Macroeconomics Chapter 33

A fractional reserve banking system:

-is susceptible to bank "panics" or "runs"

When a bank has a check drawn and cleared against it:

-the amount of required reserves the bank must have will fall

The greater the required reserve ratio, the:

-lower is the monetary multiplier

Money is destroyed when:

-loans are repaid

When the receipts given by goldsmith’s to depositors were used to make purchases:

-the receipts became in effect paper money

The reserves of a commercial bank consist of:

-deposits at the Federal Reserve Bank and vault cash

Most modern banking systems are based on:

-fractional reserves

When a commercial bank has excess reserves:

-it is in a position to make additional loans

Excess reserves refer to the:

-difference between actual reserves and required reserves

A commercial bank’s reserves are:

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

Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the banks required and excess reserves are equal, then its actual reserves:

-are $20,000

In a fractional reserve banking system:

-banks can create money through the lending process

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

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

-federal fund rate

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