Question 1

Leverage in the financial system:

Accepted Answer

A)  magnifies profits but reduces losses. 
B)  magnifies both profits and losses. 
C)  reduces profits but magnifies losses. 
D)  reduces both profits and losses. 
A)  magnifies profits but reduces losses. 
B)  magnifies both profits and losses. 
C)  reduces profits but magnifies losses. 
D)  reduces both profits and losses.

Question 2

Answer the question on the basis of the following table for a commercial bank or thrift:   Refer to row 3 in the table.The number appropriate for space Y is:

Accepted Answer

A)  $24,000. 
B)  $32,000. 
C)  $48,000. 
D)  $96,000. 
A)  $24,000. 
B)  $32,000. 
C)  $48,000. 
D)  $96,000.

Question 3

Answer the question on the basis of the following information for the Moolah Bank. ([\begin{array} { l r } 
	ext { Reserves } & \$ 100 \
	ext { Checkable Deposits } & 1,000 \
	ext { Loans (to customers) } & 300 \
	ext { Property } & 400 \
	ext { Securities (owned) } & 300 \
	ext { Stock Shares } & 100
\end{array}\) Assume that the listed amounts constitute this bank's complete set of accounts.Moolah's:

Accepted Answer

A)  assets are $1,100. 
B)  liabilities are $1,100. 
C)  net worth is $300. 
D)  profit is $1,000. 
A)  assets are $1,100. 
B)  liabilities are $1,100. 
C)  net worth is $300. 
D)  profit is $1,000.

Question 4

If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement,the bank will:

Accepted Answer

A)  have $45 of additional excess reserves. 
B)  be capable of lending an additional $500. 
C)  be capable of lending no more than an additional $50. 
D)  have $50 of required reserves. 
A)  have $45 of additional excess reserves. 
B)  be capable of lending an additional $500. 
C)  be capable of lending no more than an additional $50. 
D)  have $50 of required reserves.

Question 5

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio,then for the banking system:

Accepted Answer

A)  m = R - 1. 
B)  R = m/1. 
C)  R = m - 1. 
D)  m = 1/R. 
A)  m = R - 1. 
B)  R = m/1. 
C)  R = m - 1. 
D)  m = 1/R.

Question 6

A single commercial bank must meet a 25 percent reserve requirement.If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank,it can increase its loans by a maximum of:

Accepted Answer

A)  $1,250. 
B)  $120,000. 
C)  $5,000. 
D)  $3,750. 
A)  $1,250. 
B)  $120,000. 
C)  $5,000. 
D)  $3,750.

Question 7

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank.Later that same day Jones negotiates a loan for $1,200 at the same bank.In what direction and by what amount has the supply of money changed?

Accepted Answer

A)  Decreased by $600. 
B)  Increased by $1,800. 
C)  Increased by $600. 
D)  Increased by $1,200. 
A)  Decreased by $600. 
B)  Increased by $1,800. 
C)  Increased by $600. 
D)  Increased by $1,200.

Question 8

When commercial banks use excess reserves to buy government securities from the public:

Accepted Answer

A)  new money is created. 
B)  commercial bank reserves increase. 
C)  the money supply falls. 
D)  checkable deposits decline. 
A)  new money is created. 
B)  commercial bank reserves increase. 
C)  the money supply falls. 
D)  checkable deposits decline.

Question 9

Answer the question on the basis of the following information for the Moolah Bank. $\begin{array} { l r } 
\text { Reserves } & \$ 100 \
\text { Checkable Deposits } & 1,000 \
\text { Loans (to customers) } & 300 \
\text { Property } & 400 \
\text { Securities (owned) } & 300 \
\text { Stock Shares } & 100
\end{array}$ Refer to the information.If Moolah Bank is legally "loaned up," the reserve requirement must be:

Accepted Answer

A)  10 percent. 
B)  15 percent. 
C)  20 percent. 
D)  25 percent. 
A)  10 percent. 
B)  15 percent. 
C)  20 percent. 
D)  25 percent.

Question 10

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 11

A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are:

Accepted Answer

A)  $100. 
B)  $1,000. 
C)  $5,000. 
D)  $12,000. 
A)  $100. 
B)  $1,000. 
C)  $5,000. 
D)  $12,000.

Question 12

Answer the question on the basis of the following information for the Moolah Bank. $\begin{array} { l r } 
\text { Reserves } & \$ 100 \
\text { Checkable Deposits } & 1,000 \
\text { Loans (to customers) } & 300 \
\text { Property } & 400 \
\text { Securities (owned) } & 300 \
\text { Stock Shares } & 100
\end{array}$ Refer to the information.If Moolah Bank is legally "loaned up," the banking system's monetary multiplier must be:

Accepted Answer

A)  5. 
B)  8. 
C)  10. 
D)  20. 
A)  5. 
B)  8. 
C)  10. 
D)  20.

Question 13

Use the following balance sheet for the ABC National Bank in answering the question.Assume the required reserve ratio is 20 percent. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$ 27,000 \
50,000 \
33,000 \
200,000
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$1,100\
200,000\
\
\
\end{array}
\end{array}$

Refer to the data.This bank can safely expand its loans by a maximum of:

Accepted Answer

A)  $7,000. 
B)  $25,000. 
C)  $12,000. 
D)  $5,000. 
A)  $7,000. 
B)  $25,000. 
C)  $12,000. 
D)  $5,000.

Question 14

Commercial banks create money when they:

Accepted Answer

A)  accept cash deposits from the public. 
B)  purchase government securities from the central banks. 
C)  create checkable deposits in exchange for IOUs. 
D)  raise their interest rates. 
A)  accept cash deposits from the public. 
B)  purchase government securities from the central banks. 
C)  create checkable deposits in exchange for IOUs. 
D)  raise their interest rates.

Question 15

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that:

Accepted Answer

A)  reserves lost by any particular bank will be gained by some other bank. 
B)  the central banks follow policies that prevent reserves from falling below the level required by law. 
C)  the MPC of borrowers is greater than zero but less than 1. 
D)  the banking system must keep reserves equal to 100 percent of its checkable-deposit liabilities. 
A)  reserves lost by any particular bank will be gained by some other bank. 
B)  the central banks follow policies that prevent reserves from falling below the level required by law. 
C)  the MPC of borrowers is greater than zero but less than 1. 
D)  the banking system must keep reserves equal to 100 percent of its checkable-deposit liabilities.

Question 16

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of:

Accepted Answer

A)  the MPS. 
B)  its actual reserves. 
C)  its excess reserves. 
D)  the reserve ratio. 
A)  the MPS. 
B)  its actual reserves. 
C)  its excess reserves. 
D)  the reserve ratio.

Question 17

Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion;legal reserve ratio = 0.20;excess reserves prior to the currency deposit = $0. Refer to the information.The $40 billion deposit of new currency will support total checkable deposits of:

Accepted Answer

A)  $160 billion. 
B)  $200 billion. 
C)  $40 billion. 
D)  $128 billion. 
A)  $160 billion. 
B)  $200 billion. 
C)  $40 billion. 
D)  $128 billion.

Question 18

The ABC Commercial Bank has $5,000 in excess reserves and the reserve ratio is 30 percent.This information is consistent with the bank having:

Accepted Answer

A)  $90,000 in outstanding loans and $35,000 in reserves. 
B)  $90,000 in checkable deposit liabilities and $32,000 in reserves. 
C)  $20,000 in checkable deposit liabilities and $10,000 in reserves. 
D)  $90,000 in checkable deposit liabilities and $35,000 in reserves. 
A)  $90,000 in outstanding loans and $35,000 in reserves. 
B)  $90,000 in checkable deposit liabilities and $32,000 in reserves. 
C)  $20,000 in checkable deposit liabilities and $10,000 in reserves. 
D)  $90,000 in checkable deposit liabilities and $35,000 in reserves.

Question 19

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.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 20

Which one of the following is presently a major deterrent to bank panics in the United States?

Accepted Answer

A)  The legal reserve requirement. 
B)  The fractional reserve system. 
C)  The gold standard. 
D)  Deposit insurance. 
A)  The legal reserve requirement. 
B)  The fractional reserve system. 
C)  The gold standard. 
D)  Deposit insurance.

Leverage in the financial system:

Answer the question on the basis of the following table for a commercial bank or thrift: Refer to row 3 in the table.The number appropriate for space Y is:

If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement,the bank will:

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio,then for the banking system:

A single commercial bank must meet a 25 percent reserve requirement.If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank,it can increase its loans by a maximum of:

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank.Later that same day Jones negotiates a loan for $1,200 at the same bank.In what direction and by what amount has the supply of money changed?

When commercial banks use excess reserves to buy government securities from the public:

Answer the question on the basis of the following information for the Moolah Bank. Reserves \ 100 Checkable Deposits 1,000 Loans (to customers) 300 Property 400 Securities (owned) 300 Stock Shares 100 Refer to the information.If Moolah Bank is legally "loaned up," the reserve requirement must be:

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:

A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are:

Commercial banks create money when they:

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that:

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of:

The ABC Commercial Bank has $5,000 in excess reserves and the reserve ratio is 30 percent.This information is consistent with the bank having:

Which one of the following is presently a major deterrent to bank panics in the United States?

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

Exam 34: Money Creation

Leverage in the financial system:

Answer the question on the basis of the following table for a commercial bank or thrift: Refer to row 3 in the table.The number appropriate for space Y is:

If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement,the bank will:

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio,then for the banking system:

A single commercial bank must meet a 25 percent reserve requirement.If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank,it can increase its loans by a maximum of:

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank.Later that same day Jones negotiates a loan for $1,200 at the same bank.In what direction and by what amount has the supply of money changed?

When commercial banks use excess reserves to buy government securities from the public:

Answer the question on the basis of the following information for the Moolah Bank. Reserves \ 100 Checkable Deposits 1,000 Loans (to customers) 300 Property 400 Securities (owned) 300 Stock Shares 100 Refer to the information.If Moolah Bank is legally "loaned up," the reserve requirement must be:

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:

A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are:

Commercial banks create money when they:

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that:

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of:

The ABC Commercial Bank has $5,000 in excess reserves and the reserve ratio is 30 percent.This information is consistent with the bank having:

Which one of the following is presently a major deterrent to bank panics in the United States?

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