billion of new currency, the maximum
Amount by which this commercial banking system can expand the supply of money by lending is

Accepted Answer

A)  $9 billion. 
B)  $45 billion. 
C)  $36 billion. 
D)  $90 billion. 
A)  $9 billion. 
B)  $45 billion. 
C)  $36 billion. 
D)  $90 billion.

Question 14

Which of the following would reduce the money supply?

Accepted Answer

A)  Commercial banks use excess reserves to buy government bonds from the public. 
B)  Commercial banks loan out excess reserves. 
C)  Commercial banks sell government bonds to the public. 
D)  A check clears from Bank A to Bank B. 
A)  Commercial banks use excess reserves to buy government bonds from the public. 
B)  Commercial banks loan out excess reserves. 
C)  Commercial banks sell government bonds to the public. 
D)  A check clears from Bank A to Bank B.

Question 15

When Bank A borrows reserves in the federal funds market, it causes the total reserves in the banking system to
increase.

Accepted Answer

A) True 
 B)False

Question 16

If all depositors of a bank were to try withdrawing all their deposits at the same time, a good solid bank should be
able to meet all the withdrawals.

Accepted Answer

A) True 
 B)False

Question 17

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves

Accepted Answer

A)  is larger, the smaller the required reserve ratio. 
B)  is the reciprocal of the bank's actual reserves. 
C)  is directly or positively related to the size of the required reserve ratio. 
D)  will be zero when the required reserve ratio is 100 percent. 
A)  is larger, the smaller the required reserve ratio. 
B)  is the reciprocal of the bank's actual reserves. 
C)  is directly or positively related to the size of the required reserve ratio. 
D)  will be zero when the required reserve ratio is 100 percent.

Question 18

Explain what bank reserves are and the ways that banks can hold them.

Accepted Answer

Bank reserves consist of the currency a

Question 19

When a bank accepts additional deposits, its required reserves and excess reserves will both increase.

Accepted Answer

A) True 
 B)False

Question 20

What is one signiﬁcant characteristic of fractional reserve banking?

Accepted Answer

A)  Banks hold a fraction of their loans in reserve. 
B)  Banks use deposit insurance for loans to customers. 
C)  Bank loans will be equal to the amount of gold on deposit. 
D)  Banks can create money through lending their reserves. 
A)  Banks hold a fraction of their loans in reserve. 
B)  Banks use deposit insurance for loans to customers. 
C)  Bank loans will be equal to the amount of gold on deposit. 
D)  Banks can create money through lending their reserves.

The basic purpose of imposing legal reserve requirements on commercial banks is to

The commercial banking system can lend by a multiple of its excess reserves primarily because

The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to

Give an equation that shows the relationship between actual, required, and excess reserves.

Money is "created" when

The granting of a $10,000 loan and the purchase of a $10,000 government bond from a securities dealer by a commercial bank would have the same effect on the money supply.

The reserve ratio refers to the ratio of a bank's

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. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's

When the receipts given by goldsmiths to depositors were used to make purchases,

Assume the Continental National Bank's balance statement is as shown in the accompanying table. Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000 Was drawn and cleared against it?

Which of the following would reduce the money supply?

When Bank A borrows reserves in the federal funds market, it causes the total reserves in the banking system to increase.

If all depositors of a bank were to try withdrawing all their deposits at the same time, a good solid bank should be able to meet all the withdrawals.

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves

Explain what bank reserves are and the ways that banks can hold them.

When a bank accepts additional deposits, its required reserves and excess reserves will both increase.

What is one signiﬁcant characteristic of fractional reserve banking?

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

The basic purpose of imposing legal reserve requirements on commercial banks is to

The commercial banking system can lend by a multiple of its excess reserves primarily because

The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to

Give an equation that shows the relationship between actual, required, and excess reserves.

Money is "created" when

The granting of a $10,000 loan and the purchase of a $10,000 government bond from a securities dealer by a commercial bank would have the same effect on the money supply.

The reserve ratio refers to the ratio of a bank's

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. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's

When the receipts given by goldsmiths to depositors were used to make purchases,

Assume the Continental National Bank's balance statement is as shown in the accompanying table. Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000 Was drawn and cleared against it?

Which of the following would reduce the money supply?

When Bank A borrows reserves in the federal funds market, it causes the total reserves in the banking system to increase.

If all depositors of a bank were to try withdrawing all their deposits at the same time, a good solid bank should be able to meet all the withdrawals.

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves

Explain what bank reserves are and the ways that banks can hold them.

When a bank accepts additional deposits, its required reserves and excess reserves will both increase.

What is one signiﬁcant characteristic of fractional reserve banking?

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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