Macroeconomics Chapter 15

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 $14000 is drawn and cleared against this bank then its reserves and checkable deposits will be respectively:

$36,000 and $106,000

When cash is withdrawn from a checkable-deposit account at a bank:

The money supply M1 does not change but its composition changes

The commercial banking system can lend by a multiple of its excess reserves primarily because:

Its required reserves are fractional

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

The reciprocal of the reserve ratio

The commercial banking system has excess reserves of $200000. Then new loans of $800000 are subsequently made and the system ends up just meeting its reserve requirements. The required reserve ratio must be:

25 percent

A checkable deposit at a commercial bank is a(n):

Asset to the depositor and a liability to the bank

A goldsmith has $2 million of gold in his vaults. He issues $5 million in gold receipts. His gold holdings are what fraction of the paper money (gold receipts) he has issued?

2/5

A commercial bank’s checkable-deposit liabilities can be estimated by:

Dividing its required reserves by the reserve ratio

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

Actual reserves will increase? (Excess reserves will stay the same is not the correct answer)

A commercial bank has $100 million in checkable-deposit liabilities and $12 million in actual reserves. The required reserve ratio is 10 percent. How big are the bank’s excess reserves?

$2 million

Cash held by a bank in its vault is a part of the bank’s:

Reserves

When loans are repaid at commercial banks:

Money is destroyed

A commercial bank has checkable-deposit liabilities of $500000 reserves of $150000 and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system can increase loans are respectively:

$50,000 and $250,000? ($50,000 and $500,000 is not the right answer)

If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits then the effective monetary multiplier for the banking system will be:

4

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million and the required reserve ratio is 10 percent. The excess reserves of the bank are:

$100,000

A commercial bank has excess reserves of $5000 and a required reserve ratio of 20 percent. It makes a loan of $6000 to a borrower. The borrower writes a check for $6000 that is deposited in another commercial bank. After the check clears the first bank will be short of reserves in the amount of:

$1000

A bank’s net worth is equal to its:

Assets minus its liabilities

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 $10000 is drawn and cleared in favor of another bank then the actual reserves of the bank above will:

Decrease $10,000

A bank can get additional excess reserves by doing any of the following except:

Buying Treasury securities from the Fed

When a bank accepts a checkable deposit from a customer its deposits will increase and its excess reserves will:

Increase by less than the deposits

What is one significant characteristic of fractional reserve banking?

Banks can create money through lending their reserves

Money is "created" when:

A bank grants a loan to a customer? (A depositor deposits money at the bank is not the correct answer)

A depositor places $10000 in cash in a commercial bank where the required reserve ratio is 10 percent. The bank sends the $10000 to its Federal Reserve Bank. As a result the actual reserves required reserves and excess reserves of the bank have been increased by:

$10,000, $1000, and $9000 respectively

An individual deposits $12000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by:

$10,800

Only one commercial bank in the banking system has an excess reserve

and its excess reserve is $400000. This bank makes a new loan of $300000 and keeps an excess reserve of $100000. If the required reserve ratio for all banks is 12.5 percent, the potential expansion of the money supply from this new loan is:, $2.4 million

The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system:

Can increase its demand deposits by a multiple of its excess reserves

A commercial bank has checkable-deposit liabilities of $50000 and a required-reserve ratio of 20 percent. What is the amount of required reserves?

$10,000

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. This bank has total assets of:

$340 million? ($440 million is not the correct 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?

$300 million

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:

$660 million

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:

Decreased by $40 billion

In the Federal funds market a bank that needs to meet reserve requirements can borrow reserves usually for a period:

Overnight

What is one significant consequence of fractional reserve banking?

Banks are vulnerable to "panics" or "bank runs"

Suppose a commercial banking system has $240000 of outstanding checkable deposits and actual reserves of $85000. If the reserve ratio is 25 percent the banking system can expand the supply of money by a maximum of:

$100,000

Refer to the table above. If a bank has $60 million in savings deposits and $40 million in checkable deposits then its required reserves are:

$1.2 million

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

Checkable deposits and reserves

A bank has excess reserves of $5000 and demand deposits of $50000; the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent then this bank can lend a maximum of:

$2,500

Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault $1 million in government securities $3 million on deposit at the Fed and $60 million in checkable deposits then its excess reserves equal:

$2 million

When a bank sells capital stock (equity shares) in return for cash:

The capital stock increases the net worth and the cash increases the assets side? (The capital stock decreases the liabilities and the cash increases the assets side is not the correct answer)

If the reserve ratio is 25 percent what level of excess reserves does a bank acquire when a customer deposits a $12000 check drawn on another bank?

$9,000

The commercial banking system because of a recent change in the required reserve ratio from 8 percent to 10 percent finds that it is $50 million short of reserves. If it is unable to obtain any additional reserves it must reduce deposits and money supply by:

$500 million

If the Federal Reserve System sells $5 billion of government securities to commercial banks the banks’ reserves would:

Decrease by $5 billion

Which of the following statements is correct?

A bank can only grant loans to customers if it has excess reserves

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

They fall by about $0.2 million

Suppose that last year $30 billion in new loans were extended by banks while $50 billion in old loans were paid off by borrowers. What happened to the money supply?

Decreased

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

$450 billion? ($250 billion is not the correct answer)

A commercial bank has no excess reserves until a depositor places $5000 in cash at the bank. The commercial bank then lends $4000 to a borrower. As a consequence of these transactions the size of the money supply has:

Increased by $4000

In an unregulated environment the commercial banking system would tend to vary the supply of money in a way that:

Reinforced cyclical variations in the economy

The use of high leveraging by banks leads to the banking system’s:

Instability

The two conflicting goals facing commercial banks are:

Profit and liquidity.

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:

$1 million also? ($1 million times the required-reserve ratio is not the correct answer)

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:

By $22 billion? (By $20 billion is not the correct answer)

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:

$1 billion? ($10 billion is not the correct answer)

When a bank grants a loan to a customer who gets the funds and keeps it at home for a while then the money supply will:

Increase

One major component of money supply M1 is part of a bank’s:

Liabilities

A depositor places $5000 in cash in a commercial bank

and the reserve ratio is 20 percent; the bank sends the $5000 to the Federal Reserve Bank. As a result the reserves and excess reserves of the bank have been increased respectively, by:, $5,000 and $4,000

Suppose that the Fed has set the reserve ratio at 10 percent and that banks collectively have $2 billion in excess reserves. What is the maximum amount of new checkable-deposit money that can be created by the banking system?

$20 billion

One way to enhance the stability of the banking system is to:

Require higher bank capitalization or net worth? (Require more leveraging by banks is not the correct answer)

The actual reason that banks must hold required reserves is:

To give the Fed control over the lending ability of commercial banks.

A bank is in the position to make loans when required reserves:

Are less than actual reserves

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

Liabilities

The required-reserve ratio is equal to:

A commercial bank’s checkable-deposit liabilities divided by its required reserves? (A commercial bank’s excess reserves divided by its required reserves is not the correct answer)

When people withdraw money from their deposits in the banking system the:

Excess reserves of the banking system will decrease

A commercial bank sells a $10000 government bond to a securities dealer. The dealer pays for the bond in cash which the bank adds to its vault cash. The money supply has:

Decreased by $10,000

Sharon sells a government security worth $4600000 to the Federal Reserve Bank of Kansas City. She then deposits the funds in her checking account at First Commerce Bank. Her checking account had a $150000 balance before this deposit. The reserves of First Commerce Bank would:

Increase by $4,600,000

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:

$213,333

The claims of creditors of a bank against the bank’s assets are called:

Liabilities

"Leverage" in finance refers to the:

Shifting of financial risk on to an insurer? (Increase in profits or losses from an investment is not the correct answer)

Suppose that the reserve ratio is 6% and applies only to checkable deposits. A bank has non-checkable time deposits of $300 million checkable deposits of $100 million and reserves of $8 million. What are the excess reserves of this bank?

$2 million

Banks’ borrowed funds come mostly from:

Issuing bonds and accepting deposits

When required reserves exceed actual reserves commercial banks will be forced to have borrowers:

Repay loans

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. The maximum amount by which this commercial banking system can expand the supply of money by lending is:

$300,000 billion? ($120,000 billion is not the coorect answer)

Henry deposits $2000 in currency in the First Street Bank. Later that same day Jane Harris negotiates a loan for $5400 at the same bank. After these transactions

the supply of money has:, Increased by $5,400

The primary reason commercial banks must keep required reserves on deposit at the Fed is to:

Allow the Fed to control the amount of bank lending

The fractional reserve system of banking started when goldsmiths began:

Issuing paper receipts in excess of the amount of gold held

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 required reserve ratio is 10 percent the bank has excess reserves of:

$22,000

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. This bank has liabilities and net worth totaling:

$580 million

Fractional reserve banking refers to a system where banks:

Hold only a fraction of their deposits in their reserves

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?

Bank purchases of Treasury bonds from the Fed

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 $10000 is drawn and cleared in favor of another bank then the bank above will end up with excess reserves of:

$13,000

The basic purpose of imposing legal reserve requirements on commercial banks is to:

Provide a device through which the credit-creating activities of banks can be controlled

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. First National Bank can make new loans of up to:

$32,000

The balance sheet below is for the First Federal Bank. Assume the required reserve ratio is 20 percent. Refer to the above information. If the original bank balance sheet was for the whole commercial banking system rather than a single bank loans and deposits could have been expanded by a maximum of:

$200,000

Other things being equal an expansion of commercial bank lending:

Increases the money supply

The Federal funds rate is the rate that banks pay for loans from:

Other banks

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 $20000 is drawn and cleared against this bank it will then have excess reserves of:

$15,000

If the required reserve ratio were 15 percent the value of the monetary multiplier would be:

6.67

A bank’s required reserves can be calculated by:

Multiplying its checkable-deposit liabilities by the reserve ratio

A commercial bank buys a $50000 government security from a securities dealer. The bank pays the dealer by increasing the dealer’s checkable deposit balance by $50000. The money supply has:

Increased by $50,000

What percent of the money that a typical modern bank invests comes from borrowing?

About 95%

A commercial bank has excess reserves of $10000 and a required reserve ratio of 20%. It grants a loan of $8000 to a customer

who then writes out a check for $8000 that is deposited in another bank. The first bank will find its reserves decrease by:, $8,000

Banks can lend their excess reserves to other banks in the:

Federal funds market

The balance sheet below is for the First Federal Bank. Assume the required reserve ratio is 20 percent. Refer to the above information. This bank can safely expand its loans by a maximum of:

$200,000? ($20,000 is not the correct answer)

A commercial bank has no excess reserves until a depositor places $2000 in cash in the bank. The reserve ratio is 10%. The bank then lends $1500 to a borrower. As a consequence of these transactions the bank’s excess reserves are:

Increased by $300

Maximum checkable-deposit expansion in the banking system is equal to:

Excess reserves times the monetary multiplier

A bank’s net worth is the:

Claims of its owners against the bank’s assets? (Claims of its creditors against the bank’s assets is not the correct answer)

Suppose that the banking system in Canada has a required reserve ratio of 10 percent while the banking system in the United States has a required reserve ratio of 20 percent. In which country would $100 of initial excess reserves be able to cause a larger total amount of money creation?

Canada

The relative importance of various asset items on a commercial bank’s balance sheet reflects a bank’s pursuit of which two conflicting goals?

Liquidity and profits

Assume that the required reserve ratio is 20 percent. A business deposits a $50000 check at Bank A; the check is drawn against Bank B. What happens to the reserves at Bank A and Bank B?

Increase by $50,000 at Bank A, and decrease by $50,000 at Bank B? (Increase by $10,000 at Bank A, and decrease by $10,000 at Bank B is not the correct answer)

If the monetary multiplier is 6

then the reserve ratio must be:, 0.167