Question 1

Suppose a bank has $300,000 in deposits and a required reserve ratio of 15 percent.Then required reserves are

Accepted Answer

A)  $4,500.
B)  $45,000.
C)  $255,000.
D)  $300,000. B

Question 2

A higher reserve requirement

Accepted Answer

A)  Further limits deposit creation.
B)  Increases the ability of banks to make loans.
C)  Lowers the interest rate.
D)  Increases the borrowing capability of borrowers. A

Question 3

Why is barter less efficient than using money?

Accepted Answer

Barter is the direct exchange of one good for another good.In order for a trade to occur,each individual must want what another individual has to trade.This will not always occur.In addition,some goods are difficult to transport and divide into smaller units.Some goods also spoil easily.Without money,acquiring goods is much more complicated and time-consuming.

Question 4

Money is functioning as a standard of value when you

Accepted Answer

A)  Use it to compare two houses that are different prices.
B)  Buy jeans at the mall.
C)  Buy a rare baseball card that you expect will increase in value.
D)  Trade a cup of sugar for two eggs.

Question 5

Students Bank and Trust has zero excess reserves.Ceteris paribus,if the required reserve ratio decreases.

Accepted Answer

A)  Required reserves will increase.
B)  Bank assets will decrease.
C)  The bank will be able to make additional loans.
D)  The money multiplier will decrease.

Question 6

Suppose Megan withdraws $75 from her savings account and deposits it into her checking account.This transaction causes M1 to

Accepted Answer

A)  Increase by $75 and M2 to remain the same.
B)  Decrease by $75 and M2 to remain the same.
C)  Increase by $75 and M2 to decrease by $75.
D)  Remain the same and M2 to increase by $75.

Question 7

Table 13.2 ABC Bank Balance Sheet
 Refer to Table 13.2.With a required reserve ratio of 10 percent,ABC Bank would have excess reserves of

Accepted Answer

A)  $20,000.
B)  $40,000.
C)  $60,000.
D)  $140,000.

Question 8

The term fractional reserves refers to

Accepted Answer

A)  The fact that reserves are split among many banks.
B)  Reserves being a small fraction of total transactions account balances.
C)  The ratio of required reserves to total loans.
D)  The ratio of excess reserves to total loans.

Question 9

Suppose a banking system has a required reserve ratio of 0.15.How much can the money supply increase in response to a $1 billion increase in excess reserves for the whole banking system?

Accepted Answer

A)  $1 billion.
B)  $150 million.
C)  $15 billion.
D)  $6.67 billion.

Question 10

Each bank can lend an amount equal to its total reserves and no more.

Accepted Answer

A) True 
 B)False

Question 11

What are the two essential functions banks perform for the economy,and why are they important?

Accepted Answer

The answer of What are the two essential functions banks...

Question 12

Which of the following is included in M1?

Accepted Answer

A)  Currency in circulation.
B)  Currency in a bank's vault.
C)  Credit card balances.
D)  All of the choices are correct.

Question 13

Initially a bank has a required reserve ratio of 20 percent and no excess reserves.If $5,000 is deposited into the bank,then initially,ceteris paribus,

Accepted Answer

A)  This bank can increase its loans by $5,000.
B)  This bank can increase its loans by $4,000.
C)  Total reserves will increase by $4,000.
D)  Required reserves will increase by $5,000.

Question 14

Suppose a banking system has $120 million in deposits,a required reserve ratio of 20 percent,and total bank reserves for the whole system of $100 million.Then the potential increase in deposit creation for the whole system is equal to

Accepted Answer

A)  $120 million.
B)  $76 million.
C)  $0.
D)  $380 million.

Question 15

Transactions account balances are included in

Accepted Answer

A)  M1 only.
B)  M2 only.
C)  Both M1 and M2.
D)  None of the choices are correct.

Question 16

Suppose a bank has $200,000 in deposits,a required reserve ratio of 25 percent,and bank reserves of $100,000.Then this bank can make new loans in the amount of

Accepted Answer

A)  $100,000.
B)  $50,000.
C)  $25,000.
D)  $20,000.

Question 17

Which of the following is not a characteristic of money?

Accepted Answer

A)  Mechanism for barter.
B)  Medium of exchange.
C)  Store of value.
D)  Standard of value.

Question 18

When cash or coins are initially deposited into a bank,

Accepted Answer

A)  Neither the composition nor the size of the money supply changes.
B)  The composition of the money supply does not change,but the size of the money supply does change.
C)  The composition of the money supply changes,but the size of the money supply does not change.
D)  Both the composition and the size of the money supply change.

Question 19

The banking system can lend the sum of its excess reserves because

Accepted Answer

A)  Banks are required to keep only a fraction of deposits on reserve.
B)  Bank assets are greater than bank liabilities.
C)  Required reserves are a leakage from the banking system.
D)  The money multiplier is less than 1.

Question 20

Suppose a bank has $500,000 in deposits and a required reserve ratio of 10 percent.Then required reserves are

Accepted Answer

A)  $5,000,000.
B)  $500,000.
C)  $50,000.
D)  $10,000.

Exam 13: Money and Banks