Macroeconomics Chap 32 and 33

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

paper money in the form of gold receipts was rarely redeemed for gold.

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

the receipts became in effect paper money.

Which one of the following is presently a major deterrent to bank panics in the United States?

deposit insurance

Most modern banking systems are based on:

fractional reserves.

A fractional reserve banking system:

is susceptible to bank panics.

In a fractional reserve banking system:

banks can create money through the lending process.

Bank panics:

are a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently.

Which of the following statements is correct?

A bank’s liabilities plus its net worth equal its assets.

A bank that has assets of $85 billion and a net worth of $10 billion must have:

liabilities of $75 billion.

A commercial bank’s reserves are:

assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

The primary purpose of the legal reserve requirement is to:

provide a means by which the monetary authorities can influence the lending ability of commercial banks.

The ABC Commercial Bank has $5,000 in excess reserves and the reserve ratio is 30 percent. This information is consistent with the bank having:

$90,000 in checkable deposit liabilities and $32,000 in reserves.

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:

are $20,000.

When a check is drawn and cleared, the

bank against which the check is cleared loses reserves and deposits equal to the amount of the check.

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?

$24,000

Excess reserves refer to the:

difference between actual reserves and required reserves.

Suppose the reserve requirement is 10 percent. If a bank has $5 million of checkable deposits and actual reserves of $500,000, the bank:

cannot safely lend out more money.

A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its checkable deposits are:

$5,000.

Assume that a bank initially has no excess reserves. If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be:

10 percent.

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:

. $200,000.

Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000 was drawn and cleared against it?

$6,000

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

required reserves to its checkable-deposit liabilities.

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

excess reserves.

A commercial bank can expand its excess reserves by:

demanding and receiving payment on an overdue loan.

Commercial banks monetize claims when they:

make loans to the public.

Commercial banks create money when they:

create checkable deposits in exchange for IOUs.

Assume Company X deposits $100,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can increase the money supply by a maximum of:

$80,000.

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has the supply of money changed?

increased by $1,200

Refer to the above data. This commercial bank has excess reserves of:

$5,000.

Refer to the above data. This bank can safely expand its loans by a maximum of:

$5,000.

If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement the bank will:

have $45 of additional excess reserves.

The amount of reserves that a commercial bank is required to hold is equal to:

its checkable deposits multiplied by the reserve requirement.

Banks create money when they:

buy government bonds from households.

Which of the following is correct?

Actual reserves minus required reserves equal excess reserves.

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

Federal funds rate.

The Federal funds market is the market in which:

banks borrow reserves from one another on an overnight basis.

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

the reserve ratio.

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

is larger the smaller the required reserve ratio.

The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to:

the reciprocal of the required reserve ratio.

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system:

m = 1/R.

If the reserve ratio is 15 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the relevant monetary multiplier for the banking system will be:

5

Other things equal, if the required reserve ratio was lowered:

the size of the monetary multiplier would increase.

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:

$75,000.

Refer to the above data. The commercial banking system has excess reserves of:

$9 billion.

Refer to the above data. The maximum amount by which the commercial banking system can expand the supply of money by lending is:

$30 billion.

Given a required ratio of 20 percent, a commercial bank that has received a new deposit of $100 can make additional loans od

$80

In the above table, the Bank of Wealth is subject to a required reserve ratio of

10 percent

Suppose that the reserve ratio is 5%. What is the value of the potential money multiplier

20 1/5=.20

The required reserve ratio equals 20 percent and all banks initially have zero excess reserves. The Fed buys $1 million in U.S. government securities. The most the money supply can increase is

5 million

To expand the money supply

buy US government securities

To contract the money supply the Fed should

sell US government securities

The federal reserve

the central banking system of the United States.

Excess Reserves

How much a bank can loan

investment

the act of acquiring capital

capital

something that produces something else

macroeconomics

Concentrates on the operation of a nation’s economy as a whole.

Economic indicators

unemployment, Personal income, factory orders, inventory

economics

study of how people and societies use limited resources to satisfy unlimited wants

economy

A system for producing and distributing goods, and services to fulfill people’s wants

inferior goods

Goods for which demand tends to fall when income rises.

opportunity cost

Cost of the next best alternative use of money, time, or resources when one choice is made rather than another

utility

Ability or capacity of a good or service to be useful and give satisfaction to someone.

microeconomics

Study of a single factor of an economy – such as individuals, households, businesses, & industries – rather than an economy as a whole.

economic resources

The means through which goods and services are produced

gross domestic product

The sum total of the value of all the goods and services produced in a nation within one year