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Exam 15: Money Creation

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Question 91

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The granting of a $10,000 loan and the purchase of a $10,000 government bond from a securities dealer by a commercial bank would have the same effect on the money supply.

A) True
B) False

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Question 92

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Give an equation that shows the relationship between actual, required, and excess reserves.

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A bank's excess reserves are f...

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Question 93

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When a bank accepts additional deposits, its required reserves and excess reserves will both increase.

The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to

$\begin{array} { | l | r | } \hline \text { Reserves } & \$ 100 \\\hline \text { Checkable Deposits } & 1,000 \\\hline \text { Loans (to customers) } & 300 \\\hline \text { Property } & 400 \\\hline \text { Securities (owned) } & 300 \\\hline \text { Stock Shares } & 100 \\\hline\end{array}$ Refer to the accompanying table of information for the Moolah Bank. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's

When Bank A borrows reserves in the federal funds market, it causes the total reserves in the banking system to increase.

Money is "created" when

$\begin{array} { | c | c | c | } \hline \text { (1) } & ( 2 ) & ( 3 ) \\\hline \text { Legal Reserve Ratio (\%) } & \text { Checkable Deposits } & \text { Actual Reserves } \\\hline 10 & \$ 40,000 & \$ 10,000 \\\hline 20 & 40,000 & 10,000 \\\hline 25 & 40,000 & 10,000 \\\hline 30 & 40,000 & 10,000 \\\hline\end{array}$ The accompanying table gives data for a commercial bank or thrift. If the legal reserve ratio falls from 25 percent to 10 percent, excess reserves of this single bank will

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves

The commercial banking system can lend by a multiple of its excess reserves primarily because

The reserve ratio refers to the ratio of a bank's

The basic purpose of imposing legal reserve requirements on commercial banks is to

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

Which of the following would reduce the money supply?

What is one significant characteristic of fractional reserve banking?

Explain what bank reserves are and the ways that banks can hold them.

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All figures are in billions. After the deposit of $10 billion of new currency, the maximum Amount by which this commercial banking system can expand the supply of money by lending is

Assume the Continental National Bank's balance statement is as shown in the accompanying table. Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000 Was drawn and cleared against it?

(Last Word) Suppose Balin has $100 to invest in an opportunity that returns, for every $100 invested, $120 if it goes well but only $80 if it goes poorly. If leverage allows Balin to borrow $90 for every $10 he invests, what are His rates of profit and loss, respectively, if he borrows the full amount to invest in the opportunity?

If all depositors of a bank were to try withdrawing all their deposits at the same time, a good solid bank should be able to meet all the withdrawals.