Deck 29: 3: Sec 293 Mc Banks and the Money Supply

Question 1

Under a fractional-reserve banking system,banks

A)hold more reserves than deposits.
B)generally lend out a majority of the funds deposited.
C)cause the money supply to fall by lending out reserves.
D)All of the above are correct.

Answer 1

D

Question 2

In a 100-percent-reserve banking system,if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits,then

A)M1 would increase.
B)M1 would decrease.
C)M1 would not change.
D)M1 might rise or fall.

Answer 2

C

Question 3

In a system of 100-percent-reserve banking,

A)banks do not make loans.
B)currency is the only form of money.
C)deposits are banks' only assets.
D)All of the above are correct.

Answer 3

C

Question 4

A bank's reserve ratio is 10 percent and the bank has $5,000 in deposits.Its reserves amount to

A)$50.
B)$500.
C)$4,500.
D)$4,950.

Question 5

In a system of 100-percent-reserve banking,

A)banks do not accept deposits.
B)banks do not influence the supply of money.
C)loans are the only asset item for banks.
D)All of the above are correct.

Question 6

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits.Its reserves amount to

A)$8.
B)$80.
C)$92.
D)$920.

Question 7

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store.On their respective balance sheets,this loan is

A)an asset for the bank and a liability for Kellie's Print Shop.The loan increases the money supply.
B)an asset for the bank and a liability for Kellie's Print Shop.The loan does not increase the money supply.
C)a liability for the bank and an asset for Kellie's Print Shop.The loan increases the money supply.
D)a liability for the bank and an asset for Kellie's Print Shop.The loan does not increase the money supply.

Question 8

Which of the following is a liability of a bank and an asset of its customers?

A)deposits of its customers and loans to its customers
B)deposits of its customers but not loans to its customers
C)loans of its customers but not the deposits of its customers
D)neither the deposits of its customers nor the loans to its customers

Question 9

In a system of 100-percent-reserve banking,the purpose of a bank is to

A)make loans to households.
B)influence the money supply.
C)give depositors a safe place to keep their money.
D)buy and sell gold.

Question 10

Suppose the banking system currently has $400 billion in reserves,the reserve requirement is 8 percent,and excess reserves amount to $5 billion.What is the level of deposits?

A)$5,000 billion
B)$4,937.5 billion
C)$5,062.5 billion
D)$4,995 billion

Question 11

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600,it has a

A)$600 increase in excess reserves and no increase in required reserves.
B)$600 increase in required reserves and no increase in excess reserves.
C)$510 increase in excess reserves and a $90 increase in required reserves.
D)$90 increase in excess reserves and a $510 increase in required reserves.

Question 12

If a bank has a reserve ratio of 8 percent,then

A)government regulation requires the bank to use at least 8 percent of its deposits to make loans.
B)the bank's ratio of loans to deposits is 8 percent.
C)the bank keeps 8 percent of its deposits as reserves and loans out the rest.
D)the bank keeps 8 percent of its assets as reserves and loans out the rest.

Question 13

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150.If customers deposit $50 into the bank,what is the value of the money supply?

A)$50
B)$100
C)$150
D)$200

Question 14

A bank's reserve ratio is 5 percent and the bank has $2,280 in reserve.Its deposits amount to

A)$114.
B)$2,166.
C)$2,400.
D)$45,600.

Question 15

In a fractional-reserve banking system,a bank

A)does not make loans.
B)does not accept deposits.
C)keeps only a fraction of its deposits in reserve.
D)None of the above is correct.

Question 16

On a bank's T-account,which are part of the banks liabilities?

A)both deposits made by its customers and reserves
B)deposits made by its customers but not reserves
C)reserves but not deposits made by its customers
D)neither deposits made by its customers nor reserves

Question 17

A bank's assets equal its liabilities under

A)both 100-percent-reserve banking and fractional-reserve banking.
B)100-percent-reserve banking but not under fractional-reserve banking.
C)fractional-reserve banking but not under 100-percent-reserve banking.
D)neither 100-percent-reserve banking nor fractional-reserve banking.

Question 18

Which of the following is an asset of a bank and a liability for its customers?

A)deposits of its customers and loans to its customers
B)deposits of its customers but not loans to its customers
C)loans to its customers but not the deposits of its customers
D)neither the deposits of its customers nor the loans to its customers

Question 19

On a bank's T-account,which are part of the bank's assets?

A)both deposits made by its customers and reserves
B)deposits made by its customers but not reserves
C)reserves but not deposits made by its customers
D)neither deposits made by its customers nor reserves

Question 20

Banks are able to create money only when

A)interest rates are above 2%.
B)the Fed sells U.S.government bonds.
C)the reserve ratio is 100%.
D)only a fraction of deposits are held in reserve.

Question 21

A bank has a 20 percent reserve requirement,$8,000 in loans,and has loaned out all it can given the reserve requirement.

A)It has $6,400 in deposits.
B)It has $10,000 in deposits.
C)It has $9,600 in deposits.
D)It has $1,600 in deposits.

Question 22

Suppose the banking system currently has $300 billion in reserves,the reserve requirement is 5 percent,and excess reserves are $30 billion.What is the level of loans?

A)$270 billion
B)$5,400 billion
C)$6,000 billion
D)$5,100 billion

Question 23

The manager of the bank where you work tells you that your bank has $10 million in excess reserves.She also tells you that the bank has $400 million in deposits and $375 million dollars in loans.Given this information you find that the reserve requirement must be

A)10/400.
B)25/400.
C)35/400.
D)15/400.

Question 24

A bank has $8,000 in deposits and $6,000 in loans.It has loaned out all it can given the reserve requirement.It follows that the reserve requirement is

A)2.5 percent.
B)33.3 percent.
C)25 percent.
D)75 percent.

Question 25

If the reserve requirement is 12 percent and banks desire to hold no excess reserves,when a bank receives a new deposit of $1,000,

A)it must increase its required reserves by more than $150.
B)its total reserves initially increase by $120.
C)it will be able to make new loans up to a maximum of $880.
D)None of the above is correct.

Question 26

The manager of the bank where you work tells you that your bank has $6 million in excess reserves.She also tells you that the bank has $400 million in deposits and $362 million dollars in loans.Given this information you find that the reserve requirement must be

A)44/400.
B)6/362.
C)38/400.
D)32/400.

Question 27

A bank has $500,000 in deposits and $475,000 in loans.It has loaned out all it can.It has a reserve ratio of

A)2.5 percent.
B)5 percent.
C)9.5 percent.
D)25 percent.

Question 28

Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 6 percent.If you deposit $8,000 into First Raven Bank,

A)First Raven's required reserves increase by $480.
B)First Raven will be able to lend out $7,520.
C)First Raven's assets and liabilities both will increase by $8,000.
D)All of the above are correct.

Question 29

A bank has a 5 percent reserve requirement,$5,000 in deposits,and has loaned out all it can given the reserve requirement.

A)It has $25 in reserves and $4,975 in loans.
B)It has $250 in reserves and $4,750 in loans.
C)It has $1,000 in reserves and $4,000 in loans.
D)None of the above is correct.

Question 30

A bank has an 8 percent reserve requirement,$10,000 in deposits,and has loaned out all it can given the reserve requirement.

A)It has $80 in reserves and $9,920 in loans.
B)It has $800 in reserves and $9,200 in loans.
C)It has $1,250 in reserves and $8,750 in loans.
D)None of the above is correct.

Question 31

The reserve requirement is 12 percent.Lucy deposits $600 into a bank.By how much do excess reserves change?

A)$600
B)$528
C)$72
D)$12

Question 32

Reserves are

A)the central bank of the U.S.
B)deposits that banks hold in excess of the required amount.
C)the purchase of bonds by the Federal Open Market Committee.
D)deposits that banks have received but have not yet loaned out.

Question 33

A bank has a 10 percent reserve requirement,$36,000 in loans,and has loaned out all it can given the reserve requirement.

A)It has $3,600 in deposits.
B)It has $32,400 in deposits.
C)It has $39,600 in deposits.
D)It has $40,000 in deposits.

Question 34

If the reserve requirement is 10 percent,a bank desires to hold no excess reserves,and it receives a new deposit of $500,it

A)must increase required reserves by $50.
B)will initially see reserves increase by $500.
C)will be able to use this deposit to make new loans amounting to $450.
D)All of the above are correct.

Question 35

If the reserve requirement is 5 percent,a bank desires to hold no excess reserves,and it receives a new deposit of $10,then this bank

A)must increase its required reserves by $10.
B)will initially see its total reserves increase by $10.50.
C)will be able to make new loans up to a maximum of $9.50.
D)All of the above are correct.

Question 36

If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent,this action by itself initially makes the money supply

A)and wealth increase by $200.
B)and wealth decrease by $200.
C)increase by $200 while wealth does not change.
D)decrease by $200 while wealth decreases by $200.

Question 37

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves.A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000.How much does this bank now have to lend out if it decides to hold only required reserves?

A)$27,000
B)$27,190
C)$26,190
D)$9,000

Question 38

If a bank desires to hold no excess reserves,the reserve requirement is 8 percent,and it receives a new deposit of $500,

A)its required reserves increase by $40.
B)its total reserves initially increase by $460.
C)it will be able to make a new loan of up to $492.
D)All of the above are correct.

Question 39

When a bank loans out $1,000,the money supply

A)does not change.
B)decreases.
C)increases.
D)may do any of the above.

Question 40

A bank loans Greg's Ice Cream $250,000 to remodel a building near campus to use as a new store.On their respective balance sheets,this loan is

A)a liability for the bank and an asset for Greg's Ice Cream.The loan increases the money supply.
B)a liability for the bank and an asset for Greg's Ice Cream.The loan does not increase the money supply.
C)an asset for the bank and a liability for Greg's Ice Cream.The loan increases the money supply.
D)an asset for the bank and a liability for Greg's Ice Cream.The loan does not increase the money supply.

Question 41

If the reserve ratio is 5 percent,then $1,000 of additional reserves can create up to

A)$5,500 of new money.
B)$5,000 of new money.
C)$4,000 of new money.
D)None of the above is correct.

Question 42

If you deposit $100 of currency into a demand deposit at a bank,this action by itself

A)does not change the money supply.
B)increases the money supply.
C)decreases the money supply.
D)has an indeterminate effect on the money supply.

Question 43

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent,this action by itself initially makes the money supply

A)and wealth increase by $500.
B)and wealth decrease by $500.
C)increase by $500 while wealth does not change.
D)decrease by $500 while wealth decreases by $500.

Question 44

If the reserve ratio is 4 percent,then the money multiplier is

A)24.
B)25.
C)26.
D)4.

Question 45

If the reserve ratio is 12 percent,then the money multiplier is

A)9.3.
B)8.3.
C)7.3.
D)12.

Question 46

As the reserve ratio decreases,the money multiplier

A)increases.
B)does not change.
C)decreases.
D)could do any of the above.

Question 47

If the central bank in some country raised the reserve requirement,then the money multiplier for that country

A)would increase.
B)would not change.
C)would decrease.
D)could do any of the above.

Question 48

If R represents the reserve ratio for all banks in the economy,then the money multiplier is

A)1/(1-R).
B)1/R.
C)1/(1+R).
D)(1+R)/R.

Question 49

If the reserve ratio is 5 percent,then $500 of additional reserves can create up to

A)$10,500 of new money.
B)$10,000 of new money.
C)$9,500 of new money.
D)$2,500 of new money.

Question 50

If the reserve ratio is 8 percent,then the money multiplier is

A)12.5.
B)11.5.
C)13.5.
D)8.

Question 51

If the reserve ratio is 8 percent,then an additional $800 of reserves can increase the money supply by as much as

A)$6,400.
B)$8,000.
C)$12,500.
D)$10,000.

Question 52

If the reserve ratio is 7.5 percent,the money multiplier is

A)7.5.
B)10.3.
C)13.3.
D)11.3.

Question 53

Which of the following statements is correct? In the special case of the 100-percent reserve banking the money multiplier is

A)0 and banks create money.
B)0 and banks do not create money.
C)1 and banks create money
D)1 and banks do not create money.

Question 54

The money multiplier equals

A)1/R,where R represents the quantity of reserves in the economy.
B)1/R,where R represents the reserve ratio for all banks in the economy.
C)1/(1+R),where R represents the quantity of reserves in the economy.
D)1/(1+R),where R represents the reserve ratio for all banks in the economy.

Question 55

If the reserve ratio increased from 10 percent to 20 percent,the money multiplier would

A)rise from 10 to 20.
B)rise from 5 to 10.
C)fall from 10 to 5.
D)not change.

Question 56

If the reserve ratio is 10 percent,the money multiplier is

A)100.
B)10.
C)9/10.
D)1/10.

Question 57

If the reserve ratio is 100-percent,then a new deposit of $1000 into a bank account

A)eventually increases the money supply by $1000.
B)leaves the size of the money supply unchanged.
C)eventually decreases the size of the money supply by $1000.
D)eventually increases the money supply by $2000.

Question 58

In the special case of the 100 percent-reserve banking,the money multiplier is

A)1 and banks create money.
B)1 and banks do not create money.
C)2 and banks create money
D)2 and banks do not create money.

Question 59

If the reserve ratio is 5 percent,then $600 of additional reserves can create up to

A)$30 of new money.
B)$3,000 of new money.
C)$12,000 of new money.
D)None of the above is correct.

Question 60

If the reserve ratio is 15 percent,the money multiplier is

A)7.7.
B)6.7.
C)5.7.
D)15.

Question 61

If the reserve ratio is 12.5 percent,then $2,000 of additional reserves can create up to

A)$8,000 of new money.
B)$16,000 of new money.
C)$32,000 of new money.
D)None of the above is correct.

Question 62

If the reserve ratio is 20 percent,then $100 of new reserves can generate

A)$60 of new money in the economy.
B)$250 of new money in the economy.
C)$500 of new money in the economy.
D)$2,000 of new money in the economy.

Question 63

If the reserve ratio is 6 percent,then $9,000 of additional reserves can create up to

A)$159,000 of new money.
B)$54,000 of new money.
C)$150,000 of new money.
D)$141,000 of new money.

Question 64

If $500 of new reserves generates $1000 of new money in the economy,then the money multiplier is

A)2 and the reserve ratio is 50 percent.
B)​2 and the reserve ratio is 2 percent.
C)​0.5 and the reserve ratio is 50 percent.
D)​0.5 and the reserve ratio is 2 percent.

Question 65

The leverage ratio is calculated as

A)assets minus liabilities.
B)assets divided by bank capital
C)the reciprocal of the required reserve ratio
D)the required reserve ratio multiplied by bank capital.

Question 66

Bank capital is

A)the machinery,structures,and equipment of the bank.
B)the resources that owners have put into the bank.
C)the reserves of the bank.
D)the bank's total assets.

Question 67

Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves,but at some point banks still have $5 million more they wish to lend out.If the reserve requirement is 10 percent,how much more money can banks create if they lend out the remaining amount?

A)$55 million
B)$50 million
C)$45 million
D)$40 million

Question 68

If the reserve ratio is 12.5 percent,then $5,600 of money can be generated by

A)$64 of new reserves.
B)$448 of new reserves.
C)$700 of new reserves.
D)$800 of new reserves.

Question 69

If the reserve ratio is 8 percent,then a decrease in reserves of $6,000 can cause the money supply to fall by as much as

A)$48,000.
B)$75,000.
C)$55,200.
D)$10,800.

Question 70

In the nation of Wiknam,the money supply is $80,000 and reserves are $18,000.Assuming that people hold only deposits and no currency,and that banks hold no excess reserves,then the reserve requirement is

A)29 percent.
B)22.5 percent.
C)16 percent.
D)None of the above is correct.

Question 71

First National Bank (FNB)has a reserve ratio of 20 percent,a required reserve ratio of 10 percent,and deposits of $1,000.If FNB receives an additional deposit of $100,

A)then it has required reserves of $210 and holds excess reserves of $10.
B)then it has required reserves of $10 and holds excess reserves of $20.
C)then it has required reserves of $110 and holds excess reserves of $190.
D)then it has required reserves of $110 and holds excess reserves of $0.

Question 72

If the reserve ratio is 10 percent,$1,400 of additional reserves can create up to

A)$140 of new money.
B)$14,000 of new money.
C)$140,000 of new money.
D)None of the above is correct.

Question 73

If $300 of new reserves generates $800 of new money in the economy,then the reserve ratio is

A)2.7 percent.
B)12.5 percent.
C)37.5 percent.
D)40 percent.

Question 74

If the reserve ratio is 4 percent,then $81,250 of new money can be generated by

A)$325 of new reserves.
B)$3,250 of new reserves.
C)$20,312.50 of new reserves.
D)$2,031,250 of new reserves.

Question 75

If the reserve ratio is 12.5 percent,then $1,000 of additional reserves can create up to

A)$7,000 of new money.
B)$8,000 of new money.
C)$11,500 of new money.
D)$12,500 of new money.

Question 76

Suppose a bank is operating with a leverage ratio of 10.A 6 percent increase in the value of assets

A)will reduce liabilities by 6 percent.
B)will result in a 60 percent increase in owner's equity.
C)will result in a 60 percent decrease in owner's equity.
D)will reduce liabilities by 10 percent.

Question 77

In Ugoland,the money supply is $8 million and reserves are $1 million.Assuming that people hold only deposits and no currency,and that banks hold no excess reserves,then the reserve requirement is

A)14 percent.
B)12.5 percent.
C)8 percent.
D)None of the above is correct.

Question 78

The 2008 credit crunch occurred when banks reduced lending in response to

A)​the loss of asset value for mortgage backed securities and mortgage loans.
B)​having too little capital to satisfy capital requirements.
C)​an excess of bank capital.
D)​an increase in the required reserve ratio.