Question 1

Suppose the reserve requirement is 20 percent.If a bank has checkable deposits of $4 million and actual reserves of $1 million,it can safely lend out:

Accepted Answer

A)  $1 million. 
B)  $1.2 million. 
C)  $200,000. 
D)  $800,000. 
A)  $1 million. 
B)  $1.2 million. 
C)  $200,000. 
D)  $800,000. C

Question 2

If the reserve requirement is 10 percent,what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

Accepted Answer

A)  $450. 
B)  $400. 
C)  $5,000. 
D)  $550. 
A)  $450. 
B)  $400. 
C)  $5,000. 
D)  $550. A

Question 3

The goldsmith's ability to create money was based on the fact that:

Accepted Answer

A)  withdrawals of gold tended to exceed deposits of gold in any given time period. 
B)  consumers and merchants preferred to use gold for transactions,rather than paper money. 
C)  the goldsmith was required to keep 100 percent gold reserves. 
D)  paper money in the form of gold receipts was rarely redeemed for gold. 
A)  withdrawals of gold tended to exceed deposits of gold in any given time period. 
B)  consumers and merchants preferred to use gold for transactions,rather than paper money. 
C)  the goldsmith was required to keep 100 percent gold reserves. 
D)  paper money in the form of gold receipts was rarely redeemed for gold. D

Question 4

Answer the question on the basis of the following table for a commercial bank or thrift: $\begin{array}{c}
\begin{array}{c}
(1)\
\text {Legal Reserve}\
\underline{\text {Ratio (\%)}}\
10 \
20 \
25 \
30
\end{array}
\begin{array}{c}
(2)\
\text {Checkable}\
\underline{\text {Deposits}}\
 \$ 40,000 \
40,000\
40,000\
40,000
\end{array}
\begin{array}{c}
(3)\
\text {Actual}\
\underline{\text {Reserves}}\
\$ 10,000 \
10,000\
10,000\
10,000
\end{array}
\end{array}$

Refer to the table.When the legal reserve ratio is 20 percent,the money-creating potential of the entire banking system is:

Accepted Answer

A)  $4,000. 
B)  $6,000. 
C)  $8,000. 
D)  $10,000. 
A)  $4,000. 
B)  $6,000. 
C)  $8,000. 
D)  $10,000.

Question 5

Answer the question on the basis of the following balance sheet for the First National Bank of Bunco.All figures are in millions. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$ 20 \
25 \
15 \
90
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$100\
50\
\
\
\end{array}
\end{array}$

Refer to the data.Suppose that this bank currently has $6 million in excess reserves and that customers of this bank collectively write checks for cash at the bank in the amount of $6 million.As a result,the bank's excess reserves diminish to:

Accepted Answer

A)  $0. 
B)  $6 million. 
C)  $0.72 million. 
D)  $0.84 million. 
A)  $0. 
B)  $6 million. 
C)  $0.72 million. 
D)  $0.84 million.

Question 6

Which of the following is correct?

Accepted Answer

A)  Both the granting and repaying of bank loans expand the aggregate money supply. 
B)  Granting and repaying bank loans do not affect the money supply. 
C)  Granting a bank loan destroys money;repaying a bank loan creates money. 
D)  Granting a bank loan creates money;repaying a bank loan destroys money. 
A)  Both the granting and repaying of bank loans expand the aggregate money supply. 
B)  Granting and repaying bank loans do not affect the money supply. 
C)  Granting a bank loan destroys money;repaying a bank loan creates money. 
D)  Granting a bank loan creates money;repaying a bank loan destroys money.

Question 7

The reserves of a commercial bank consist of:

Accepted Answer

A)  the amount of money market funds it holds. 
B)  deposits at the Federal Reserve Bank and vault cash. 
C)  government securities that the bank holds. 
D)  the bank's net worth. 
A)  the amount of money market funds it holds. 
B)  deposits at the Federal Reserve Bank and vault cash. 
C)  government securities that the bank holds. 
D)  the bank's net worth.

Question 8

Given a 25 percent reserve ratio,assume the commercial banking system is loaned up.Now assume the reserve ratio is reduced to 20 percent.As a result of this reduction:

Accepted Answer

A)  we can expect bank lending and bank profits to decline. 
B)  each dollar of bank reserves will now support a maximum of $5 of checkable deposits. 
C)  the banking system must now reduce outstanding loans by 5 percent. 
D)  the banking system can now increase lending by 5 percent. 
A)  we can expect bank lending and bank profits to decline. 
B)  each dollar of bank reserves will now support a maximum of $5 of checkable deposits. 
C)  the banking system must now reduce outstanding loans by 5 percent. 
D)  the banking system can now increase lending by 5 percent.

Question 9

The higher the reserve requirement,the lower is the monetary multiplier.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following describes the identity embodied in a balance sheet?

Accepted Answer

A)  Net worth plus assets equal liabilities. 
B)  Assets plus liabilities equal net worth. 
C)  Assets equal liabilities plus net worth. 
D)  Assets plus reserves equal net worth. 
A)  Net worth plus assets equal liabilities. 
B)  Assets plus liabilities equal net worth. 
C)  Assets equal liabilities plus net worth. 
D)  Assets plus reserves equal net worth.

Question 11

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 12

The greater the required reserve ratio,the:

Accepted Answer

A)  higher is the spending multiplier. 
B)  lower is the spending multiplier. 
C)  lower is the monetary multiplier. 
D)  higher is the monetary multiplier. 
A)  higher is the spending multiplier. 
B)  lower is the spending multiplier. 
C)  lower is the monetary multiplier. 
D)  higher is the monetary multiplier.

Question 13

Overnight loans from one bank to another for reserve purposes entail an interest rate called the:

Accepted Answer

A)  prime rate. 
B)  discount rate. 
C)  federal funds rate. 
D)  treasury bill rate. 
A)  prime rate. 
B)  discount rate. 
C)  federal funds rate. 
D)  treasury bill rate.

Question 14

Answer the question on the basis of the following table for a commercial bank or thrift: $\begin{array}{c}
\begin{array}{c}
(1)\
\text {Legal Reserve}\
\underline{\text {Ratio (\%)}}\
10 \
20 \
25 \
30
\end{array}
\begin{array}{c}
(2)\
\text {Checkable}\
\underline{\text {Deposits}}\
 \$ 40,000 \
40,000\
40,000\
40,000
\end{array}
\begin{array}{c}
(3)\
\text {Actual}\
\underline{\text {Reserves}}\
\$ 10,000 \
10,000\
10,000\
10,000
\end{array}
\end{array}$

Refer to the table.When the legal reserve ratio is 25 percent,the excess reserves of this single bank are:

Accepted Answer

A)  $0. 
B)  $1,000. 
C)  $5,000. 
D)  $30,000. 
A)  $0. 
B)  $1,000. 
C)  $5,000. 
D)  $30,000.

Question 15

Bank panics:

Accepted Answer

A)  occur frequently in fractional reserve banking systems. 
B)  are a risk of fractional reserve banking but are unlikely when banks are highly regulated and lend prudently. 
C)  cannot occur in a fractional reserve banking system. 
D)  occur more frequently when the monetary system is backed by gold. 
A)  occur frequently in fractional reserve banking systems. 
B)  are a risk of fractional reserve banking but are unlikely when banks are highly regulated and lend prudently. 
C)  cannot occur in a fractional reserve banking system. 
D)  occur more frequently when the monetary system is backed by gold.

Question 16

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 10 percent.All figures are in billions. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$30\
130 \
70\
200
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$300\
130\
\
\
\end{array}
\end{array}$
 Refer to the data.After a deposit of $10 billion of new currency into a checking account in the banking system,excess reserves will increase by:

Accepted Answer

A)  $0 billion. 
B)  $7 billion. 
C)  $9 billion. 
D)  $10 billion. 
A)  $0 billion. 
B)  $7 billion. 
C)  $9 billion. 
D)  $10 billion.

Question 17

Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000.If the reserve requirement is 25 percent,what is the size of the bank's actual reserves?

Accepted Answer

A)  $16,000. 
B)  $84,000. 
C)  $24,000. 
D)  $20,000. 
A)  $16,000. 
B)  $84,000. 
C)  $24,000. 
D)  $20,000.

Question 18

In a fractional reserve banking system:

Accepted Answer

A)  bank panics cannot occur. 
B)  the monetary system must be backed by gold. 
C)  banks can create money through the lending process. 
D)  the Federal Reserve has no control over the amount of money in circulation. 
A)  bank panics cannot occur. 
B)  the monetary system must be backed by gold. 
C)  banks can create money through the lending process. 
D)  the Federal Reserve has no control over the amount of money in circulation.

Question 19

Actual reserves equal required reserves plus excess reserves.

Accepted Answer

A) True 
 B)False

Question 20

Balance sheets always balance because reserves must always equal liabilities plus net worth.

Accepted Answer

A) True 
 B)False

Suppose the reserve requirement is 20 percent.If a bank has checkable deposits of $4 million and actual reserves of $1 million,it can safely lend out:

If the reserve requirement is 10 percent,what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

The goldsmith's ability to create money was based on the fact that:

Which of the following is correct?

The reserves of a commercial bank consist of:

Given a 25 percent reserve ratio,assume the commercial banking system is loaned up.Now assume the reserve ratio is reduced to 20 percent.As a result of this reduction:

The higher the reserve requirement,the lower is the monetary multiplier.

Which of the following describes the identity embodied in a balance sheet?

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

The greater the required reserve ratio,the:

Overnight loans from one bank to another for reserve purposes entail an interest rate called the:

Bank panics:

Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000.If the reserve requirement is 25 percent,what is the size of the bank's actual reserves?

In a fractional reserve banking system:

Actual reserves equal required reserves plus excess reserves.

Balance sheets always balance because reserves must always equal liabilities plus net worth.

Income Inequality Poverty and Discrimination

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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

The Balance of Payments, Exchange Rates, and Trade Deficits

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

The United States and the Global Economy

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Exam 34: Money Creation

Suppose the reserve requirement is 20 percent.If a bank has checkable deposits of $4 million and actual reserves of $1 million,it can safely lend out:

If the reserve requirement is 10 percent,what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

The goldsmith's ability to create money was based on the fact that:

Which of the following is correct?

The reserves of a commercial bank consist of:

Given a 25 percent reserve ratio,assume the commercial banking system is loaned up.Now assume the reserve ratio is reduced to 20 percent.As a result of this reduction:

The higher the reserve requirement,the lower is the monetary multiplier.

Which of the following describes the identity embodied in a balance sheet?

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

The greater the required reserve ratio,the:

Overnight loans from one bank to another for reserve purposes entail an interest rate called the:

Bank panics:

Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000.If the reserve requirement is 25 percent,what is the size of the bank's actual reserves?

In a fractional reserve banking system:

Actual reserves equal required reserves plus excess reserves.

Balance sheets always balance because reserves must always equal liabilities plus net worth.

Income Inequality Poverty and Discrimination

Health Care

Immigration

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

The Balance of Payments, Exchange Rates, and Trade Deficits

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

The United States and the Global Economy

Filters