Question 1

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 respectively:

Accepted Answer

A)   $30,000 and $150,000
B)   $50,000 and $250,000
C)   $50,000 and $500,000
D)   $100,000 and $500,000E) None of the above
F) B) and C)

Question 2

When a bank grants a loan to a customer who gets the funds and keeps it at home for a while, then 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)   DecreaseE) None of the above
F) A) and B)

Question 3

If banks borrow from the Fed, the banking system's reserves will increase, but if banks borrow from one another, the banking system's reserves will not change.

Accepted Answer

A) True 
 B)False

Question 4

The fractional reserve system of banking started when goldsmiths began:

Accepted Answer

A)   Accepting deposits of gold for safe storage
B)   Charging people who deposited their gold
C)   Using deposited gold to produce products for sale to others
D)   Issuing paper receipts in excess of the amount of gold heldE) None of the above
F) All of the above

Question 5

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 millionE) B) and C)
F) A) and D)

Question 6

Which of the following are liabilities to a bank?

Accepted Answer

A)   Capital stock and reserves
B)   Property and capital stock
C)   Vault cash and demand deposits
D)   Demand and time depositsE) A) and D)
F) A) and C)

Question 7

If a bank has excess reserves of $100,000, then it can lend out only up to $100,000; but if the banking system has excess reserves of $100,000, then the system can make additional loans totaling more than $100,000.

Accepted Answer

A) True 
 B)False  True

Question 8

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 9

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are:

Accepted Answer

A)   $50,000
B)   $100,000
C)   $900,000
D)   $1 millionE) B) and D)
F) None of the above

Question 10

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

Accepted Answer

A)   Loans
B)   Net worth
C)   Liabilities
D)   Required reservesE) None of the above
F) A) and D)

Question 11

A commercial bank's checkable-deposit liabilities can be estimated by:

Accepted Answer

A)   Dividing its required reserves by its excess reserves
B)   Dividing its required reserves by the reserve ratio
C)   Multiplying its required reserves by its excess reserves
D)   Multiplying its required reserves by the reserve ratioE) All of the above
F) A) and D)

Question 12

Other things being equal, an expansion of commercial bank lending:

Accepted Answer

A)   Changes the composition, but not the size, of the money supply
B)   Is desirable during a period of demand-pull inflation
C)   Reduces the money supply
D)   Increases the money supplyE) All of the above
F) A) and C)

Question 13

The primary purpose of the reserve requirements for banks is not really to ensure liquidity to meet withdrawals, but rather to allow the Fed some control over the money supply.

Accepted Answer

A) True 
 B)False  True

Question 14

When a bank buys government securities from the Fed, then the bank's ability to "create money" will be reduced.

Accepted Answer

A) True 
 B)False

Question 15

A checkable deposit at a commercial bank is a(n) :

Accepted Answer

A)   Liability to the depositor and an asset to the bank
B)   Liability to both the depositor and the bank
C)   Asset to the depositor and a liability to the bank
D)   Asset to both the depositor and the bankE) A) and C)
F) All of the above C

Question 16

The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system:

Accepted Answer

A)   Has been able to reduce the vulnerability of banks to "runs" or "panics"
B)   Can increase its demand deposits by a multiple of its excess reserves
C)   Cannot increase its demand deposits by a multiple of its excess reserves
D)   Has been based on the fractional reserve system of bankingE) A) and B)
F) A) and C)

Question 17

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 total assets of:

Accepted Answer

A)   $340 million
B)   $440 million
C)   $520 million
D)   $580 millionE) A) and B)
F) A) and C)

Question 18

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 ratioE) C) and D)
F) B) and C)

Question 19

When cash is withdrawn from a checkable-deposit account at a bank:

Accepted Answer

A)   The money supply M1 increases
B)   The money supply M1 decreases
C)   The money supply M1 does not change but its composition changes
D)   The composition of money supply M1 does not changeE) B) and C)
F) None of the above

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 15: Money Creation

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 respectively:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If banks borrow from the Fed, the banking system's reserves will increase, but if banks borrow from one another, the banking system's reserves will not change.

Correct AnswerverifiedShow Answer

The fractional reserve system of banking started when goldsmiths began:

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

Which of the following are liabilities to a bank?

Correct AnswerverifiedShow Answer

If a bank has excess reserves of $100,000, then it can lend out only up to $100,000; but if the banking system has excess reserves of $100,000, then the system can make additional loans totaling more than $100,000.

Correct AnswerverifiedTrue

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

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A commercial bank's checkable-deposit liabilities can be estimated by:

Correct AnswerverifiedShow Answer

Other things being equal, an expansion of commercial bank lending:

Correct AnswerverifiedShow Answer

The primary purpose of the reserve requirements for banks is not really to ensure liquidity to meet withdrawals, but rather to allow the Fed some control over the money supply.

Correct AnswerverifiedTrue

When a bank buys government securities from the Fed, then the bank's ability to "create money" will be reduced.

Correct AnswerverifiedShow Answer

A checkable deposit at a commercial bank is a(n) :

Correct AnswerverifiedC

The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system:

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 total assets of:

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

When cash is withdrawn from a checkable-deposit account at a bank:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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True

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True

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C

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