Question 1

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000.If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of

Accepted Answer

A)  $122,000.
B)  $175,000.
C)  $300,000.
D)  $75,000.

Question 2

One bank can borrow reserves from another bank, and the interest on the loan is called the federal funds rate.

Accepted Answer

A) True 
 B)False

Question 3

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent.How much are the commercial bank's checkable-deposit liabilities?

Accepted Answer

A)  $120 million
B)  $900 million
C)  $300 million
D)  $1,200 million

Question 4

Commercial bank reserves are an asset to commercial banks but a liability to the Federal Reserve Bank holding them.

Accepted Answer

A) True 
 B)False

Question 5

A bank's checkable deposits shrink from $40 million to $33 million.What happens to its required reserves if the required reserve ratio is 3 percent?

Accepted Answer

A)  They fall by about $1.2 million.
B)  They fall by about $10 million.
C)  They fall by about $7 million.
D)  They fall by about $0.2 million.

Question 6

A bank can grant loans up to the amount of its actual reserves.Topic: Money-Creating Transactions of a Commercial Bank

Accepted Answer

A) True 
 B)False

Question 7

When a check is cleared against a bank, the bank will lose

Accepted Answer

A)  cash and securities.
B)  checkable deposits and reserves.
C)  reserves and capital stock.
D)  loans and demand deposits.

Question 8

If Bank A has excess reserves of $1 million and all other banks in the system do not have any excess reserves, then the amount of additional loans that can be made by the banking system will be

Accepted Answer

A)  $1 million also.
B)  a fraction of $1 million.
C)  a multiple of $1 million.
D)  $1 million times the required reserve ratio.

Question 9

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 billion.

Question 10

When banks borrow and lend reserves in the federal funds market,

Accepted Answer

A)  the total reserves of the banking system increase.
B)  the total reserves of the banking system shrink.
C)  the total reserves of the banking system stay the same.
D)  the reserves of the banking system become part of M1.

Question 11

The federal funds rate is the interest rate that the Fed charges banks for its loans to them.

Accepted Answer

A) True 
 B)False

Question 12

The fractional reserve system of banking started when goldsmiths began

Accepted Answer

A)  accepting deposits of gold for safe storage.
B)  charging people who deposited their gold.
C)  using deposited gold to produce products for sale to others.
D)  issuing paper receipts in excess of the amount of gold held.

Question 13

Which of the following are liabilities to a bank?

Accepted Answer

A)  capital stock and reserves
B)  property and capital stock
C)  vault cash and demand deposits
D)  demand and time deposits

Question 14

Which of the following is correct?

Accepted Answer

A)  Both the granting and repaying of bank loans expand the aggregate money supply.
B)  Granting and repaying bank loans do not affect the money supply.
C)  Granting a bank loan destroys money; repaying a bank loan creates money.
D)  Granting a bank loan creates money; repaying a bank loan destroys money.

Question 15

When a bank grants a loan to a customer who then keeps the funds in her checking account at that bank, the bank's

Accepted Answer

A)  actual reserves will increase.
B)  required reserves will increase.
C)  actual reserves will decrease.
D)  excess reserves will stay the same.

Question 16

What is one significant characteristic of fractional reserve banking?

Accepted Answer

A)  Banks hold a fraction of their loans in reserve.
B)  Banks use deposit insurance for loans to customers.
C)  Bank loans will be equal to the amount of gold on deposit.
D)  Banks can create money through lending their reserves.

Question 17

Money is destroyed when

Accepted Answer

A)  loans are made.
B)  checks written on one bank are deposited in another bank.
C)  loans are repaid.
D)  the net worth of the banking system declines.

Question 18

The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of reserves to the banking system as a whole.

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The federal funds market is the market in which

Accepted Answer

A)  banks borrow from the Federal Reserve Banks.
B)  U.S.securities are bought and sold.
C)  banks borrow reserves from one another on an overnight basis.
D)  Federal Reserve Banks borrow from one another.Topic: Money-Creating Transactions of a Commercial Bank

Exam 35: Money Creation

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

When a bank grants a loan to a customer who then keeps the funds in her checking account at that bank, the bank's

Correct AnswerverifiedShow Answer

The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of reserves to the banking system as a whole.

Correct AnswerverifiedShow Answer

A bank's checkable deposits shrink from $40 million to $33 million.What happens to its required reserves if the required reserve ratio is 3 percent?

Correct AnswerverifiedShow Answer

If Bank A has excess reserves of $1 million and all other banks in the system do not have any excess reserves, then the amount of additional loans that can be made by the banking system will be

Correct AnswerverifiedShow Answer

When a check is cleared against a bank, the bank will lose

Correct AnswerverifiedShow Answer

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent.How much are the commercial bank's checkable-deposit liabilities?

Correct AnswerverifiedShow Answer

Money is destroyed when

Correct AnswerverifiedShow Answer

The fractional reserve system of banking started when goldsmiths began

Correct AnswerverifiedShow Answer

What is one significant characteristic of fractional reserve banking?

Correct AnswerverifiedShow Answer

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000.If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of

Correct AnswerverifiedShow Answer

The federal funds market is the market in which

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

One bank can borrow reserves from another bank, and the interest on the loan is called the federal funds rate.

Correct AnswerverifiedShow Answer

The federal funds rate is the interest rate that the Fed charges banks for its loans to them.

Correct AnswerverifiedShow Answer

Which of the following are liabilities to a bank?

Correct AnswerverifiedShow Answer

When banks borrow and lend reserves in the federal funds market,

Correct AnswerverifiedShow Answer

Commercial bank reserves are an asset to commercial banks but a liability to the Federal Reserve Bank holding them.

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

A bank can grant loans up to the amount of its actual reserves.Topic: Money-Creating Transactions of a Commercial Bank

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified