Question 1

If a bank that is subject to a 10 percent required reserve ratio has $20,000 in excess reserves,it can make new loans of:

Accepted Answer

A)  $2,000. 
B)  $18,000. 
C)  $20,000. 
D)  $200,000. 
A)  $2,000. 
B)  $18,000. 
C)  $20,000. 
D)  $200,000.

Question 2

Discuss how a single bank creates money.What is the limit to which a single bank can add to the money supply? By how much can an entire banking system add to the money supply?

Accepted Answer

A single bank is limited in its money cr

Question 3

Decisions regarding purchases and sales of government securities by the Fed are made by the:

Accepted Answer

A)  Federal Deposit Insurance Commission (FDI
C) . 
B)  Discount Committee (D
C) . 
C)  Federal Open Market Committee (FOM
C) . 
D)  Federal Funds Committee (FF
C) . 
A)  Federal Deposit Insurance Commission (FDI
C) . 
B)  Discount Committee (D
C) . 
C)  Federal Open Market Committee (FOM
C) . 
D)  Federal Funds Committee (FF
C) .

Question 4

Which of the following would not appear on the asset side of a commercial bank balance sheet?

Accepted Answer

A)  Reserves. 
B)  Checkable deposits. 
C)  Loans. 
D)  Securities. 
A)  Reserves. 
B)  Checkable deposits. 
C)  Loans. 
D)  Securities.

Question 5

Reserves of member banks appear on the Fed's balance sheet as liabilities.

Accepted Answer

A) True 
 B)False

Question 6

The percentage of checkable deposits that banks and other financial intermediaries are required to keep in cash reserves is known as:

Accepted Answer

A)  the fractional reserve requirement. 
B)  the excess reserve requirement. 
C)  the required reserve ratio. 
D)  the discount rate. 
E)  M1. 
A)  the fractional reserve requirement. 
B)  the excess reserve requirement. 
C)  the required reserve ratio. 
D)  the discount rate. 
E)  M1.

Question 7

The interest rate which the Fed charges banks that borrow reserves from it is the:

Accepted Answer

A)  federal funds rate. 
B)  discount rate. 
C)  reserved rate. 
D)  investment rate. 
E)  check rate 
A)  federal funds rate. 
B)  discount rate. 
C)  reserved rate. 
D)  investment rate. 
E)  check rate

Question 8

The required reserves of a bank are determined by multiplying the bank's checkable deposits by the required reserve ratio.

Accepted Answer

A) True 
 B)False

Question 9

A bank faces a required reserve ratio of 5 percent.If the bank has $200 million of checkable deposits and $15 million of total reserves,then how large are the bank's excess reserves?

Accepted Answer

A)  $0. 
B)  $5 million. 
C)  $10 million. 
D)  $15 million. 
A)  $0. 
B)  $5 million. 
C)  $10 million. 
D)  $15 million.

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

If your bank receives a checkable deposit of $20,000,and the banking system makes loans totaling $180,000,the maximum possible,then the required reserve ratio must be:

Accepted Answer

A)  0.10. 
B)  0.20. 
C)  0.25. 
D)  0.40. 
E)  0.50. 
A)  0.10. 
B)  0.20. 
C)  0.25. 
D)  0.40. 
E)  0.50.

Question 12

The required reserve ratio is the:

Accepted Answer

A)  actual amount of reserves that banks must hold. 
B)  excess amount of reserves that a bank must hold. 
C)  minimum amount of reserves the Fed requires a bank to hold. 
D)  total amount of reserves that banks hold at all times. 
E)  maximum amount of reserves that banks can hold to remain liquid. 
A)  actual amount of reserves that banks must hold. 
B)  excess amount of reserves that a bank must hold. 
C)  minimum amount of reserves the Fed requires a bank to hold. 
D)  total amount of reserves that banks hold at all times. 
E)  maximum amount of reserves that banks can hold to remain liquid.

Question 13

Best National Bank is subject to a 10 percent required reserve ratio.If this bank received a new checkable deposit of $1,000,it could make new loans of:

Accepted Answer

A)  $100. 
B)  $900. 
C)  $1,000. 
D)  $10,000. 
A)  $100. 
B)  $900. 
C)  $1,000. 
D)  $10,000.

Question 14

The Fed's power to set the required reserves of commercial banks:

Accepted Answer

A)  provides a certain source of interest income for commercial banks. 
B)  allows the Fed to control the lending ability of commercial banks and, thereby, control the money supply. 
C)  prevents banks from hoarding too much vault cash. 
D)  prevents commercial banks from earning excess profits. 
A)  provides a certain source of interest income for commercial banks. 
B)  allows the Fed to control the lending ability of commercial banks and, thereby, control the money supply. 
C)  prevents banks from hoarding too much vault cash. 
D)  prevents commercial banks from earning excess profits.

Question 15

The federal funds rate is:

Accepted Answer

A)  the minimum amount of reserves the Fed requires a bank to hold. 
B)  the interest rate that the Fed charges banks who borrow from it. 
C)  the interest rate on loans made by banks to other banks 
D)  the maximum percentage of the cost of a stock that can be borrowed from a bank, with the stock offered as collateral. 
E)  an appeal by the Fed to banks, asking for voluntary compliance with the Fed's wishes. 
A)  the minimum amount of reserves the Fed requires a bank to hold. 
B)  the interest rate that the Fed charges banks who borrow from it. 
C)  the interest rate on loans made by banks to other banks 
D)  the maximum percentage of the cost of a stock that can be borrowed from a bank, with the stock offered as collateral. 
E)  an appeal by the Fed to banks, asking for voluntary compliance with the Fed's wishes.

Question 16

The market in which banks make loans of reserves for terms of over one year is called the federal funds market.

Accepted Answer

A) True 
 B)False

Question 17

A bank can lend out its excess reserves but not its required reserves.

Accepted Answer

A) True 
 B)False

Question 18

An open-market purchase by the Federal Reserve withdraws excess reserves from the banking system and causes the money supply to contract.

Accepted Answer

A) True 
 B)False

Question 19

The Fed's countercyclical policy during expansion and prosperity includes:

Accepted Answer

A)  raising the required reserve ratio, raising the discount rate, and selling government bonds on the open market. 
B)  raising the required reserve ratio, raising the discount rate, and buying government bonds on the open market. 
C)  raising the required reserve ratio, cutting the discount rate, and selling government bonds on the open market. 
D)  raising the required reserve ratio, cutting the discount rate, and buying government bonds on the open market. 
E)  lowering the required reserve ratio, cutting discount rates, and buying government bonds on the open market. 
A)  raising the required reserve ratio, raising the discount rate, and selling government bonds on the open market. 
B)  raising the required reserve ratio, raising the discount rate, and buying government bonds on the open market. 
C)  raising the required reserve ratio, cutting the discount rate, and selling government bonds on the open market. 
D)  raising the required reserve ratio, cutting the discount rate, and buying government bonds on the open market. 
E)  lowering the required reserve ratio, cutting discount rates, and buying government bonds on the open market.

Question 20

Exhibit 19-7 Lower Walloon National Bank
  
-In Exhibit 19-7,if Lower Walloon National bank loans out all of its excess reserves to James Brown so that Mr.Brown can upgrade his restaurant,and the money is put into Mr.Brown's account at the Lower Walloon National bank,then the bank will have reserves of:

Accepted Answer

A)  $10,000, loans of $8,000, and checkable deposits of $18,000. 
B)  $2,000, loans of $4,000, and checkable deposits of $14,000. 
C)  $6,000, loans of $4,000, and checkable deposits of $10,000. 
D)  $10,000, loans of $8,000, and checkable deposits of $10,000. 
E)  $0, loans of $8,000, and checkable deposits of $18,000. 
A)  $10,000, loans of $8,000, and checkable deposits of $18,000. 
B)  $2,000, loans of $4,000, and checkable deposits of $14,000. 
C)  $6,000, loans of $4,000, and checkable deposits of $10,000. 
D)  $10,000, loans of $8,000, and checkable deposits of $10,000. 
E)  $0, loans of $8,000, and checkable deposits of $18,000.

Exam 19: Money Creation

If a bank that is subject to a 10 percent required reserve ratio has $20,000 in excess reserves,it can make new loans of:

Discuss how a single bank creates money.What is the limit to which a single bank can add to the money supply? By how much can an entire banking system add to the money supply?

Decisions regarding purchases and sales of government securities by the Fed are made by the:

Which of the following would not appear on the asset side of a commercial bank balance sheet?

Reserves of member banks appear on the Fed's balance sheet as liabilities.

The percentage of checkable deposits that banks and other financial intermediaries are required to keep in cash reserves is known as:

The interest rate which the Fed charges banks that borrow reserves from it is the:

The required reserves of a bank are determined by multiplying the bank's checkable deposits by the required reserve ratio.

A bank faces a required reserve ratio of 5 percent.If the bank has $200 million of checkable deposits and $15 million of total reserves,then how large are the bank's excess reserves?

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

If your bank receives a checkable deposit of $20,000,and the banking system makes loans totaling $180,000,the maximum possible,then the required reserve ratio must be:

The required reserve ratio is the:

Best National Bank is subject to a 10 percent required reserve ratio.If this bank received a new checkable deposit of $1,000,it could make new loans of:

The Fed's power to set the required reserves of commercial banks:

The federal funds rate is:

The market in which banks make loans of reserves for terms of over one year is called the federal funds market.

A bank can lend out its excess reserves but not its required reserves.

An open-market purchase by the Federal Reserve withdraws excess reserves from the banking system and causes the money supply to contract.

The Fed's countercyclical policy during expansion and prosperity includes:

Introducing the Economic Way of Thinking

A: Appendix: Applying Graphs to Economics

Production Possibilities,Opportunity Cost,and Economic Growth

Part 1: Market Demand and Supply

Part 2: Market Demand and Supply

Markets in Action

Price Elasticity of Demand

Production Costs

Perfect Competition

Monopoly

Monopolistic Competition and Oligopoly

Labor Markets and Income Distribution

Gross Domestic Product

Business Cycles and Unemployment

Inflation

Aggregate Demand and Supply

A: Appendix: The Self-Correcting Aggregate Demand and Supply Model

Fiscal Policy

The Public Sector

Federal Deficits,Surpluses,and the National Debt

Money and the Federal Reserve System

Monetary Policy

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

International Trade and Finance

Economies in Transition

Growth and the Less-Developed Countries

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