Question 1

When the discount rates fall, the cost:

Accepted Answer

A) of loans to bankers' best customers goes down. 
B) of loans between banks falls. 
C) of international loans falls. 
D) to banks of borrowing from the Fed falls. 
E) to savings and loans of borrowing money from the public falls. 
A) of loans to bankers' best customers goes down. 
B) of loans between banks falls. 
C) of international loans falls. 
D) to banks of borrowing from the Fed falls. 
E) to savings and loans of borrowing money from the public falls.

Question 2

If your bank faces a 20 percent required reserve ratio and receives a checkable deposit of $4,000, it can make additional loans worth a maximum of:

Accepted Answer

A) $800. 
B) $3,200. 
C) $4,000. 
D) $16,000. 
E) $20,000. 
A) $800. 
B) $3,200. 
C) $4,000. 
D) $16,000. 
E) $20,000.

Question 3

The required reserve ratio is required reserves stated as a percentage of checkable deposits.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following would be classified as a liability for a bank?

Accepted Answer

A) Required reserves. 
B) Excess reserves. 
C) Loans. 
D) Checkable deposits. 
A) Required reserves. 
B) Excess reserves. 
C) Loans. 
D) Checkable deposits.

Question 5

If the required reserve ratio decreases, the:

Accepted Answer

A) money multiplier increases. 
B) money multiplier decreases. 
C) amount of excess reserves the bank has decreases. 
D) money multiplier stays the same. 
E) amount of excess reserves stays the same. 
A) money multiplier increases. 
B) money multiplier decreases. 
C) amount of excess reserves the bank has decreases. 
D) money multiplier stays the same. 
E) amount of excess reserves stays the same.

Question 6

If people refused to use banks to create checkable deposits, the banking system would:

Accepted Answer

A) not be affected in the money creating process. 
B) not have a way to loan out excess reserves. 
C) be able to expand the money supply by more than the money multiplier indicates. 
D) not be able to create new money. 
E) not be able to find new borrowers. 
A) not be affected in the money creating process. 
B) not have a way to loan out excess reserves. 
C) be able to expand the money supply by more than the money multiplier indicates. 
D) not be able to create new money. 
E) not be able to find new borrowers.

Question 7

Which of the following is a bank liability?

Accepted Answer

A) Required reserves. 
B) Excess reserves. 
C) Actual reserves. 
D) Checkable deposits. 
E) Loans. 
A) Required reserves. 
B) Excess reserves. 
C) Actual reserves. 
D) Checkable deposits. 
E) Loans.

Question 8

Which of the following is a valid statement?

Accepted Answer

A) Excess reserves = total reserves minus required reserves. 
B) Required reserves = the minimum reserves required by the Fed. 
C) Required reserve ratio = required reserves as a percentage to total deposits. 
D) All of these. 
A) Excess reserves = total reserves minus required reserves. 
B) Required reserves = the minimum reserves required by the Fed. 
C) Required reserve ratio = required reserves as a percentage to total deposits. 
D) All of these.

Question 9

Which of the following correctly describes fractional reserve banking?

Accepted Answer

A) The federal government only insures a fraction of the deposits at most banks. 
B) Banks keep a fraction of their loans with other banks to maintain the quality of their loan portfolio. 
C) Banks can loan out all but a small fraction of its own money, but must hold all money deposited at the bank on reserve in bank vaults. 
D) Banks can loan out all but a fraction of its own money, but must hold all money deposited at the bank on reserve in bank vaults. 
A) The federal government only insures a fraction of the deposits at most banks. 
B) Banks keep a fraction of their loans with other banks to maintain the quality of their loan portfolio. 
C) Banks can loan out all but a small fraction of its own money, but must hold all money deposited at the bank on reserve in bank vaults. 
D) Banks can loan out all but a fraction of its own money, but must hold all money deposited at the bank on reserve in bank vaults.

Question 10

A decrease in the discount rate by the Federal Reserve causes the money stock to expand.

Accepted Answer

A) True 
 B)False

Question 11

When the Federal Reserve System wants to increase the money supply, which of the following actions would the Fed choose?

Accepted Answer

A) It purchases U.S. government securities. 
B) It increases the discount rate. 
C) It increases the required reserve ratio. 
D) It sells bonds on the open market. 
A) It purchases U.S. government securities. 
B) It increases the discount rate. 
C) It increases the required reserve ratio. 
D) It sells bonds on the open market.

Question 12

A bank's required reserves are either held as vault cash or:

Accepted Answer

A) used to purchase Treasury bonds. 
B) deposited with the Fed. 
C) invested in the stock market. 
D) loaned out to other commercial banks. 
A) used to purchase Treasury bonds. 
B) deposited with the Fed. 
C) invested in the stock market. 
D) loaned out to other commercial banks.

Question 13

Exhibit 15-2 Balance Sheet of Springfield National Bank   In Exhibit 15-2, if Springfield National has excess reserves equal to $300, and then its customers write checks for $200, its excess reserves will fall to:

Accepted Answer

A) $0. 
B) $100. 
C) $140. 
D) $160. 
E) $200. 
A) $0. 
B) $100. 
C) $140. 
D) $160. 
E) $200.

Question 14

Which of the following is not an interest-earning asset of commercial banks?

Accepted Answer

A) Required reserves. 
B) Securities. 
C) Loans. 
D) All of these are interest-earning assets of commercial banks. 
A) Required reserves. 
B) Securities. 
C) Loans. 
D) All of these are interest-earning assets of commercial banks.

Question 15

Assume all banks in the system started have a 10 percent required reserve ratio and the Fed made a $20,000 open market purchase. The result would be a(n):

Accepted Answer

A) $200,000 expansion of the money supply. 
B) $20,000 expansion of the money supply. 
C) $20,000 contraction of the money supply. 
D) infinite contraction of the money supply. 
A) $200,000 expansion of the money supply. 
B) $20,000 expansion of the money supply. 
C) $20,000 contraction of the money supply. 
D) infinite contraction of the money supply.

Question 16

Exhibit 15-6 Balance sheet of Tucker National Bank
  The required reserve ratio in Exhibit 15-6 is:

Accepted Answer

A) 10 percent. 
B) 20 percent. 
C) 80 percent. 
D) 100 percent. 
A) 10 percent. 
B) 20 percent. 
C) 80 percent. 
D) 100 percent.

Question 17

Exhibit 15-4 Balance sheet of Tucker National Bank
  In Exhibit 15-4, the bank could make:

Accepted Answer

A) $1,000 in new loans. 
B) $4,000 in new loans. 
C) $16,000 in new loans. 
D) $20,000 in new loans. 
A) $1,000 in new loans. 
B) $4,000 in new loans. 
C) $16,000 in new loans. 
D) $20,000 in new loans.

Question 18

What interest rate does a bank pay when it borrows reserves from the Fed?

Accepted Answer

A) The discount rate. 
B) The prime rate. 
C) The federal funds rate. 
D) The required reserve rate. 
A) The discount rate. 
B) The prime rate. 
C) The federal funds rate. 
D) The required reserve rate.

Question 19

Exhibit 15-7 Lower Walloon National Bank   In Exhibit 15-7, if the required reserve ratio is 20 percent for all banks, and every bank in the banking system loans out all of its excess reserves. Then a $10,000 deposit from Mr. Brown in checkable deposits could create for the entire banking system:

Accepted Answer

A) $8,000 worth of new money. 
B) $2,000 worth of new money. 
C) $10,000 worth of new money. 
D) $40,000 worth of new money. 
E) no new money. 
A) $8,000 worth of new money. 
B) $2,000 worth of new money. 
C) $10,000 worth of new money. 
D) $40,000 worth of new money. 
E) no new money.

Question 20

The amount of checkable deposits in an economy cannot exceed the amount of currency that the government has issued.

Accepted Answer

A) True 
 B)False

Exam 15: Money Creation

When the discount rates fall, the cost:

If your bank faces a 20 percent required reserve ratio and receives a checkable deposit of $4,000, it can make additional loans worth a maximum of:

The required reserve ratio is required reserves stated as a percentage of checkable deposits.

Which of the following would be classified as a liability for a bank?

If the required reserve ratio decreases, the:

If people refused to use banks to create checkable deposits, the banking system would:

Which of the following is a bank liability?

Which of the following is a valid statement?

Which of the following correctly describes fractional reserve banking?

A decrease in the discount rate by the Federal Reserve causes the money stock to expand.

When the Federal Reserve System wants to increase the money supply, which of the following actions would the Fed choose?

A bank's required reserves are either held as vault cash or:

Exhibit 15-2 Balance Sheet of Springfield National Bank In Exhibit 15-2, if Springfield National has excess reserves equal to $300, and then its customers write checks for $200, its excess reserves will fall to:

Which of the following is not an interest-earning asset of commercial banks?

Assume all banks in the system started have a 10 percent required reserve ratio and the Fed made a $20,000 open market purchase. The result would be a(n):

Exhibit 15-6 Balance sheet of Tucker National Bank The required reserve ratio in Exhibit 15-6 is:

Exhibit 15-4 Balance sheet of Tucker National Bank In Exhibit 15-4, the bank could make:

What interest rate does a bank pay when it borrows reserves from the Fed?

Exhibit 15-7 Lower Walloon National Bank In Exhibit 15-7, if the required reserve ratio is 20 percent for all banks, and every bank in the banking system loans out all of its excess reserves. Then a $10,000 deposit from Mr. Brown in checkable deposits could create for the entire banking system:

The amount of checkable deposits in an economy cannot exceed the amount of currency that the government has issued.

Introducing the Economic Way of Thinking

Production Possibilities, Opportunity Cost, and Economic Growth

Market Demand and Supply

Markets in Action

Gross Domestic Product

Business Cycles and Unemployment

Inflation

The Keynesian Model

The Keynesian Model in Action

Aggregate Demand and Supply

Fiscal Policy

The Public Sector

Federal Deficits, Surpluses, and the National Debt

Money and the Federal Reserve System

Monetary Policy

The Phillips Curve and Expectations Theory

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

Applying Graphs to Economics

Consumer Surplus, Producer Surplus, and Market Efficiency

the Self-Correcting Aggregate Demand and Supply Model

Policy Disputes Using the Self-Correcting Aggregate Demand and Supply Model

Filters