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Exam 15: Money Creation

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Question 31

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

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) All of the above
F) A) and D)

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Question 32

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The federal funds market is the market in which

A) banks borrow from the Federal Reserve Banks.
B) U.S. securities are bought and sold.
C) banks borrow reserves from one another on an overnight basis.
D) Federal Reserve Banks borrow from one another.

E) C) and D)
F) None of the above

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Question 33

Multiple Choice

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(Last Word) The greater the leverage in the financial system, all else equal,

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

A commercial bank has excess reserves of $5,000 and a required reserve ratio of 20 percent. It makes a loan of $6,000 to a borrower. The borrower writes a check for $6,000 that is deposited in another commercial bank. After The check clears, the first bank will be short of reserves in the amount of

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

Loans made to customers are a liability on a bank's balance sheet.

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

When a bank loan is repaid, the supply of money

If actual reserves in the banking system are $40,000, excess reserves are $10,000, and checkable deposits are $240,000, then the legal reserve requirement is

A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank. The reserve ratio is 10 percent. The bank then lends $1,500 to a borrower. As a consequence of these transactions, the bank'scess reserves are A) not affected. B) increased by $200. C) increased by $300. D) increased by $500.

$\begin{array} { | l | r | r | r | } \hline & & \text { Assets } & \text { Liabilities and Net Worth } \\\hline \text { Stock Shares } & \$ 400 & & \\\hline \text { Reserves } & 40 & & \\\hline \text { Property } & 300 & & \\\hline \text { Securities } & 160 & & \\\hline \text { Loans } & 80 & & \\\hline \text { Demand Deposits } & 180 & & \\\hline\end{array}$ The ?gures in the table are for a single commercial bank. All ?gures are in thousands of dollars. If the required reserve ratio is 10 percent, the bank has excess reserves of

If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would

Consider the following information about a banking system: new currency deposited in the system = $40 billion, legal reserve ratio = 0.20, excess reserves prior to the currency deposit = $0. The $40 billion deposit of new Currency will support total checkable deposits of

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum Amount of

A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part of

Suppose a credit union has checkable deposits of $500,000 and the legal reserve ratio is 10 percent. If the institution has excess reserves of $4,000, then its actual reserves are

A reserve requirement of 20 percent means a bank must have at least $1,000 of reserves if its checkable deposits are

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day, Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of Money changed?

$\begin{array} { | l | c | } \hline \text { Reserves } & \$ 100 \\\hline \text { Checkable Deposits } & 1,000 \\\hline \text { Loans (to customers) } & 300 \\\hline \text { Property } & 400 \\\hline \text { Securities (owned) } & 300 \\\hline \text { Stock Shares } & 100 \\\hline\end{array}$ Refer to the accompanying table of information for the Moolah Bank. If Moolah Bank is legally "loaned up," the reserve requirement must be