Question 1

A commercial bank has excess reserves of $5000 and a required reserve ratio of 20 percent. It makes a loan of $6000 to a borrower. The borrower writes a check for $6000 that is deposited in another commercial bank. After the check clears, the first bank will be short of reserves in the amount of:

Accepted Answer

A)   $1000
B)   $1200
C)   $5000
D)   $6000

Question 2

When a bank accepts additional deposits, its required reserves and excess reserves will both increase.

Accepted Answer

A) True 
 B)False

Question 3

In the Federal funds market, a bank that needs to meet reserve requirements can borrow reserves, usually for a period:

Accepted Answer

A)   Overnight
B)   Of a week
C)   Of a month
D)   Of six months

Question 4

A bank's checkable deposits shrinks from $40 million to $33 million. What happens to its required reserves if the required reserve ratio is 3%?

Accepted Answer

A)   They fall by about $1.2 million
B)   They fall by about $10 million
C)   They fall by about $7 million
D)   They fall by about $0.2 million

Question 5

A commercial bank has excess reserves of $10,000 and a required reserve ratio of 20%. It grants a loan of $8,000 to a customer, who then writes out a check for $8,000 that is deposited in another bank. The first bank will find its reserves decrease by:

Accepted Answer

A)   $2,000
B)   $3,000
C)   $1,600
D)   $8,000

Question 6

"Leverage" in finance refers to the:

Accepted Answer

A)   Increase in profits or losses from an investment
B)   Use of one's own money in an investment
C)   Use of borrowing money in order to magnify returns from an investment
D)   Shifting of financial risk on to an insurer

Question 7

The monetary multiplier can also be called the spending multiplier.

Accepted Answer

A) True 
 B)False

Question 8

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars.  Refer to the data given above. If the required reserve ratio is 10 percent, the bank has excess reserves of:

Accepted Answer

A)   $28,000
B)   $22,000
C)   $18,000
D)   $16,000

Question 9

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 10

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 11

A bank is in the position to make loans when required reserves:

Accepted Answer

A)   Equal actual reserves
B)   Equal excess reserves
C)   Are less than actual reserves
D)   Are greater than actual reserves

Question 12

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent. How much are the commercial bank's checkable-deposit liabilities?

Accepted Answer

A)   $120 million
B)   $900 million
C)   $300 million
D)   $1,200 million

Question 13

A bank's required reserves can be calculated by:

Accepted Answer

A)   Dividing its excess reserves by its required reserves
B)   Dividing its required reserves by its excess reserves
C)   Multiplying its checkable-deposit liabilities by the reserve ratio
D)   Multiplying its checkable-deposit liabilities by its excess reserves

Question 14

When people withdraw money from their deposits in the banking system, the:

Accepted Answer

A)   Excess reserves of the banking system will decrease
B)   Excess reserves of the banking system will increase
C)   Excess reserves of the banking system will not be affected
D)   Money supply will immediately decrease

Question 15

When a bank's loan defaults, then the bank's reserves will decrease.

Accepted Answer

A) True 
 B)False

Question 16

The commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are subsequently 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 17

Answer the question based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars:  Refer to the above data. 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 18

A bank owns a 10-story office building. In the bank's balance sheet, this would be listed as part of:

Accepted Answer

A)   Assets
B)   Liabilities
C)   Capital stock
D)   Net worth

Question 19

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars.  Refer to the data given above. This bank has liabilities and net worth totaling:

Accepted Answer

A)   $400 million
B)   $440 million
C)   $550 million
D)   $580 million

Question 20

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

Exam 15: Money Creation

"Leverage" in finance refers to the:

Correct AnswerverifiedShow Answer

The monetary multiplier can also be called the spending multiplier.

Correct AnswerverifiedShow Answer

When people withdraw money from their deposits in the banking system, the:

Correct AnswerverifiedShow Answer

A commercial bank has excess reserves of $10,000 and a required reserve ratio of 20%. It grants a loan of $8,000 to a customer, who then writes out a check for $8,000 that is deposited in another bank. The first bank will find its reserves decrease by:

Correct AnswerverifiedShow Answer

A commercial bank has excess reserves of $5000 and a required reserve ratio of 20 percent. It makes a loan of $6000 to a borrower. The borrower writes a check for $6000 that is deposited in another commercial bank. After the check clears, the first bank will be short of reserves in the amount of:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A bank owns a 10-story office building. In the bank's balance sheet, this would be listed as part of:

Correct AnswerverifiedShow Answer

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. If the required reserve ratio is 10 percent, the bank has excess reserves of:

Correct AnswerverifiedShow Answer

A bank's net worth is the:

Correct AnswerverifiedShow Answer

In the Federal funds market, a bank that needs to meet reserve requirements can borrow reserves, usually for a period:

Correct AnswerverifiedShow Answer

A bank's required reserves can be calculated by:

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 bank's checkable deposits shrinks from $40 million to $33 million. What happens to its required reserves if the required reserve ratio is 3%?

Correct AnswerverifiedShow Answer

When a bank accepts additional deposits, its required reserves and excess reserves will both increase.

Correct AnswerverifiedShow Answer

When bankers hold excess reserves:

Correct AnswerverifiedShow Answer

Answer the question based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars: Refer to the above data. The claims of owners in the commercial banking system are equal to:

Correct AnswerverifiedShow Answer

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent. How much are the commercial bank's checkable-deposit liabilities?

Correct AnswerverifiedShow Answer

When a bank's loan defaults, then the bank's reserves will decrease.

Correct AnswerverifiedShow Answer

A bank is in the position to make loans when required reserves:

Correct AnswerverifiedShow Answer

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. This bank has liabilities and net worth totaling:

Correct AnswerverifiedShow Answer

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