Exam 15: Money Creation

The balance sheet below is for the First Federal Bank. Assume the required reserve ratio is 20 percent. Refer to the above information. If the original bank balance sheet was for the whole commercial banking system rather than a single bank, loans and deposits could have been expanded by a maximum of:

A depositor places $10,000 in cash in a commercial bank, where the required reserve ratio is 10 percent. The bank sends the $10,000 to its Federal Reserve Bank. As a result, the actual reserves, required reserves, and excess reserves of the bank have been increased by:

When a bank grants a loan to a customer who then keeps the funds in her checking account at that bank, then the bank's:

If all depositors of a bank were to try withdrawing all their deposits at the same time, a good solid bank should be able to meet all the withdrawals.

Only one commercial bank in the banking system has an excess reserve, and its excess reserve is $400,000. This bank makes a new loan of $300,000 and keeps an excess reserve of $100,000. If the required reserve ratio for all banks is 12.5 percent, the potential expansion of the money supply from this new loan is:

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. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of another bank, then the actual reserves of the bank above will:

A commercial bank has no excess reserves until a depositor places $5000 in cash at the bank. The commercial bank then lends $4000 to a borrower. As a consequence of these transactions the size of the money supply has:

If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetary multiplier for the banking system will be:

If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire when a customer deposits a $12,000 check drawn on another bank?

A bank can get additional excess reserves by doing any of the following, except:

A depositor places $5,000 in cash in a commercial bank, and the reserve ratio is 20 percent; the bank sends the $5,000 to the Federal Reserve Bank. As a result, the reserves and excess reserves of the bank have been increased, respectively, by:

When a check is cleared against a bank, the bank will lose:

The maximum deposit creation that can be made in the banking system is equal to the excess reserves divided by the required reserve ratio.

A commercial bank sells a $10,000 government bond to a securities dealer. The dealer pays for the bond in cash, which the bank adds to its vault cash. The money supply has:

The basic purpose of imposing legal reserve requirements on commercial banks is to:

Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can expand the supply of money by a maximum of:

The relative importance of various asset items on a commercial bank's balance sheet reflects a bank's pursuit of which two conflicting goals?

Money is "created" when:

What percent of the money that a typical modern bank invests comes from borrowing?

Answer the question based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars: Refer to the above data. The maximum amount by which the commercial banking system can expand the supply of money by lending is: