Question 1

Assume that Paris First National Bank is a thriving bank with deposits of $20 million.If the required reserve ratio is 20 percent and the bank is fully loaned out,the bank will keep what amount of required reserves?

Accepted Answer

A)   $2 million.
B)   $4 million.
C)   $10 million.
D)   $16 million.
E)   $20 million.

Question 2

If the Fed wishes to increase the money supply then it should:

Accepted Answer

A)   increase the required reserve ratio.
B)   increase the discount rate.
C)   buy government securities on the open market.
D)   do any of the above.

Question 3

If the Federal Reserve wants to increase the availability of money and credit,it can:

Accepted Answer

A)   lower the discount rate.
B)   raise the reserve requirements.
C)   sell U.S. government bonds to the public.
D)   encourage banks to increase their prime lending rate.

Question 4

If the required reserve ratio decreases,the:

Accepted Answer

A)   money multiplier increases.
B)   money multiplier decreases.
C)   amount of excess reserves the bank has decreases.
D)   money multiplier stays the same.
E)   amount of excess reserves stays the same.

Question 5

When the Fed raises the discount rate,it:

Accepted Answer

A)   lowers the cost of borrowing from the Fed, encouraging banks to make loans to the general public.
B)   raises the cost of borrowing from the Fed, discouraging banks from making loans to the general public.
C)   increases the amount of excess reserves that banks hold, encouraging them to make loans to the general public.
D)   increases the amount of excess reserves that banks hold, discouraging them from making loans to the general public.
E)   decreases the amount of excess reserves that banks hold, discouraging them from making loans to the general public.

Question 6

Assume a bank has total deposits of $100,000 and $20,000 is set aside to meet reserve requirements of the Fed.Its required reserve ratio is:

Accepted Answer

A)   $20,000.
B)   20 percent.
C)   0.2 percent.
D)   1 percent.

Question 7

When the Fed raises the required reserve ratio,then the:

Accepted Answer

A)   ability of banks to make loans is restricted.
B)   ability of banks to make loans is enhanced.
C)   ability of banks to make loans is unaffected.
D)   interest rate that banks pay to the Fed to borrow money is increased.
E)   interest rate that banks pay to other banks to borrow money is increased.

Question 8

Exhibit 19-3 Balance sheet of Tucker National Bank
 
-The required reserve ratio in Exhibit 19-3 is:

Accepted Answer

A)   10 percent.
B)   20 percent.
C)   80 percent.
D)   100 percent.

Question 9

In a simplified system where all banks have uniform reserve requirements and checkable deposits are the only form of money,the money multiplier is equal to 1 over the required reserve ratio.

Accepted Answer

A) True 
 B)False

Question 10

Exhibit 19-5 Balance sheet of Tucker National Bank
 
-In Exhibit 19-5,the bank could:

Accepted Answer

A)   extend new loans by $5,000.
B)   extend new loans by $20,000.
C)   call in $5,000 existing loans.
D)   call in $20,000 existing loans.

Question 11

The interest rate on loans made by banks in the market in which they lend and borrow reserves from each other for very short periods of time is known as the:

Accepted Answer

A)   discount rate.
B)   legal reserve rate.
C)   federal funds rate.
D)   open market rate.
E)   margin rate.

Question 12

The federal funds market is the market where:

Accepted Answer

A)   the federal government borrows money from banks to finance the national debt.
B)   the federal government lends money to commercial banks.
C)   banks borrow money from other banks for short periods of time.
D)   banks borrow money from the Fed for short periods of time.
E)   banks borrow money from the Treasury for long periods of time.

Question 13

Exhibit 19-7 Lower Walloon National Bank
 
-In Exhibit 19-7,if the required reserve ratio is 20 percent,and Mr.Brown deposits $10,000 in Lower Walloon National Bank.The Lower Walloon National bank has excess reserves of:

Accepted Answer

A)   $2,000.
B)   $8,000.
C)   $0.
D)   $10,000.
E)   $40,000.

Question 14

Which of the following actions by the FED would increase the money supply?

Accepted Answer

A)   Reducing the required reserve ratio.
B)   Selling bonds in the open market.
C)   Increasing the discount rate.
D)   None of the above.

Question 15

If there is no one who is interested in borrowing from a bank:

Accepted Answer

A)   the bank's excess reserves will be zero.
B)   there will be no process of money creation.
C)   the required reserve ratio must be equal to zero.
D)   the required reserve ratio must be equal to 100 percent.

Question 16

When new checkable deposits are created through loans,

Accepted Answer

A)   the money supply contracts.
B)   excess reserves are destroyed.
C)   the money supply remains the same.
D)   the money supply expands.
E)   the required reserve ratio declines

Question 17

In a simplified banking system subject to a 25 percent required reserve ratio,a $1,000 open-market purchase by the Fed would cause the money supply to:

Accepted Answer

A)   increase by $1,000.
B)   decrease by $1,000.
C)   decrease by $4,000.
D)   increase by $4,000.

Question 18

Which of the following statements is true?

Accepted Answer

A)   The simple money multiplier equals the reciprocal of the required reserve ratio.
B)   Required reserves is the minimum balance that the Fed requires a bank to hold in vault cash or on deposit with the Fed.
C)   The Discount rate is the interest rate charged banks for loans from the Fed.
D)   Excess reserves equal total reserves minus required reserves.
E)   All of the above.

Question 19

A bank currently has checkable deposits of $100,000,total reserves of $30,000,and loans of $70,000.If the required reserve ratio is lowered from 20 percent to 15 percent,this bank can increase its loans by:

Accepted Answer

A)   $10,000.
B)   $15,000.
C)   $75,000.
D)   $5,000.
E)   $ 0.

Question 20

An individual bank can lend out at most its:

Accepted Answer

A)   actual reserves.
B)   fractional reserves.
C)   legal reserves.
D)   checkable deposits.
E)   excess reserves.

Exam 19: Money Creation

A bank currently has checkable deposits of $100,000,total reserves of $30,000,and loans of $70,000.If the required reserve ratio is lowered from 20 percent to 15 percent,this bank can increase its loans by:

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Which of the following actions by the FED would increase the money supply?

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In a simplified system where all banks have uniform reserve requirements and checkable deposits are the only form of money,the money multiplier is equal to 1 over the required reserve ratio.

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An individual bank can lend out at most its:

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Exhibit 19-7 Lower Walloon National Bank -In Exhibit 19-7,if the required reserve ratio is 20 percent,and Mr.Brown deposits $10,000 in Lower Walloon National Bank.The Lower Walloon National bank has excess reserves of:

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The interest rate on loans made by banks in the market in which they lend and borrow reserves from each other for very short periods of time is known as the:

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When new checkable deposits are created through loans,

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Assume that Paris First National Bank is a thriving bank with deposits of $20 million.If the required reserve ratio is 20 percent and the bank is fully loaned out,the bank will keep what amount of required reserves?

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When the Fed raises the discount rate,it:

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The federal funds market is the market where:

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If the required reserve ratio decreases,the:

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Exhibit 19-5 Balance sheet of Tucker National Bank -In Exhibit 19-5,the bank could:

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Assume a bank has total deposits of $100,000 and $20,000 is set aside to meet reserve requirements of the Fed.Its required reserve ratio is:

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If the Fed wishes to increase the money supply then it should:

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If the Federal Reserve wants to increase the availability of money and credit,it can:

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Which of the following statements is true?

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If there is no one who is interested in borrowing from a bank:

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In a simplified banking system subject to a 25 percent required reserve ratio,a $1,000 open-market purchase by the Fed would cause the money supply to:

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Exhibit 19-3 Balance sheet of Tucker National Bank -The required reserve ratio in Exhibit 19-3 is:

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When the Fed raises the required reserve ratio,then the:

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