FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 35: Money Creation

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 51

Multiple Choice

Review LaterAdd Note

Review Later

A commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent.The amount by which a single commercial bank and the amount by which the banking system can increase loans are

A) $30,000 and $150,000, respectively.
B) $50,000 and $250,000, respectively.
C) $50,000 and $500,000, respectively.
D) $100,000 and $500,000, respectively.

Correct Answer

verified

Show Answer

Question 52

Multiple Choice

Review LaterAdd Note

Review Later

In prosperous times, commercial banks are likely to hold very small amounts of excess reserves because

A) the Fed forces commercial banks to increase the money supply during economic expansions.
B) it is very costly to transfer funds between commercial banks and the central banks.
C) Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.
D) Federal Reserve Banks want to minimize their interest payments on such deposits.Topic: Money-Creating Transactions of a Commercial Bank

Correct Answer

verified

Show Answer

Question 53

Multiple Choice

Review LaterAdd Note

When loans are repaid at commercial banks,

An individual bank can safely lend out a multiple of its excess reserves, but the banking system can safely lend out only an amount equal to the excess reserves in the banking system.

When a commercial bank buys government (Treasury) bonds from the general public, money is created.

The commercial banking system, because of a recent change in the required reserve ratio from 8 percent to 10 percent, finds that it is $50 million short of reserves.If it is unable to obtain anyadditional reserves, it mustreduce deposits andmoney supply by

A bank has reserves of $30,000 and deposits of $120,000.If the reserve ratio is 10 percent, then this bank can lend out a maximum of $12,000 in new loans.

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

A check for $10,000 drawn on Bank A and deposited at Bank B will increase the excess reserves in Bank B by $10,000.

While the withdrawal of cash from banks does not affect money supply immediately, it will affect the banking system's lending capacity, which will eventually lead to a contraction in money supply.

When cash is deposited in a checkable-deposit account at a bank, there is

The monetary multiplier can also be called the spending multiplier.

Commercial banks monetize claims when they sell securities to Federal Reserve Banks.

Suppose the reserve requirement is 20 percent.If a bank has checkable deposits of $4 million and actual reserves of $1 million, it can safely lend out

Commercial banks increase the supply of money when they purchase either personal IOUs or government bonds from businesses and households.

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

Checkable deposits are a liability on a bank's balance sheet.

A single commercial bank must meet a 25 percent reserve requirement.If it initially has no excess reserves and then $2,000 in cash is deposited in the bank, it can increase its loans by a maximum of

(Last Word) Leverage in the financial system

Which of the following statements is correct?