Question 1

The largest asset item for most banks is:

Accepted Answer

A)  cash. 
B)  bonds. 
C)  loans. 
D)  federal cash reserves. 
A)  cash. 
B)  bonds. 
C)  loans. 
D)  federal cash reserves.

Question 2

Credit card balances are:

Accepted Answer

A)  included in both M1 and M2. 
B)  included in M1 but not M2. 
C)  included in M2 but not M1. 
D)  not included in either M1 or M2. 
A)  included in both M1 and M2. 
B)  included in M1 but not M2. 
C)  included in M2 but not M1. 
D)  not included in either M1 or M2.

Question 3

Exhibit 25-2 A bank's assets consist of $1,000,000 in total reserves,$2,100,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $3,000,000 in demand deposits and $1,300,000 in capital.
Refer to Exhibit 25-2.If the required reserve ratio is 10 percent,what is the level of the bank's excess reserves? How much money could the excess reserves be used to create in the banking system as a result?

Accepted Answer

A)  $700,000; $700,000 
B)  $700,000; $7,000,000 
C)  $300,000; $300,000 
D)  $300,000; $3,000,000 
A)  $700,000; $700,000 
B)  $700,000; $7,000,000 
C)  $300,000; $300,000 
D)  $300,000; $3,000,000

Question 4

Can bankers create money?

Accepted Answer

A)  No, they do not have this power. 
B)  No, unless they have a special charter which permits it. 
C)  Yes, through multiple deposit creation. 
D)  Yes, by printing checks for customers. 
A)  No, they do not have this power. 
B)  No, unless they have a special charter which permits it. 
C)  Yes, through multiple deposit creation. 
D)  Yes, by printing checks for customers.

Question 5

Exhibit 25-1 A bank's assets consist of $500,000 in total reserves,$1,600,000 in loans,and a building worth $1,200,000.Its liabilities and capital consist of $2,000,000 in demand deposits and $1,300,000 in capital.
Refer to Exhibit 25-1.If the required reserve ratio is 25 percent,what is the level of the bank's excess reserves? How much money could the excess reserves be used to create in the banking system as a result?

Accepted Answer

A)  zero; zero 
B)  $500,000; $500,000 
C)  $500,000; $2,000,000 
D)  $250,000; $1,000,000 
A)  zero; zero 
B)  $500,000; $500,000 
C)  $500,000; $2,000,000 
D)  $250,000; $1,000,000

Question 6

Which of the following observations is true of nontransaction deposits?

Accepted Answer

A)  depositor can use them directly as a means of payment 
B)  they do not pay any interest 
C)  depositor cannot directly write checks against them 
D)  they generally pay lower interest rates than transaction deposits 
A)  depositor can use them directly as a means of payment 
B)  they do not pay any interest 
C)  depositor cannot directly write checks against them 
D)  they generally pay lower interest rates than transaction deposits

Question 7

Using money as a store of value rather than wheat is:

Accepted Answer

A)  safer. 
B)  less expensive. 
C)  both safer and less expensive. 
D)  neither safer nor less expensive. 
A)  safer. 
B)  less expensive. 
C)  both safer and less expensive. 
D)  neither safer nor less expensive.

Question 8

Fiat money has value because:

Accepted Answer

A)  it is backed by gold. 
B)  it is divisible. 
C)  it can be used to buy things. 
D)  it can be exchanged for a commodity backing it. 
A)  it is backed by gold. 
B)  it is divisible. 
C)  it can be used to buy things. 
D)  it can be exchanged for a commodity backing it.

Question 9

Loans are:

Accepted Answer

A)  assets of banks, liabilities of borrowers. 
B)  liabilities of banks, assets of borrowers. 
C)  assets of banks and their borrowers. 
D)  liabilities of banks and their borrowers. 
A)  assets of banks, liabilities of borrowers. 
B)  liabilities of banks, assets of borrowers. 
C)  assets of banks and their borrowers. 
D)  liabilities of banks and their borrowers.

Question 10

The First State Bank of South Dakota in Sioux Falls,South Dakota,has the following items on its ledgers: (All numbers in millions.)
Time deposits: $6,000
Consumer loans: $6,000
Cash in vault: $400
South Dakota State Bonds: $2,000
Demand deposits: $10,000
Loans to businesses: $2,000
Miscellaneous liabilities: $1,000
Deposits with the Federal Reserve System: $1,600
U.S.Government Bonds: $4,000
a.Place them on the appropriate side of the balance sheet.Compute the bank's net worth.
b.If the reserve requirement is 15 percent on demand deposits,and 0 percent on time deposits,what are the bank's required reserves? Excess reserves?
c.By how much can this bank increase its loans? Explain.

Accepted Answer

The answer of The First State Bank of South Dakota...

Question 11

Which of the following is not one of the functions of money?

Accepted Answer

A)  unit of account 
B)  means of deferred payment 
C)  encouraging people to barter 
D)  medium of exchange 
A)  unit of account 
B)  means of deferred payment 
C)  encouraging people to barter 
D)  medium of exchange

Question 12

Which of the following was a cause of the savings and loan crisis that occurred in the 1980s?

Accepted Answer

A)  the increasing rates of inflation throughout the 1970s 
B)  savings and loans investing in high-risk ventures including real estate projects 
C)  government deregulation in the 1980s 
D)  all of the above 
A)  the increasing rates of inflation throughout the 1970s 
B)  savings and loans investing in high-risk ventures including real estate projects 
C)  government deregulation in the 1980s 
D)  all of the above

Question 13

If a person buries his money in his backyard,he is using money as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 14

An increase in currency in circulation would ____ M1 and ____ M2.

Accepted Answer

A)  increase; increase. 
B)  not change; increase. 
C)  decrease; decrease. 
D)  not change; decrease. 
A)  increase; increase. 
B)  not change; increase. 
C)  decrease; decrease. 
D)  not change; decrease.

Question 15

If you deposit $20,000 in cash into a demand deposit account at a bank that faces an 18 percent required reserve ratio the result will be:

Accepted Answer

A)  the bank will add $3,600 to its excess reserves. 
B)  the bank will add $16,400 to its excess reserves. 
C)  the bank will add $16,400 to its total reserves. 
D)  the bank will add $20,000 to its excess reserves. 
A)  the bank will add $3,600 to its excess reserves. 
B)  the bank will add $16,400 to its excess reserves. 
C)  the bank will add $16,400 to its total reserves. 
D)  the bank will add $20,000 to its excess reserves.

Question 16

When a person pays a loan back to a bank by writing a check for the amount due,demand deposits decline and the money supply is reduced.

Accepted Answer

A) True 
 B)False

Question 17

If a bank had $200 million in demand deposits and faced a 40 percent reserve requirement,it would be required to hold ____ as reserves and could have a total amount of loans issued up to ____.

Accepted Answer

A)  $120 million; $80 million 
B)  $80 million; $120 million 
C)  $200 million; $500 million 
D)  $500 million; $200 million 
A)  $120 million; $80 million 
B)  $80 million; $120 million 
C)  $200 million; $500 million 
D)  $500 million; $200 million

Question 18

Say the required reserve ratio is 10 percent.If you pay back a loan of $20,000 a bank had previously made to you,the act of paying back the loan:

Accepted Answer

A)  adds $2,000 in bank reserves. 
B)  adds $20,000 in bank reserves. 
C)  eliminates $2,000 in bank reserves. 
D)  eliminates $20,000 in bank reserves. 
A)  adds $2,000 in bank reserves. 
B)  adds $20,000 in bank reserves. 
C)  eliminates $2,000 in bank reserves. 
D)  eliminates $20,000 in bank reserves.

Question 19

Money is destroyed when:

Accepted Answer

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

Question 20

If Billy Bob's National Bank of Slingblade confronts a 10 percent reserve requirement and has excess reserves of $20,000,what is the maximum amount of additional loans that the bank can extend?

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

Exam 25: Monetary Institutions

The largest asset item for most banks is:

Credit card balances are:

Can bankers create money?

Which of the following observations is true of nontransaction deposits?

Using money as a store of value rather than wheat is:

Fiat money has value because:

Loans are:

Which of the following is not one of the functions of money?

Which of the following was a cause of the savings and loan crisis that occurred in the 1980s?

If a person buries his money in his backyard,he is using money as a medium of exchange.

An increase in currency in circulation would ____ M1 and ____ M2.

If you deposit $20,000 in cash into a demand deposit account at a bank that faces an 18 percent required reserve ratio the result will be:

When a person pays a loan back to a bank by writing a check for the amount due,demand deposits decline and the money supply is reduced.

If a bank had $200 million in demand deposits and faced a 40 percent reserve requirement,it would be required to hold ____ as reserves and could have a total amount of loans issued up to ____.

Say the required reserve ratio is 10 percent.If you pay back a loan of $20,000 a bank had previously made to you,the act of paying back the loan:

Money is destroyed when:

If Billy Bob's National Bank of Slingblade confronts a 10 percent reserve requirement and has excess reserves of $20,000,what is the maximum amount of additional loans that the bank can extend?

The Role and Method of Economics

Economics: Eight Powerful Ideas

Scarcity, Trade-Offs, and Production Possibilities

Demand, Supply, and Market Equilibrium

Markets in Motion and Price Controls

Elasticities

Market Efficiency and Welfare

Market Failure

Public Finance and Public Choice

Consumer Choice Theory

The Firm: Production and Costs

Firms in Perfectly Competitive Markets

Monopoly and Antitrust

Monopolistic Competition and Product Differentiation

Oligopoly and Strategic Behavior

The Markets for Labor, Capital, and Land

Income, Poverty, and Health Care

Introduction to Macroeconomics: Unemployment, Inflation, and Economic Fluctuations

Measuring Economic Performance

Economic Growth in the Global Economy

Financial Markets, Saving, and Investment

Aggregate Demand and Aggregate Supply

The Aggregate Expenditure Model

The Federal Reserve System and Monetary Policy

Issues in Macroeconomic Theory and Policy

International Trade

International Finance

Filters

An increase in currency in circulation would M1 and M2.

If a bank had $200 million in demand deposits and faced a 40 percent reserve requirement,it would be required to hold as reserves and could have a total amount of loans issued up to .