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Exam 15: Money Creation

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Question 41

True/False

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The primary purpose of the reserve requirements for banks is not really to ensure liquidity to meet withdrawals, but rather to allow the Fed some control over the money supply.

A) True
B) False

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Question 42

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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?

A) $16,000
B) $84,000
C) $24,000
D) $20,000

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

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Question 43

Multiple Choice

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The accompanying 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. If there is a deposit of $10 billion of new currency Into checking accounts in the banking system, excess reserves will increase by

In the federal funds market, a bank that needs to meet reserve requirements can borrow reserves, usually for

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

Fractional reserve banking refers to a system where banks

A single commercial bank must meet a 25 percent reserve requirement. If it initially has no excess reserves and then $2,000 in cash is deposited in the bank, it can increase its loans by a maximum of

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?

The greater the required reserve ratio, the

Assume that the required reserve ratio is 20 percent. A business deposits a $50,000 check at Bank A; the check is drawn against Bank B. What happens to the excess reserves at Bank A and Bank B?

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

The accompanying balance sheet is for the First Federal Bank. Assume the required reserve ratio is 20 percent. This bank can safely expand its loans by a maximum of

The supply of money increases when the public buys government securities from commercial banks.

The reserves of a commercial bank consist of

If the monetary authorities want to reduce the monetary multiplier, they should

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 10 percent. All figures are in billions. After a deposit of $10 billion of new currency into a checking Account in the banking system, excess reserves will increase by

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

$\begin{array} { | l | c | } \hline \text { Reserves } & \$ 100 \\\hline \text { Checkable Deposits } & 1,000 \\\hline \text { Loans (to customers) } & 300 \\\hline \text { Property } & 400 \\\hline \text { Securities (owned) } & 300 \\\hline \text { Stock Shares } & 100 \\\hline\end{array}$ Refer to the accompanying table of information for the Moolah Bank, and assume that Moolah Bank is "loaned up." If it receives a $100 deposit of currency, the banking system of which Moolah is a part could expand loans by

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. If commercial bankers decide to hold additionalcess reserves equal to 7 percent of any newly acquired deposits, then the relevant monetary multiplier for this banking system will be A) 8.33. B) 6.66. C) 5.26. D) 4.76.

Money is "created" when