FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 15: Money Creation

Show Answer

Share

---

All types

Filters

Study Flashcards

Question 71

Multiple Choice

Review LaterAdd Note

Review Later

The primary purpose of the legal reserve requirement is to

A) prevent banks from hoarding too much vault cash.
B) provide a means by which the monetary authorities can influence the lending ability of commercial banks.
C) prevent commercial banks from earning excess profits.
D) provide a dependable source of interest income for commercial banks.

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

Correct Answer

verified

Show Answer

Question 72

Multiple Choice

Review LaterAdd Note

Review Later

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

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 B)
F) A) and C)

Correct Answer

verified

Show Answer

Question 73

Multiple Choice

Review LaterAdd Note

$\begin{array} { | c | c | c | c | c | } \hline & \text { Reserve Requirement (\%) } & \text { Checkable Deposits } & \text { Actual Reserves } & \text { Excess Reserves } \\\hline ( 1 ) & \underline { W } & \$ 100,000 & \$ 10,000 & \$ 0 \\\hline ( 2 ) & 8 & \underline { X } & 20,000 & 12,000 \\\hline ( 3 ) & 12 & 200,000 & \underline { Y } & 8,000 \\\hline ( 4 ) & 20 & 300,000 & 70,000 & \underline { Z } \\\hline\end{array}$ The accompanying table gives data for a commercial bank or thrift. In row 4, the number appropriate for space Z is

Bank panics

What is one significant consequence of fractional reserve banking?

An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by

Banks pursue two conflicting goals. Explain what they are and why the conflict.

The accompanying balance sheet is for the First Federal Bank. Assume the required reserve ratio is 20 percent. If the original bank balance sheet was for the whole commercial banking system rather than a single bank, loans And deposits could have been expanded by a maximum of

If the reserve ratio is 15 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the relevant monetary multiplier for the banking system Will be

If the reserve requirement is 20 percent, the monetary multiplier will be 4.

The maximum deposit creation that can be made in the banking system is equal to the excess reserves divided by the required reserve ratio.

$\begin{array} { | c | c | c | } \hline \text { (1) } & \text { (2) } & \text { (3) } \\\hline \text { Legal Reserve Ratio (\%) } & \text { Checkable Deposits } & \text { Actual Reserves } \\\hline 10 & \$ 40,000 & \$ 10,000 \\\hline 20 & 40,000 & 10,000 \\\hline 25 & 40,000 & 10,000 \\\hline 30 & 40,000 & 10,000 \\\hline\end{array}$ The accompanying table gives data for a commercial bank or thrift. When the legal reserve ratio is 30 percent, the monetary multiplier is

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.

A fractional reserve banking system

(Last Word) The term "leverage" refers to

A bank's net worth is the

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

If the required reserve ratio were 15 percent, the value of the monetary multiplier would be

The amount that a commercial bank can lend is determined by its

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit and has a check Cleared against it for that amount, its reserves and checkable deposits will now be