Question 1

When required reserves exceed actual reserves, commercial banks will be forced to have borrowers:

Accepted Answer

A)   Use credit cards
B)   Withdraw some of their deposits
C)   Repay loans
D)   Take out more loansE) A) and D)
F) B) and C)

Question 2

If a commercial banking system has $200,000 in checkable deposits and actual reserves of $70,000, then with a reserve ratio of 20 percent the banking system can expand the supply of money by a maximum of $180,000.

Accepted Answer

A) True 
 B)False

Question 3

A bank has excess reserves of $5,000 and demand deposits of $50,000; the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, then this bank can lend a maximum of:

Accepted Answer

A)   $1,000
B)   $1,500
C)   $2,000
D)   $2,500E) A) and C)
F) B) and C)

Question 4

Cash held by a bank in its vault is a part of the bank's:

Accepted Answer

A)   Reserves
B)   Liabilities
C)   Money supply
D)   Net worthE) A) and B)
F) All of the above

Question 5

Money is "created" when:

Accepted Answer

A)   A depositor deposits money at the bank
B)   A bank grants a loan to a customer
C)   Someone lends money to a friend or a family member
D)   People use money to pay for stuff they buy from one anotherE) A) and B)
F) All of the above

Question 6

When you deposit money at a bank, the bank will normally turn around and lend most of it to a borrower.

Accepted Answer

A) True 
 B)False

Question 7

Refer to the table above. If a bank has $60 million in savings deposits and $40 million in checkable deposits, then its required reserves are:

Accepted Answer

A)   $30 million
B)   $3 million
C)   $1.8 million
D)   $1.2 millionE) A) and B)
F) B) and D)

Question 8

One major component of money supply M1 is part of a bank's:

Accepted Answer

A)   Assets
B)   Reserves
C)   Liabilities
D)   Net worthE) A) and B)
F) A) and C)

Question 9

Fractional reserve banking refers to a system where banks:

Accepted Answer

A)   Grant loans to their borrowing customers
B)   Deposit a fraction of their reserves at the central bank
C)   Hold only a fraction of their deposits in their reserves
D)   Accept a portion of their deposits in checkable accountsE) A) and B)
F) B) and D)

Question 10

When a bank sells capital stock (equity shares)  in return for cash:

Accepted Answer

A)   The capital stock increases the assets side and the cash increases the liabilities side
B)   The capital stock decreases the liabilities and the cash increases the assets side
C)   The capital stock increases the net worth and the cash increases the liabilities
D)   The capital stock increases the net worth and the cash increases the assets sideE) B) and C)
F) A) and D)

Question 11

Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City. She then deposits the funds in her checking account at First Commerce Bank. Her checking account had a $150,000 balance before this deposit. The reserves of First Commerce Bank would:

Accepted Answer

A)   Increase by $4,750,000
B)   Increase by $4,600,000
C)   Decrease by $4,600,000
D)   Decrease by $4,450,000E) A) and B)
F) A) and C)

Question 12

Answer the question based on the following balance sheet for the First National Bank. Assume the reserve ratio is 15 percent:  Refer to the data above. If a check for $20,000 is drawn and cleared against this bank, it will then have excess reserves of:

Accepted Answer

A)   $15,000
B)   $20,000
C)   $25,000
D)   $30,000E) B) and D)
F) B) and C)

Question 13

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

Accepted Answer

A)   Its reserves are on deposit with the Federal Reserve Banks
B)   Its reserves are highly liquid assets
C)   It loses reserves when it extends credit
D)   Its required reserves are fractionalE) None of the above
F) B) and D)

Question 14

Refer to the table above. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are:

Accepted Answer

A)   $0.35 million
B)   $0.65 million
C)   $1.35 million
D)   $1.65 millionE) A) and B)
F) B) and C)

Question 15

Suppose that the reserve ratio is 6%, and applies only to checkable deposits. A bank has non-checkable 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) A) and B)
F) B) and D)

Question 16

Which of the following statements is correct?

Accepted Answer

A)   When borrowers repay bank loans, the money supply is increased
B)   When borrowers take out bank loans, the money supply is decreased
C)   A single bank can legally lend an amount equal to its total reserves
D)   A bank can only grant loans to customers if it has excess reservesE) A) and B)
F) C) and D)

Question 17

Requiring banks to use less leveraging is equivalent to:

Accepted Answer

A)   Expanding the loan portfolio of banks
B)   Reducing the banks' reserve ratio
C)   Requiring a higher level of bank net worth
D)   Requiring banks to accept more depositsE) A) and B)
F) A) and C)

Question 18

When cash is deposited in a checkable-deposit account at a bank, there is:

Accepted Answer

A)   A decrease in the money supply M1
B)   An increase in the money supply M1
C)   An increase in the bank's net worth
D)   An increase in the bank's liabilitiesE) B) and C)
F) A) and B)

Question 19

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)   DecreaseE) A) and D)
F) C) and D)

Question 20

Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess reserves equal:

Accepted Answer

A)   $0 million
B)   $2 million
C)   $5 million
D)   $6 millionE) A) and D)
F) A) and C)

Exam 15: Money Creation

When cash is deposited in a checkable-deposit account at a bank, there is:

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Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City. She then deposits the funds in her checking account at First Commerce Bank. Her checking account had a $150,000 balance before this deposit. The reserves of First Commerce Bank would:

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Requiring banks to use less leveraging is equivalent to:

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Which of the following statements is correct?

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Refer to the table above. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are:

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Answer the question based on the following balance sheet for the First National Bank. Assume the reserve ratio is 15 percent: Refer to the data above. If a check for $20,000 is drawn and cleared against this bank, it will then have excess reserves of:

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

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A bank has excess reserves of $5,000 and demand deposits of $50,000; the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, then this bank can lend a maximum of:

Correct AnswerverifiedShow Answer

If a commercial banking system has $200,000 in checkable deposits and actual reserves of $70,000, then with a reserve ratio of 20 percent the banking system can expand the supply of money by a maximum of $180,000.

Correct AnswerverifiedShow Answer

Cash held by a bank in its vault is a part of the bank's:

Correct AnswerverifiedShow Answer

When required reserves exceed actual reserves, commercial banks will be forced to have borrowers:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Money is "created" when:

Correct AnswerverifiedShow Answer

Fractional reserve banking refers to a system where banks:

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When you deposit money at a bank, the bank will normally turn around and lend most of it to a borrower.

Correct AnswerverifiedShow Answer

One major component of money supply M1 is part of a bank's:

Correct AnswerverifiedShow Answer

Refer to the table above. If a bank has $60 million in savings deposits and $40 million in checkable deposits, then its required reserves are:

Correct AnswerverifiedShow Answer

When a bank sells capital stock (equity shares) in return for cash:

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

Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess reserves equal:

Correct AnswerverifiedShow Answer

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