Question 1

The primary purpose of the reserve requirements for banks is not really to ensure liquidity to meet withdrawals, but rather to allow the Fed some control over the money supply.

Accepted Answer

A) True 
 B)False  True

Question 2

If a bank has excess reserves of $100,000, then it can lend out only up to $100,000; but if the banking system has excess reserves of $100,000, then the system can make additional loans totaling more than $100,000.

Accepted Answer

A) True 
 B)False  True

Question 3

A checkable deposit at a commercial bank is a(n):

Accepted Answer

A)  Liability to the depositor and an asset to the bank 
B)  Liability to both the depositor and the bank 
C)  Asset to the depositor and a liability to the bank 
D)  Asset to both the depositor and the bank 
A)  Liability to the depositor and an asset to the bank 
B)  Liability to both the depositor and the bank 
C)  Asset to the depositor and a liability to the bank 
D)  Asset to both the depositor and the bank C

Question 4

The commercial banking system, because of a recent change in the required reserve ratio from 8 percent to 10 percent, finds that it is $50 million short of reserves. If it is unable to obtain any additional reserves, it must reduce deposits and money supply by:

Accepted Answer

A)  $250 million 
B)  $625 million 
C)  $500 million 
D)  $50 million 
A)  $250 million 
B)  $625 million 
C)  $500 million 
D)  $50 million

Question 5

A commercial bank's checkable-deposit liabilities can be estimated by:

Accepted Answer

A)  Dividing its required reserves by its excess reserves 
B)  Dividing its required reserves by the reserve ratio 
C)  Multiplying its required reserves by its excess reserves 
D)  Multiplying its required reserves by the reserve ratio 
A)  Dividing its required reserves by its excess reserves 
B)  Dividing its required reserves by the reserve ratio 
C)  Multiplying its required reserves by its excess reserves 
D)  Multiplying its required reserves by the reserve ratio

Question 6

A check for $10,000 drawn on Bank A and deposited at Bank B will increase the excess reserves in Bank B by $10,000.

Accepted Answer

A) True 
 B)False

Question 7

A commercial bank buys a $50,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. The money supply has:

Accepted Answer

A)  Not been affected 
B)  Decreased by $50,000 
C)  Increased by $50,000 
D)  Increased by $50,000 multiplied by the reserve ratio 
A)  Not been affected 
B)  Decreased by $50,000 
C)  Increased by $50,000 
D)  Increased by $50,000 multiplied by the reserve ratio

Question 8

If banks borrow from the Fed, the banking system's reserves will increase, but if banks borrow from one another, the banking system's reserves will not change.

Accepted Answer

A) True 
 B)False

Question 9

A commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system can increase loans are respectively:

Accepted Answer

A)  $30,000 and $150,000 
B)  $50,000 and $250,000 
C)  $50,000 and $500,000 
D)  $100,000 and $500,000 
A)  $30,000 and $150,000 
B)  $50,000 and $250,000 
C)  $50,000 and $500,000 
D)  $100,000 and $500,000

Question 10

Other things being equal, an expansion of commercial bank lending:

Accepted Answer

A)  Changes the composition, but not the size, of the money supply 
B)  Is desirable during a period of demand-pull inflation 
C)  Reduces the money supply 
D)  Increases the money supply 
A)  Changes the composition, but not the size, of the money supply 
B)  Is desirable during a period of demand-pull inflation 
C)  Reduces the money supply 
D)  Increases the money supply

Question 11

When a bank buys government securities from the Fed, then the bank's ability to "create money" will be reduced.

Accepted Answer

A) True 
 B)False

Question 12

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars.   Refer to the data given above. This bank has total assets of:

Accepted Answer

A)  $340 million 
B)  $440 million 
C)  $520 million 
D)  $580 million 
A)  $340 million 
B)  $440 million 
C)  $520 million 
D)  $580 million

Question 13

The claims of creditors of a bank against the bank's assets are called:

Accepted Answer

A)  Loans 
B)  Net worth 
C)  Liabilities 
D)  Required reserves 
A)  Loans 
B)  Net worth 
C)  Liabilities 
D)  Required reserves

Question 14

Which of the following are liabilities to a bank?

Accepted Answer

A)  Capital stock and reserves 
B)  Property and capital stock 
C)  Vault cash and demand deposits 
D)  Demand and time deposits 
A)  Capital stock and reserves 
B)  Property and capital stock 
C)  Vault cash and demand deposits 
D)  Demand and time deposits

Question 15

The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system:

Accepted Answer

A)  Has been able to reduce the vulnerability of banks to "runs" or "panics" 
B)  Can increase its demand deposits by a multiple of its excess reserves 
C)  Cannot increase its demand deposits by a multiple of its excess reserves 
D)  Has been based on the fractional reserve system of banking 
A)  Has been able to reduce the vulnerability of banks to "runs" or "panics" 
B)  Can increase its demand deposits by a multiple of its excess reserves 
C)  Cannot increase its demand deposits by a multiple of its excess reserves 
D)  Has been based on the fractional reserve system of banking

Question 16

A bank has reserves of $30,000 and deposits of $120,000. If the reserve ratio is 10%, then this bank can lend out a maximum of $12,000 in new loans.

Accepted Answer

A) True 
 B)False

Question 17

The fractional reserve system of banking started when goldsmiths began:

Accepted Answer

A)  Accepting deposits of gold for safe storage 
B)  Charging people who deposited their gold 
C)  Using deposited gold to produce products for sale to others 
D)  Issuing paper receipts in excess of the amount of gold held 
A)  Accepting deposits of gold for safe storage 
B)  Charging people who deposited their gold 
C)  Using deposited gold to produce products for sale to others 
D)  Issuing paper receipts in excess of the amount of gold held

Question 18

When a bank grants a loan to a customer who gets the funds and keeps it at home for a while, then the money supply will:

Accepted Answer

A)  Not change because demand deposits did not go up 
B)  Not change because the money was not spent 
C)  Increase 
D)  Decrease 
A)  Not change because demand deposits did not go up 
B)  Not change because the money was not spent 
C)  Increase 
D)  Decrease

Question 19

When cash is withdrawn from a checkable-deposit account at a bank:

Accepted Answer

A)  The money supply M1 increases 
B)  The money supply M1 decreases 
C)  The money supply M1 does not change but its composition changes 
D)  The composition of money supply M1 does not change 
A)  The money supply M1 increases 
B)  The money supply M1 decreases 
C)  The money supply M1 does not change but its composition changes 
D)  The composition of money supply M1 does not change

Question 20

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are:

Accepted Answer

A)  $50,000 
B)  $100,000 
C)  $900,000 
D)  $1 million 
A)  $50,000 
B)  $100,000 
C)  $900,000 
D)  $1 million

Exam 15: Money Creation

The primary purpose of the reserve requirements for banks is not really to ensure liquidity to meet withdrawals, but rather to allow the Fed some control over the money supply.

If a bank has excess reserves of $100,000, then it can lend out only up to $100,000; but if the banking system has excess reserves of $100,000, then the system can make additional loans totaling more than $100,000.

A checkable deposit at a commercial bank is a(n):

The commercial banking system, because of a recent change in the required reserve ratio from 8 percent to 10 percent, finds that it is $50 million short of reserves. If it is unable to obtain any additional reserves, it must reduce deposits and money supply by:

A commercial bank's checkable-deposit liabilities can be estimated by:

A check for $10,000 drawn on Bank A and deposited at Bank B will increase the excess reserves in Bank B by $10,000.

A commercial bank buys a $50,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. The money supply has:

If banks borrow from the Fed, the banking system's reserves will increase, but if banks borrow from one another, the banking system's reserves will not change.

A commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system can increase loans are respectively:

Other things being equal, an expansion of commercial bank lending:

When a bank buys government securities from the Fed, then the bank's ability to "create money" will be reduced.

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. This bank has total assets of:

The claims of creditors of a bank against the bank's assets are called:

Which of the following are liabilities to a bank?

The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system:

A bank has reserves of $30,000 and deposits of $120,000. If the reserve ratio is 10%, then this bank can lend out a maximum of $12,000 in new loans.

The fractional reserve system of banking started when goldsmiths began:

When a bank grants a loan to a customer who gets the funds and keeps it at home for a while, then the money supply will:

When cash is withdrawn from a checkable-deposit account at a bank:

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are:

Limits, Alternatives, and Choices

The Market System and the Circular Flow

Demand, Supply, and Market Equilibrium

Market Failures: Public Goods and Externalities

Governments Role and Government Failure

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

Fiscal Policy, Deficits, and Debt

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

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