Question 1

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

Accepted Answer

A)   Assets
B)   Liabilities
C)   Capital stock
D)   Net worthE) B) and D)
F) A) and B)

Question 2

If the banking system has $20 billion in excess reserves and if the reserve ratio is 10 percent, the system can increase its loans by a maximum of $22 billion.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following factors can contribute to a further reduction in the money supply in addition to a massive withdrawal of cash from banks?

Accepted Answer

A)   Bank purchases of Treasury bonds from the Fed
B)   Bank sales of government bonds to meet liquidity demands
C)   Banks expand the approval and granting of loans
D)   A decrease in the required reserve ratioE) All of the above
F) None of the above

Question 4

During a recession when banks tend to increase their excess reserves, the money supply M1 decreases.

Accepted Answer

A) True 
 B)False

Question 5

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 $14,000 is drawn and cleared against this bank, then its reserves and checkable deposits will be, respectively:

Accepted Answer

A)   $50,000 and $120,000
B)   $50,000 and $106,000
C)   $36,000 and $120,000
D)   $36,000 and $106,000E) A) and B)
F) All of the above

Question 6

Answer the question based on the following balance sheet for the First National Bank. Assume the reserve ratio is 15 percent:  Refer to the above data. If the balance sheet was for the whole commercial banking system rather than a single bank, then loans and deposits could expand by a maximum of approximately:

Accepted Answer

A)   $120,000
B)   $213,333
C)   $333,500
D)   $415,373E) A) and B)
F) None of the above

Question 7

When a bank grants a loan, the money supply M1 will increase, even if the funds from the loan are not spent.

Accepted Answer

A) True 
 B)False

Question 8

The required-reserve ratio is equal to:

Accepted Answer

A)   A commercial bank's checkable-deposit liabilities divided by its required reserves
B)   A commercial bank's required reserves divided by its checkable-deposit liabilities
C)   A commercial bank's checkable-deposit liabilities multiplied by its excess reserves
D)   A commercial bank's excess reserves divided by its required reservesE) None of the above
F) A) and C)

Question 9

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.

Accepted Answer

A) True 
 B)False

Question 10

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars.  Refer to the data given above. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of another bank, then the bank above will end up with excess reserves of:

Accepted Answer

A)   $8,000
B)   $12,000
C)   $13,000
D)   $18,000E) A) and B)
F) A) and C)

Question 11

Assume that the reserve ratio is 20 percent and banks in the system are loaning out all their excess reserve. If people collectively cash out $10 billion from their checking accounts, then the lending ability of the banking system will be:

Accepted Answer

A)   Increased by $10 billion
B)   Decreased by $10 billion
C)   Decreased by $40 billion
D)   Decreased by $50 billionE) A) and D)
F) A) and C)

Question 12

A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank. The reserve ratio is 10%. The bank then lends $1,500 to a borrower. As a consequence of these transactions the bank's excess reserves are:

Accepted Answer

A)   Not affected
B)   Increased by $200
C)   Increased by $300
D)   Increased by $500E) All of the above
F) B) and C)

Question 13

A bank can grant loans up to the amount of its actual reserves.

Accepted Answer

A) True 
 B)False

Question 14

The Norfolk Bank has $18,000 in excess reserves and the reserve ratio is 20 percent. How much checkable deposits and reserves does this bank hold?

Accepted Answer

A)   $160,000 in checkable-deposit liabilities and $48,000 in reserves
B)   $140,000 in checkable-deposit liabilities and $46,000 in reserves
C)   $120,000 in checkable-deposit liabilities and $32,000 in reserves
D)   $100,000 in checkable-deposit liabilities and $30,000 in reservesE) All of the above
F) B) and C)

Question 15

The multiple by which the commercial banking system can expand the supply of money is equal to:

Accepted Answer

A)   The ratio of actual reserves to required reserves
B)   The reciprocal of the federal funds rate
C)   The reciprocal of the reserve ratio
D)   The ratio of required reserves to actual reservesE) B) and C)
F) All of the above

Question 16

Banks' borrowed funds come mostly from:

Accepted Answer

A)   Buying bonds and loans
B)   Buying stocks and selling Treasury bonds
C)   Issuing stocks and buying Treasury bonds
D)   Issuing bonds and accepting depositsE) C) and D)
F) B) and C)

Question 17

When bank loans are repaid and the banks hold on to the funds as additional reserves, then the banking system's ability to "create" money decreases.

Accepted Answer

A) True 
 B)False

Question 18

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million in excess reserves. The maximum amount of new money which the banking system could create is about:

Accepted Answer

A)   $110 million
B)   $330 million
C)   $660 million
D)   $1,353 millionE) A) and B)
F) A) and C)

Question 19

The following table is the consolidated balance sheet for the commercial banking system. All figures are in billions. Assume that the required reserve ratio is 10 percent:  Refer to the above information. If there is a deposit of $10 billion of new currency into checking accounts in the banking system, excess reserves will increase by:

Accepted Answer

A)   $1 billion
B)   $2 billion
C)   $9 billion
D)   $10 billionE) B) and C)
F) A) and D)

Question 20

Answer the question based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars:  Refer to the above data. If the commercial banking system actually loans out the maximum amount it is able to lend, excess reserves will fall:

Accepted Answer

A)   By $28 billion
B)   By $22 billion
C)   By $20 billion
D)   To zeroE) A) and C)
F) A) and B)

Exam 15: Money Creation

Which of the following factors can contribute to a further reduction in the money supply in addition to a massive withdrawal of cash from banks?

Correct Answer
verified

When bank loans are repaid and the banks hold on to the funds as additional reserves, then the banking system's ability to "create" money decreases.

Correct Answer
verified

Banks' borrowed funds come mostly from:

Correct Answer
verified

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.

Correct Answer
verified

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of another bank, then the bank above will end up with excess reserves of:

Correct Answer
verified

A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank. The reserve ratio is 10%. The bank then lends $1,500 to a borrower. As a consequence of these transactions the bank's excess reserves are:

Correct Answer
verified

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

Correct Answer
verified

A bank can grant loans up to the amount of its actual reserves.

Correct Answer
verified

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million in excess reserves. The maximum amount of new money which the banking system could create is about:

Correct Answer
verified

When a bank grants a loan, the money supply M1 will increase, even if the funds from the loan are not spent.

Correct Answer
verified

The required-reserve ratio is equal to:

Correct Answer
verified

Correct Answer
verified

Assume that the reserve ratio is 20 percent and banks in the system are loaning out all their excess reserve. If people collectively cash out $10 billion from their checking accounts, then the lending ability of the banking system will be:

Correct Answer
verified

The Norfolk Bank has $18,000 in excess reserves and the reserve ratio is 20 percent. How much checkable deposits and reserves does this bank hold?

Correct Answer
verified

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 $14,000 is drawn and cleared against this bank, then its reserves and checkable deposits will be, respectively:

Correct Answer
verified

Correct Answer
verified

The multiple by which the commercial banking system can expand the supply of money is equal to:

Correct Answer
verified

If the banking system has $20 billion in excess reserves and if the reserve ratio is 10 percent, the system can increase its loans by a maximum of $22 billion.

Correct Answer
verified

Correct Answer
verified

During a recession when banks tend to increase their excess reserves, the money supply M1 decreases.

Correct Answer
verified

Exam 15: Money Creation

Which of the following factors can contribute to a further reduction in the money supply in addition to a massive withdrawal of cash from banks?

Correct AnswerverifiedShow Answer

When bank loans are repaid and the banks hold on to the funds as additional reserves, then the banking system's ability to "create" money decreases.

Correct AnswerverifiedShow Answer

Banks' borrowed funds come mostly from:

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of another bank, then the bank above will end up with excess reserves of:

Correct AnswerverifiedShow Answer

A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank. The reserve ratio is 10%. The bank then lends $1,500 to a borrower. As a consequence of these transactions the bank's excess reserves are:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A bank can grant loans up to the amount of its actual reserves.

Correct AnswerverifiedShow Answer

Assume the required reserve ratio is 16.67 percent and that the commercial banking system has $110 million in excess reserves. The maximum amount of new money which the banking system could create is about:

Correct AnswerverifiedShow Answer

When a bank grants a loan, the money supply M1 will increase, even if the funds from the loan are not spent.

Correct AnswerverifiedShow Answer

The required-reserve ratio is equal to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Assume that the reserve ratio is 20 percent and banks in the system are loaning out all their excess reserve. If people collectively cash out $10 billion from their checking accounts, then the lending ability of the banking system will be:

Correct AnswerverifiedShow Answer

The Norfolk Bank has $18,000 in excess reserves and the reserve ratio is 20 percent. How much checkable deposits and reserves does this bank hold?

Correct AnswerverifiedShow Answer

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 $14,000 is drawn and cleared against this bank, then its reserves and checkable deposits will be, respectively:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The multiple by which the commercial banking system can expand the supply of money is equal to:

Correct AnswerverifiedShow Answer

If the banking system has $20 billion in excess reserves and if the reserve ratio is 10 percent, the system can increase its loans by a maximum of $22 billion.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

During a recession when banks tend to increase their excess reserves, the money supply M1 decreases.

Correct AnswerverifiedShow Answer

Correct Answer
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