Question 1

What percentage of the money that a typical modern bank invests comes from borrowing?

Accepted Answer

A)  about 50 percent
B)  about 33 percent
C)  about 75 percent
D)  about 95 percentE) A) and B)
F) None of the above

Question 2

When commercial banks retire outstanding loans, the supply of money is increased.

Accepted Answer

A) True 
 B)False

Question 3

Other things equal, if the required reserve ratio was lowered,

Accepted Answer

A)  banks would have to reduce their lending.
B)  the size of the monetary multiplier would increase.
C)  the actual reserves of banks would increase.
D)  the federal funds interest rate would rise.E) B) and C)
F) A) and D)

Question 4

The ABC Commercial Bank has $5,000 in excess reserves, and the reserve ratio is 30 percent.This information is consistent with the bank having

Accepted Answer

A)  $90,000 in outstanding loans and $35,000 in reserves.
B)  $90,000 in checkable deposit liabilities and $32,000 in reserves.
C)  $20,000 in checkable deposit liabilities and $10,000 in reserves.
D)  $90,000 in checkable deposit liabilities and $35,000 in reserves.E) A) and C)
F) None of the above

Question 5

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million in excess reserves.The maximum amount of new money that the banking system could create is about

Accepted Answer

A)  $110 million.
B)  $330 million.
C)  $660 million.
D)  $1,353 million.E) B) and C)
F) A) and D)

Question 6

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) None of the above

Question 7

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

Accepted Answer

A)  overnight.
B)  one week.
C)  one month.
D)  six months.E) B) and D)
F) None of the above

Question 8

When the receipts given by goldsmiths to depositors were used to make purchases,

Accepted Answer

A)  the gold standard was created.
B)  existing banking laws were violated.
C)  the receipts became in effect paper money.
D)  a fractional reserve banking system was created.E) B) and C)
F) A) and B)

Question 9

A bank that has liabilities of $150 billion and a net worth of $20 billion must have

Accepted Answer

A)  excess reserves of $130 billion.
B)  assets of $150 billion.
C)  excess reserves of $150 billion.
D)  assets of $170 billion.E) B) and D)
F) C) and D) D

Question 10

Which of the following describes the identity embodied in a balance sheet?

Accepted Answer

A)  Net worth plus assets equal liabilities.
B)  Assets plus liabilities equal net worth.
C)  Assets equal liabilities plus net worth.
D)  Assets plus reserves equal net worth.E) B) and C)
F) None of the above

Question 11

When a bank loan is repaid, the supply of money

Accepted Answer

A)  is constant, but its composition will have changed.
B)  is decreased.
C)  is increased.
D)  may either increase or decrease.E) A) and B)
F) A) and C)

Question 12

In a fractional reserve banking system,

Accepted Answer

A)  bank panics cannot occur.
B)  the monetary system must be backed by gold.
C)  banks can create money through the lending process.
D)  the Federal Reserve has no control over the amount of money in circulation.E) All of the above
F) B) and C)

Question 13

When cash is deposited at a bank, the composition of the money supply is changed but the total supply of money is not.

Accepted Answer

A) True 
 B)False  True

Question 14

A single commercial bank must meet a 25 percent reserve requirement.If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of

Accepted Answer

A)  $1,250.
B)  $120,000.
C)  $5,000.
D)  $3,750.Topic: Money-Creating Transactions of a Commercial BankE) B) and C)
F) A) and B)

Question 15

When a bank has a check drawn and cleared against it,

Accepted Answer

A)  excess reserves in the banking system decline.
B)  the nation's total money supply falls.
C)  the bank's balance sheet does not change.
D)  the amount of required reserves the bank must have will fall.E) A) and B)
F) B) and C) D

Question 16

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.E) None of the above
F) A) and C)

Question 17

Suppose that the reserve ratio is 6 percent, and applies only to checkable deposits.A bank has noncheckable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million.What are the excess reserves of this bank?

Accepted Answer

A)  $5.6 million
B)  $6 million
C)  $2 million
D)  $2.4 millionE) B) and C)
F) A) and C)

Question 18

When a bank accepts a checkable deposit from a customer, its deposits will increase and its excess reserves will

Accepted Answer

A)  increase by the same amount as deposits.
B)  increase by less than the deposits.
C)  increase by more than the deposits.
D)  decrease.Blooms: UnderstandE) B) and D)
F) All of the above

Question 19

The monetary multiplier and the spending multiplier are two ways of referring to the same concept.

Accepted Answer

A) True 
 B)False

Question 20

The required reserve ratio is equal to

Accepted Answer

A)  a commercial bank's checkable-deposit liabilities divided by its required reserves.
B)  a commercial bank's required reserves divided by its checkable-deposit liabilities.
C)  a commercial bank's checkable-deposit liabilities multiplied by its excess reserves.
D)  a commercial bank's excess reserves divided by its required reserves.E) A) and D)
F) C) and D)

Exam 35: Money Creation

What percentage of the money that a typical modern bank invests comes from borrowing?

Correct AnswerverifiedShow Answer

When commercial banks retire outstanding loans, the supply of money is increased.

Correct AnswerverifiedShow Answer

Other things equal, if the required reserve ratio was lowered,

Correct AnswerverifiedShow Answer

The ABC Commercial Bank has $5,000 in excess reserves, and the reserve ratio is 30 percent.This information is consistent with the bank having

Correct AnswerverifiedShow Answer

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million in excess reserves.The maximum amount of new money that the banking system could create is about

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the receipts given by goldsmiths to depositors were used to make purchases,

Correct AnswerverifiedShow Answer

A bank that has liabilities of $150 billion and a net worth of $20 billion must have

Correct AnswerverifiedD

Which of the following describes the identity embodied in a balance sheet?

Correct AnswerverifiedShow Answer

When a bank loan is repaid, the supply of money

Correct AnswerverifiedShow Answer

In a fractional reserve banking system,

Correct AnswerverifiedShow Answer

When cash is deposited at a bank, the composition of the money supply is changed but the total supply of money is not.

Correct AnswerverifiedTrue

A single commercial bank must meet a 25 percent reserve requirement.If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of

Correct AnswerverifiedShow Answer

When a bank has a check drawn and cleared against it,

Correct AnswerverifiedD

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

Suppose that the reserve ratio is 6 percent, and applies only to checkable deposits.A bank has noncheckable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million.What are the excess reserves of this bank?

Correct AnswerverifiedShow Answer

When a bank accepts a checkable deposit from a customer, its deposits will increase and its excess reserves will

Correct AnswerverifiedShow Answer

The monetary multiplier and the spending multiplier are two ways of referring to the same concept.

Correct AnswerverifiedShow Answer

The required reserve ratio is equal to

Correct AnswerverifiedShow Answer

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D

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True

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D

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