Question 1

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

Question 2

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

Accepted Answer

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.E) A) and B)
F) C) and D)

Question 3

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. First National Bank can make new loans of up to

Accepted Answer

A)   $50,000.
B)   $41,000.
C)   $32,000.
D)   $27,000.E) B) and D)
F) A) and B)

Question 4

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.E) C) and D)
F) B) and C)

Question 5

Maximum checkable-deposit expansion in the banking system is equal to

Accepted Answer

A)   actual reserves minus required reserves.
B)   assets plus net worth and liabilities.
C)   excess reserves times the monetary multiplier.
D)   excess reserves divided by the monetary multiplier.E) C) and D)
F) B) and C)

Question 6

(1)   (2)   (3)   Legal Reserve Ratio (%)   Checkable Deposits  Actual Reserves 10$40,000$10,0002040,00010,0002540,00010,0003040,00010,000\begin{array} { | c | c | c | } \hline 	ext { (1)  } & 	ext { (2)  } & 	ext { (3)  } \\hline 	ext { Legal Reserve Ratio (\%)  } & 	ext { Checkable Deposits } & 	ext { Actual Reserves } \\hline 10 & \$ 40,000 & \$ 10,000 \\hline 20 & 40,000 & 10,000 \\hline 25 & 40,000 & 10,000 \\hline 30 & 40,000 & 10,000 \\hline\end{array} (1)   Legal Reserve Ratio (%)  10202530​ (2)   Checkable Deposits $40,00040,00040,00040,000​ (3)   Actual Reserves $10,00010,00010,00010,000​​  The accompanying table gives data for a commercial bank or thrift. When the legal reserve ratio is 10 percent, the money-creating potential of this single bank is

Accepted Answer

A)   $0.
B)   $6,000.
C)   $30,000.
D)   $60,000. E) C) and D)
F) B) and D)

Question 7

Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can expand the supply of money by a maximum of

Accepted Answer

A)   $75,000.
B)   $25,000.
C)   $5,000.
D)   $100,000.E) None of the above
F) C) and D)

Question 8

Commercial banks create money when they

Accepted Answer

A)   accept cash deposits from the public.
B)   purchase government securities from the central banks.
C)   create checkable deposits in exchange for IOUs.
D)   raise their interest rates.E) None of the above
F) A) and D)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

The amount of reserves that a commercial bank is required to hold is equal to

Accepted Answer

A)   the amount of its checkable deposits.
B)   the sum of its checkable deposits and time deposits.
C)   its checkable deposits multiplied by the reserve requirement.
D)   its checkable deposits divided by its total assets.E) All of the above
F) B) and D)

Question 11

If we both have checking accounts in the same commercial bank and I write a check in your favor for $200, the bank's

Accepted Answer

A)   balance sheet will be unchanged.
B)   reserves and checkable deposits will both decline by $200.
C)   liabilities will decline by $200, but its net worth will increase by $200.
D)   assets and liabilities will both decline by $200.E) None of the above
F) A) and B)

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire when a customer deposits a $12,000 check drawn on another bank?

Accepted Answer

A)   $3,000
B)   $6,000
C)   $9,000
D)   $12,000E) A) and C)
F) All of the above

Question 14

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 any additional reserves, it must reduce
Deposits and money supply by

Accepted Answer

A)   $250 million.
B)   $625 million.
C)   $500 million.
D)   $50 million.E) None of the above
F) A) and D)

Question 15

The accompanying balance sheet is for the First Federal Bank. Assume the required reserve ratio is 20 percent. The monetary multiplier is

Accepted Answer

A)   3.00.
B)   4.00.
C)   5.00.
D)   6.67.E) A) and B)
F) None of the above

Question 16

The two major income-earning assets of commercial banks are

Accepted Answer

A)   checkable deposits and bank reserves.
B)   loans and securities.
C)   checkable deposits and securities.
D)   reserves and loans.E) None of the above
F) All of the above

Question 17

The use of high leveraging by banks leads to the banking system's

Accepted Answer

A)   competitiveness.
B)   instability.
C)   vital role in the economy.
D)   monopoly power.E) None of the above
F) All of the above

Question 18

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.E) C) and D)
F) B) and C)

Question 19

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All ﬁgures are in billions. The commercial banking system has excess reserves of

Accepted Answer

A)   $9 billion.
B)   $7 billion.
C)   $6.1 billion.
D)   $5 billion.E) None of the above
F) A) and D)

Question 20

When bank loans are repaid and the banks hold on to the funds as additional reserves, then the banking system's
ability to "create" money decreases.

Accepted Answer

A) True 
 B)False

Exam 15: Money Creation

If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire when a customer deposits a $12,000 check drawn on another bank?

Correct Answer
verified

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. First National Bank can make new loans of up to

Correct Answer
verified

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All ﬁgures are in billions. The commercial banking system has excess reserves of

Correct Answer
verified

The two major income-earning assets of commercial banks are

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

The amount of reserves that a commercial bank is required to hold is equal to

Correct Answer
verified

Maximum checkable-deposit expansion in the banking system is equal to

Correct Answer
verified

Commercial banks create money when they

Correct Answer
verified

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.

Correct Answer
verified

If we both have checking accounts in the same commercial bank and I write a check in your favor for $200, the bank's

Correct Answer
verified

A bank's required reserves can be calculated by

Correct Answer
verified

When bank loans are repaid and the banks hold on to the funds as additional reserves, then the banking system's ability to "create" money decreases.

Correct Answer
verified

Correct Answer
verified

The use of high leveraging by banks leads to the banking system's

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can expand the supply of money by a maximum of

Correct Answer
verified

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 any additional reserves, it must reduce Deposits and money supply by

Correct Answer
verified

The accompanying balance sheet is for the First Federal Bank. Assume the required reserve ratio is 20 percent. The monetary multiplier is

Correct Answer
verified

Exam 15: Money Creation

If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire when a customer deposits a $12,000 check drawn on another bank?

Correct AnswerverifiedShow Answer

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. First National Bank can make new loans of up to

Correct AnswerverifiedShow Answer

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All ﬁgures are in billions. The commercial banking system has excess reserves of

Correct AnswerverifiedShow Answer

The two major income-earning assets of commercial banks are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The amount of reserves that a commercial bank is required to hold is equal to

Correct AnswerverifiedShow Answer

Maximum checkable-deposit expansion in the banking system is equal to

Correct AnswerverifiedShow Answer

Commercial banks create money when they

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

If we both have checking accounts in the same commercial bank and I write a check in your favor for $200, the bank's

Correct AnswerverifiedShow Answer

A bank's required reserves can be calculated by

Correct AnswerverifiedShow Answer

When bank loans are repaid and the banks hold on to the funds as additional reserves, then the banking system's ability to "create" money decreases.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The use of high leveraging by banks leads to the banking system's

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can expand the supply of money by a maximum of

Correct AnswerverifiedShow Answer

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 any additional reserves, it must reduce Deposits and money supply by

Correct AnswerverifiedShow Answer

The accompanying balance sheet is for the First Federal Bank. Assume the required reserve ratio is 20 percent. The monetary multiplier is

Correct AnswerverifiedShow Answer

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