Exam 15: Money Creation

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. If the commercial banking system actually loans out the maximum amount it is able to lend, excess reserves will fall:

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million in excess reserves. The maximum amount of new money which the banking system could create is about:

If the banking system has $20 billion in excess reserves and if the reserve ratio is 10 percent, the system can increase its loans by a maximum of $22 billion.

Which of the following factors can contribute to a further reduction in the money supply in addition to a massive withdrawal of cash from banks?

When a bank grants a loan, the money supply M1 will increase, even if the funds from the loan are not spent.

Answer the question based on the following balance sheet for the First National Bank. Assume the reserve ratio is 15 percent: Refer to the above data. If the balance sheet was for the whole commercial banking system rather than a single bank, then loans and deposits could expand by a maximum of approximately:

A bank can grant loans up to the amount of its actual reserves.

The following table is the consolidated balance sheet for the commercial banking system. All figures are in billions. Assume that the required reserve ratio is 10 percent: Refer to the above information. If there is a deposit of $10 billion of new currency into checking accounts in the banking system, excess reserves will increase by:

A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank. The reserve ratio is 10%. The bank then lends $1,500 to a borrower. As a consequence of these transactions the bank's excess reserves are:

During a recession when banks tend to increase their excess reserves, the money supply M1 decreases.

Banks' borrowed funds come mostly from:

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

A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part of:

When bank loans are repaid and the banks hold on to the funds as additional reserves, then the banking system's ability to "create" money decreases.

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 bank above will end up with excess reserves of:

The Norfolk Bank has $18,000 in excess reserves and the reserve ratio is 20 percent. How much checkable deposits and reserves does this bank hold?

Assume that the reserve ratio is 20 percent and banks in the system are loaning out all their excess reserve. If people collectively cash out $10 billion from their checking accounts, then the lending ability of the banking system will be:

The granting of a $10,000 loan and the purchase of a $10,000 government bond from a securities dealer by a commercial bank would have the same effect on the money supply.

The required-reserve ratio is equal to:

Answer the question based on the following balance sheet for the First National Bank. Assume the reserve ratio is 15 percent: Refer to the data above. If a check for $14,000 is drawn and cleared against this bank, then its reserves and checkable deposits will be, respectively: