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Exam 15: Money Creation

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Question 21

Multiple Choice

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Banks create money when they

A) allow loans to mature.
B) accept deposits of cash.
C) buy government bonds from households.
D) sell government bonds to households.

E) None of the above
F) B) and C)

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Question 22

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Actual reserves equal required reserves plus excess reserves.

A) True
B) False

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Question 23

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

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. If a check for $14,000 is drawn and cleared against this bank, then its reserves and checkable deposits will be

The market for immediately available reserve balances at the Federal Reserve is known as the

Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. If a check for $20,000 is drawn and cleared against this bank, it will then have excess reserves of

A bank can grant loans up to the amount of its actual reserves.

Define the monetary multiplier.

A bank has reserves of $30,000 and deposits of $120,000. If the reserve ratio is 10 percent, then this bank can lend out a maximum of $12,000 in new loans.

If the monetary multiplier is 6, then the reserve ratio must be

Suppose the Northwestern Bank has excess reserves of $12,000 and checkable deposits of $125,000. If the reserve requirement is 20 percent, what are the bank's actual reserves?

If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is

While the withdrawal of cash from banks does not affect money supply immediately, it will affect the banking system's lending capacity, which will eventually lead to a contraction in money supply.

Most modern banking systems are based on

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

Banks can lend their excess reserves to other banks in the

$\begin{array} { | l | c | } \hline { \text { Type of Deposit } } & \text { Reserve Requirement } \\\hline \text { Checkable Deposits } & \\\hline \$ 7.8 \text { - 48.3 Million } & 3 \% \\\hline \text { Over \$48.3 Million } & 10 \\\hline \text { Noncheckable personal savings and time deposits } & 0 \\\hline\end{array}$ Refer to the accompanying table. If a bank has $60 million in savings deposits and $40 million in checkable deposits, then its required reserves are

What are the two significant characteristics of the fractional reserve banking system?

$\begin{array} { | l | r | l | l | } \hline & & \text { Assets } & \text { Liabilities and Net Worth } \\\hline \text { Stock Shares } & \$ 400 & & \\\hline \text { Reserves } & 40 & & \\\hline \text { Property } & 300 & & \\\hline \text { Securities } & 160 & & \\\hline \text { Loans } & 80 & & \\\hline \text { Demand Deposits } & 180 & & \\\hline\end{array}$ The ?gures in the table are for a single commercial bank. All ?gures are in thousands of dollars. This bank has liabilities and net worth totaling

When you deposit money at a bank, the bank will normally turn around and lend most of it to a borrower.