Question 1

Assume that the required reserve ratio is 5 percent.If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess reserves equal

Accepted Answer

A) $0 million. 
B) $2 million. 
C) $5 million. 
D) $6 million.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

The accompanying table gives data for a commercial bank or thrift.In row 2, the number appropriate for space X is

Accepted Answer

A) $20,000. 
B) $60,000. 
C) $200,000. 
D) $100,000.

Question 4

Actual reserves equal required reserves plus excess reserves.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following transactions has the immediate effect of increasing the money supply M1?

Accepted Answer

A) A commercial bank accepts deposits from its customers. 
B) A commercial bank lends some excess reserves in the federal funds market. 
C) A commercial bank increases its reserve holdings. 
D) A commercial bank buys government securities from the general public.

Question 6

A bank's net worth is the

Accepted Answer

A) measure of its profitability. 
B) value of its vault cash and loan portfolio. 
C) claims of its owners against the bank's assets. 
D) claims of its creditors against the bank's assets.

Question 7

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

Accepted Answer

A) borrowing from other banks. 
B) buying Treasury securities from the Fed. 
C) receiving additional deposits. 
D) borrowing from the Fed.

Question 8

If the reserve ratio is 15 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the relevant monetary multiplier for the banking system will be

Accepted Answer

A) 3½. 
B) 4. 
C) 5. 
D) 6.67.

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

The higher the reserve requirement, the lower is the monetary multiplier.

Accepted Answer

A) True 
 B)False

Question 11

If a commercial banking system has $200,000 in checkable deposits, actual reserves of $70,000, and a reserve ratio of 20 percent, then the banking system can expand the supply of money by a maximum of $180,000.Topic: The Monetary Multiplier

Accepted Answer

A) True 
 B)False

Question 12

Excess reserves are the amount by which required reserves exceed actual reserves.

Accepted Answer

A) True 
 B)False

Question 13

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

Accepted Answer

A) prime rate. 
B) discount rate. 
C) federal funds rate. 
D) treasury bill rate.Topic: Money-Creating Transactions of a Commercial Bank

Question 14

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

Accepted Answer

A) profits and risk 
B) liquidity and profits 
C) assets and liabilities 
D) buying and selling government securities

Question 15

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

Accepted Answer

A) $37,500. 
B) $300,000. 
C) $2.4 million. 
D) $3.2 million.

Question 16

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.

Accepted Answer

A) True 
 B)False

Question 17

Money is "created" when

Accepted Answer

A) a depositor gets cash from the bank's ATM. 
B) a bank accepts deposits from its customers. 
C) people receive loans from their banks. 
D) people spend the incomes that they receive.

Question 18

The primary purpose of the legal reserve requirement is to

Accepted Answer

A) prevent banks from hoarding too much vault cash. 
B) provide a means by which the monetary authorities can influence the lending ability of commercial banks. 
C) prevent commercial banks from earning excess profits. 
D) provide a dependable source of interest income for commercial banks.Topic: Money-Creating Transactions of a Commercial Bank

Question 19

When bankers hold excess reserves,

Accepted Answer

A) the size of the monetary multiplier increases. 
B) the money-creating potential of the banking system increases. 
C) the money-creating potential of the banking system decreases. 
D) there is no change in the money-creating potential of the banking system.

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 35: Money Creation

Assume that the required reserve ratio is 5 percent.If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess reserves equal

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

The accompanying table gives data for a commercial bank or thrift.In row 2, the number appropriate for space X is

Actual reserves equal required reserves plus excess reserves.

Which of the following transactions has the immediate effect of increasing the money supply M1?

A bank's net worth is the

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

If the reserve ratio is 15 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the relevant monetary multiplier for the banking system will be

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.

The higher the reserve requirement, the lower is the monetary multiplier.

If a commercial banking system has $200,000 in checkable deposits, actual reserves of $70,000, and a reserve ratio of 20 percent, then the banking system can expand the supply of money by a maximum of $180,000.Topic: The Monetary Multiplier

Excess reserves are the amount by which required reserves exceed actual reserves.

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

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

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.

Money is "created" when

The primary purpose of the legal reserve requirement is to

When bankers hold excess reserves,

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