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Exam 34: Money Creation

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Question 1

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The higher the reserve requirement,the lower is the monetary multiplier.

A) True
B) False

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Question 2

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Answer the question on the basis of the following balance sheet for the First National Bank of Bunco.All figures are in millions. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 20 \\25 \\15 \\90\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$100\\50\\\\\\\end{array}\end{array}$ Refer to the data.Suppose that this bank currently has $6 million in excess reserves and that customers of this bank collectively write checks for cash at the bank in the amount of $6 million.As a result,the bank's excess reserves diminish to:

A) $0.
B) $6 million.
C) $0.72 million.
D) $0.84 million.

E) A) and C)
F) C) and D)

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Question 3

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Balance sheets always balance because reserves must always equal liabilities plus net worth.

The goldsmith's ability to create money was based on the fact that:

Which of the following describes the identity embodied in a balance sheet?

In a fractional reserve banking system:

Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000.If the reserve requirement is 25 percent,what is the size of the bank's actual reserves?

The reserve ratio refers to the ratio of a bank's:

Overnight loans from one bank to another for reserve purposes entail an interest rate called the:

The greater the required reserve ratio,the:

Which of the following is correct?

The reserves of a commercial bank consist of:

Bank panics:

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 a deposit of $10 billion of new currency into a checking account in the banking system,excess reserves will increase by:

Suppose the reserve requirement is 20 percent.If a bank has checkable deposits of $4 million and actual reserves of $1 million,it can safely lend out:

If the reserve requirement is 10 percent,what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

Actual reserves equal required reserves plus excess reserves.

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 25 percent,the excess reserves of this single bank are:

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 20 percent,the money-creating potential of the entire banking system is:

Given a 25 percent reserve ratio,assume the commercial banking system is loaned up.Now assume the reserve ratio is reduced to 20 percent.As a result of this reduction: