Question 1

When a bank grants a loan to a customer who gets the funds and keeps them at home for a while, the money supply will

Accepted Answer

A)   not change because demand deposits did not go up.
B)   not change because the money was not spent.
C)   increase.
D)   decrease.

Question 2

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All ﬁgures are in billions of dollars. The claims of owners in the commercial banking
System are equal to

Accepted Answer

A)   $60 billion.
B)   $100 billion.
C)   $135 billion.
D)   $150 billion.

Question 3

The commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be

Accepted Answer

A)   10 percent.
B)   20 percent.
C)   25 percent.
D)   30 percent.

Question 4

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

Accepted Answer

A)   a decrease in the money supply M1.
B)   an increase in the money supply M1.
C)   an increase in the bank's net worth.
D)   an increase in the bank's liabilities.

Question 5

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million incess reserves. The maximum amount of new money that the banking system could create is about
A) $110 million.
B) $330 million.
C) $660 million.
D) $1,353 million.

Accepted Answer

cess reserves. The maximum amo...

Question 6

The claims of the owners of a bank against the bank's assets are called

Accepted Answer

A)   working capital.
B)   assets.
C)   net worth.
D)   liabilities.

Question 7

A commercial bank has checkable-deposit liabilities of $50,000 and a required reserve ratio of 20 percent. What is the amount of required reserves?

Accepted Answer

A)   $10,000
B)   $50,000
C)   $250,000
D)   $1 million

Question 8

Which one of the following is presently a major deterrent to bank panics in the United States?

Accepted Answer

A)   the legal reserve requirement
B)   the fractional reserve system
C)   the gold standard
D)   deposit insurance

Question 9

A banker must strike a balance in the pursuit of two conﬂicting goals: proﬁts and liquidity. In terms of asset management, this translates into achieving a balance between holding

Accepted Answer

A)   loans and securities on one hand and reserves on the other.
B)   loans on one hand and securities on the other.
C)   checkable deposits on one hand and securities on the other.
D)   checkable deposits on one hand and reserves on the other.

Question 10

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?

Accepted Answer

A)   $160,000 in checkable-deposit liabilities and $48,000 in reserves
B)   $140,000 in checkable-deposit liabilities and $46,000 in reserves
C)   $120,000 in checkable-deposit liabilities and $32,000 in reserves
D)   $100,000 in checkable-deposit liabilities and $30,000 in reserves

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

A commercial bank buys a $50,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. The money supply has

Accepted Answer

A)   not been affected.
B)   decreased by $50,000.
C)   increased by $50,000.
D)   increased by $50,000 multiplied by the reserve ratio.

Question 13

A depositor places $5,000 in cash in a commercial bank, and the reserve ratio is 20 percent; the bank sends the $5,000 to the Federal Reserve Bank. As a result, the reserves and excess reserves of the bank have been
Increased by

Accepted Answer

A)   $5,000 and $1,000, respectively.
B)   $5,000 and $4,000, respectively.
C)   $5,000 and $5,000, respectively.
D)   $4,000 and $4,000, respectively.

Question 14

Deﬁne the reserve ratio.

Accepted Answer

The reserve ratio is the speciﬁed percen...

Question 15

Which of the following is correct?

Accepted Answer

A)   Both the granting and repaying of bank loans expand the aggregate money supply.
B)   Granting and repaying bank loans do not affect the money supply.
C)   Granting a bank loan destroys money; repaying a bank loan creates money.
D)   Granting a bank loan creates money; repaying a bank loan destroys money.

Question 16

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All ﬁgures are in billions. The commercial banking system has excess reserves of

Accepted Answer

A)   $0 billion.
B)   $30 billion.
C)   $60 billion.
D)   $70 billion.

Question 17

If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement, the bank will

Accepted Answer

A)   have $45 of additional excess reserves.
B)   be capable of lending an additional $500.
C)   be capable of lending no more than an additional $50.
D)   have $50 of required reserves.

Question 18

Which of the following factors can contribute to a reduction in the money supply?

Accepted Answer

A)   bank purchases of Treasury bonds from the Fed
B)   bank sales of government bonds to meet liquidity demands
C)   banks expanding the approval and granting of loans
D)   a decrease in the required reserve ratio

Question 19

When a check is drawn against bank A and deposited in another bank, the ﬁrst bank loses reserves as the check
is cleared. Yet the check collection involves no loss of reserves by the banking system. Explain what signiﬁcance
this has for the lending ability of the system as a whole.

Accepted Answer

The other bank in the system has had an ...

Question 20

When banks borrow and lend reserves in the federal funds market,

Accepted Answer

A)   the total reserves of the banking system increase.
B)   the total reserves of the banking system shrink.
C)   the total reserves of the banking system stay the same.
D)   the reserves of the banking system become part of M1.

Exam 15: Money Creation

Which of the following factors can contribute to a reduction in the money supply?

Correct AnswerverifiedShow Answer

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All ﬁgures are in billions of dollars. The claims of owners in the commercial banking System are equal to

Correct AnswerverifiedShow Answer

When a check is drawn against bank A and deposited in another bank, the ﬁrst bank loses reserves as the check is cleared. Yet the check collection involves no loss of reserves by the banking system. Explain what signiﬁcance this has for the lending ability of the system as a whole.

Correct AnswerverifiedThe other bank in the system has had an ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million incess reserves. The maximum amount of new money that the banking system could create is about A) $110 million. B) $330 million. C) $660 million. D) $1,353 million.

Correct Answerverifiedcess reserves. The maximum amo...View AnswerShow Answer

When a bank grants a loan to a customer who gets the funds and keeps them at home for a while, the money supply will

Correct AnswerverifiedShow Answer

A depositor places $5,000 in cash in a commercial bank, and the reserve ratio is 20 percent; the bank sends the $5,000 to the Federal Reserve Bank. As a result, the reserves and excess reserves of the bank have been Increased by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When banks borrow and lend reserves in the federal funds market,

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Deﬁne the reserve ratio.

Correct AnswerverifiedThe reserve ratio is the speciﬁed percen...View AnswerShow Answer

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All ﬁgures are in billions. The commercial banking system has excess reserves of

Correct AnswerverifiedShow Answer

Which one of the following is presently a major deterrent to bank panics in the United States?

Correct AnswerverifiedShow Answer

The claims of the owners of a bank against the bank's assets are called

Correct AnswerverifiedShow Answer

A commercial bank has checkable-deposit liabilities of $50,000 and a required reserve ratio of 20 percent. What is the amount of required reserves?

Correct AnswerverifiedShow Answer

A commercial bank buys a $50,000 government security from a securities dealer. The bank pays the dealer by increasing the dealer's checkable deposit balance by $50,000. The money supply has

Correct AnswerverifiedShow Answer

The commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be

Correct AnswerverifiedShow Answer

A banker must strike a balance in the pursuit of two conﬂicting goals: proﬁts and liquidity. In terms of asset management, this translates into achieving a balance between holding

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement, the bank will

Correct AnswerverifiedShow Answer

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cess reserves. The maximum amo...
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The reserve ratio is the speciﬁed percen...
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