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Exam 34: Money Creation

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Question 51

True/False

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

A) True
B) False

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Question 52

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When a check is drawn and cleared,the

A) reserves and deposits of both the bank against which the check is cleared and the bank receiving the check are unchanged by this transaction.
B) bank against which the check is cleared loses reserves and deposits equal to the amount of the check.
C) bank receiving the check loses reserves and deposits equal to the amount of the check.
D) bank against which the check is cleared acquires reserves and deposits equal to the amount of the check.

E) A) and D)
F) A) and B)

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Question 53

Multiple Choice

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

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 30 percent.All figures are in billions. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 51 \\109 \\100\\10\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$140\\130\\\\\\\end{array}\end{array}$ Refer to the data.The commercial banking system has excess reserves of:

Answer the question on the basis of the following information for the Moolah Bank. $\begin{array} { l r } \text { Reserves } & \$ 100 \\\text { Checkable Deposits } & 1,000 \\\text { Loans (to customers) } & 300 \\\text { Property } & 400 \\\text { Securities (owned) } & 300 \\\text { Stock Shares } & 100\end{array}$ Refer to the information and assume that Moolah bank is "loaned up." If it receives a $100 deposit of currency,it could safely expand its loans by:

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

If actual reserves in the banking system are $8,000,checkable deposits are $70,000,and the legal reserve ratio is 10 percent,then excess reserves are:

Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent.If the bank's required and excess reserves are equal,then its actual reserves:

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

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 10 percent.All figures are in billions. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$30\\130 \\70\\200\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$300\\130\\\\\\\end{array}\end{array}$ Refer to the data.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:

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 10 percent.All figures are in billions. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$30\\130 \\70\\200\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$300\\130\\\\\\\end{array}\end{array}$ Refer to the data.The commercial banking system has excess reserves of:

Banks create money when they:

In an uncontrolled or unregulated system,commercial bank lending will tend to intensify the business cycle.

Answer the question on the basis of the following table for a commercial bank or thrift: $\begin{array}{c}\begin{array}{c}(1) \\\text {Legal Reserve}\\\underline{\text {Ratio (\%) }}\\10 \\20 \\25 \\30\end{array}\begin{array}{c}(2) \\\text {Checkable}\\\underline{\text {Deposits}}\\ \$ 40,000 \\40,000\\40,000\\40,000\end{array}\begin{array}{c}(3) \\\text {Actual}\\\underline{\text {Reserves}}\\\$ 10,000 \\10,000\\10,000\\10,000\end{array}\end{array}$ Refer to the table.When the legal reserve ratio is 10 percent,the money-creating potential of this single bank is:

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

Use the following balance sheet for the ABC National Bank in answering the question.Assume the required reserve ratio is 20 percent. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 27,000 \\50,000 \\33,000 \\200,000\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$1,100\\200,000\\\\\\\end{array}\end{array}$ Refer to the data.If the original balance sheet was for the commercial banking system,rather than a single bank,loans and checkable deposits could have been expanded by a maximum of:

Answer the question on the basis of 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. Refer to the information.The $40 billion deposit of currency into checking accounts will initially create:

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

Answer the question on the basis of 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. Refer to the information.The $40 billion deposit of currency into checking accounts will create excess reserves of:

A commercial bank's reserves are: