Question 1

European banks began with which of the following?

Accepted Answer

A)  Monarchs were the first bankers, lending out cash to help the poor learn a craft. 
B)  Churches were the first bankers, lending out cash to help the poor learn a craft. 
C)  Goldsmiths were the first bankers, and the paper receipts they issued for gold held on deposit became valued as money. 
D)  Fishermen were the first bankers, and the paper receipts they issued for the fish they stored in the hulls of their ships became valued as money.

Question 2

Suppose a bank has checkable deposits of $100,000 and the required reserve ratio is 20 percent. If the bank currently has $100,000 in reserves, it could lend out as much as:

Accepted Answer

A)  $100,000. 
B)  $400,000. 
C)  $80,000. 
D)  $20,000.

Question 3

Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is 10 percent. If it accepts a $1,000 cash deposit, then, excluding the $1,000 initial deposit, the banking system can increase the money supply by:

Accepted Answer

A)  $900. 
B)  $910. 
C)  $1,000. 
D)  $9,000.

Question 4

Assume a simplified banking system in which all banks are subject to a uniform reserve requirement of 20 percent and checkable deposits are the only from of money. A bank that received a new checkable deposit of $10,000 would be able to extend new loans up to a maximum of:

Accepted Answer

A)  $2,000. 
B)  $8,000. 
C)  $9,000. 
D)  $10,000.

Question 5

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is:

Accepted Answer

A)  $200,000. 
B)  $80,000. 
C)  $300,000. 
D)  $20,000.

Question 6

When reserve requirements are increased, the:

Accepted Answer

A)  excess reserves of commercial banks will decrease. 
B)  excess reserves of commercial banks will increase. 
C)  U.S. Treasury will have to borrow additional funds. 
D)  money supply will rise.

Question 7

Which of the following is an appropriate monetary policy if the Fed wants to increase the money supply?

Accepted Answer

A)  an increase in the required reserve ratio 
B)  an increase in the discount rate 
C)  purchases of bonds in open market operations 
D)  an increase in taxes on interest income

Question 8

The discount rate is the interest rate charged by:

Accepted Answer

A)  major banks to their best customers. 
B)  banks for overnight loans to other banks. 
C)  the Fed on loans of reserves to banks. 
D)  banks for loans of less than 24 hours.

Question 9

Assume all banks in the system started have a 10 percent required reserve ratio and the Fed made a $20,000 open market purchase. The result would be a(n):

Accepted Answer

A)  $200,000 expansion of the money supply. 
B)  $20,000 expansion of the money supply. 
C)  $20,000 contraction of the money supply. 
D)  infinite contraction of the money supply.

Question 10

A bank creates money when it:

Accepted Answer

A)  gets new checkable deposits which the depositor formerly held as cash. 
B)  has a loan paid off, which creates excess reserves for the bank. 
C)  makes a loan from its excess reserves. 
D)  holds back excess reserves because of an increase in the required reserve ratio.

Question 11

In a simplified banking system subject to a 25 percent required reserve ratio, a $1,000 open-market purchase by the Fed would cause the money supply to:

Accepted Answer

A)  increase by $1,000. 
B)  decrease by $1,000. 
C)  decrease by $4,000. 
D)  increase by $4,000.

Question 12

If there is no one who is interested in borrowing from a bank:

Accepted Answer

A)  the bank's excess reserves will be zero. 
B)  there will be no process of money creation. 
C)  the required reserve ratio must be equal to zero. 
D)  the required reserve ratio must be equal to 100 percent.

Question 13

Which of the following does not appear on the asset side of a bank's balance sheet?

Accepted Answer

A)  required reserves 
B)  checkable deposits 
C)  loans 
D)  excess reserves

Question 14

The maximum change in the money supply due to an initial change in the excess reserves banks hold is called the:

Accepted Answer

A)  fractional reserve banking system. 
B)  money multiplier. 
C)  required reserve ratio. 
D)  open market operations.

Question 15

Assume that the Paris First National Bank currently has deposits of $20 million. If the current required reserve ratio is raised from 20 percent to 40 percent, then:

Accepted Answer

A)  Paris First National Bank must increase its required reserves from $4 million to $8 million. 
B)  required reserves will decrease from $16 million to $12 million. 
C)  excess reserves will automatically increase by $20 million. 
D)  Paris First National Bank must close out 4 million in loans.

Question 16

__________ plus __________ plus __________ equals ___________. ​

Accepted Answer

A)  ​ Total deposits, loans, required reserves, excess reserves. 
B)  ​ Loans, required reserves, excess reserves, total deposits. 
C)  ​ Required reserves, total deposits, excess reserves, loans. 
D)  ​ Excess reserves, loans, total deposits, required reserves.

Question 17

The Fed's countercyclical policy tools to eliminate a recession include lowering:

Accepted Answer

A)  the discount rate, raising the Fed funds rate, and selling government bonds on the open market. 
B)  the required reserve ratio, raising the discount rate, and selling government bonds on the open market. 
C)  the required reserve ratio, raising the discount rate, and buying government bonds on the open market. 
D)  the required reserve ratio, lowering the discount rate, and buying government bonds on the open market.

Question 18

Which of the following correctly describes fractional reserve banking?

Accepted Answer

A)  The federal government only insures a fraction of the deposits at most banks. 
B)  Banks keep a fraction of their loans with other banks to maintain the quality of their loan portfolio. 
C)  Banks can loan out all but a small fraction of its own money, but must hold all money deposited at the bank on reserve in bank vaults. 
D)  Banks can loan out all but a fraction of its own money, but must hold all money deposited at the bank on reserve in bank vaults.

Question 19

Exhibit 15-1 Balance sheet of First Iliad State Bank

In Exhibit 15-1, if the required reserve ratio is raised to 15 percent, First Iliad State will have to convert loans worth:

Accepted Answer

A)  $9,000,000 to required reserves. 
B)  $1,500,000 to required reserves. 
C)  $500,000 to required reserves. 
D)  $1,000,000 to required reserves.

Question 20

The discount rate is the interest rate:

Accepted Answer

A)  commercial banks charge their low-risk customers for a loan. 
B)  savings and loan associations pay for using savings deposit funds. 
C)  the U.S. Treasury pays individuals who buy Treasury bonds in denominations of $10,000 or more. 
D)  the Federal Reserve charges banking institutions for borrowing its funds.

Exam 25: Money Creation

European banks began with which of the following?

Suppose a bank has checkable deposits of $100,000 and the required reserve ratio is 20 percent. If the bank currently has $100,000 in reserves, it could lend out as much as:

Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is 10 percent. If it accepts a $1,000 cash deposit, then, excluding the $1,000 initial deposit, the banking system can increase the money supply by:

Assume a simplified banking system in which all banks are subject to a uniform reserve requirement of 20 percent and checkable deposits are the only from of money. A bank that received a new checkable deposit of $10,000 would be able to extend new loans up to a maximum of:

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is:

When reserve requirements are increased, the:

Which of the following is an appropriate monetary policy if the Fed wants to increase the money supply?

The discount rate is the interest rate charged by:

Assume all banks in the system started have a 10 percent required reserve ratio and the Fed made a $20,000 open market purchase. The result would be a(n) :

A bank creates money when it:

In a simplified banking system subject to a 25 percent required reserve ratio, a $1,000 open-market purchase by the Fed would cause the money supply to:

If there is no one who is interested in borrowing from a bank:

Which of the following does not appear on the asset side of a bank's balance sheet?

The maximum change in the money supply due to an initial change in the excess reserves banks hold is called the:

Assume that the Paris First National Bank currently has deposits of $20 million. If the current required reserve ratio is raised from 20 percent to 40 percent, then:

plus plus equals _.

The Fed's countercyclical policy tools to eliminate a recession include lowering:

Which of the following correctly describes fractional reserve banking?

Exhibit 15-1 Balance sheet of First Iliad State Bank In Exhibit 15-1, if the required reserve ratio is raised to 15 percent, First Iliad State will have to convert loans worth:

The discount rate is the interest rate:

Exam 25: Money Creation

European banks began with which of the following?

Suppose a bank has checkable deposits of $100,000 and the required reserve ratio is 20 percent. If the bank currently has $100,000 in reserves, it could lend out as much as:

Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is 10 percent. If it accepts a $1,000 cash deposit, then, excluding the $1,000 initial deposit, the banking system can increase the money supply by:

Assume a simplified banking system in which all banks are subject to a uniform reserve requirement of 20 percent and checkable deposits are the only from of money. A bank that received a new checkable deposit of $10,000 would be able to extend new loans up to a maximum of:

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is:

When reserve requirements are increased, the:

Which of the following is an appropriate monetary policy if the Fed wants to increase the money supply?

The discount rate is the interest rate charged by:

Assume all banks in the system started have a 10 percent required reserve ratio and the Fed made a $20,000 open market purchase. The result would be a(n) :

A bank creates money when it:

In a simplified banking system subject to a 25 percent required reserve ratio, a $1,000 open-market purchase by the Fed would cause the money supply to:

If there is no one who is interested in borrowing from a bank:

Which of the following does not appear on the asset side of a bank's balance sheet?

The maximum change in the money supply due to an initial change in the excess reserves banks hold is called the:

Assume that the Paris First National Bank currently has deposits of $20 million. If the current required reserve ratio is raised from 20 percent to 40 percent, then:

__________ plus __________ plus __________ equals ___________. ​

The Fed's countercyclical policy tools to eliminate a recession include lowering:

Which of the following correctly describes fractional reserve banking?

Exhibit 15-1 Balance sheet of First Iliad State Bank In Exhibit 15-1, if the required reserve ratio is raised to 15 percent, First Iliad State will have to convert loans worth:

The discount rate is the interest rate:

plus plus equals _.