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Exam 15: Money Creation

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Question 61

Multiple Choice

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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

A) 3.
B) 4.
C) 5.
D) 6.

E) A) and D)
F) All of the above

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Question 62

Multiple Choice

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Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU) . As a result of this transaction,

A) the supply of money is increased by $5,000.
B) the supply of money declines by the amount of the loan.
C) a claim has been "demonetized."
D) the Metro Bank acquires reserves from other banks.

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

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Question 63

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The amount of required reserves that a bank must hold is computed as a certain fraction of the bank's assets.

$\begin{array} { | l | c | } \hline \text { Reserves } & \$ 100 \\\hline \text { Checkable Deposits } & 1,000 \\\hline \text { Loans (to customers) } & 300 \\\hline \text { Property } & 400 \\\hline \text { Securities (owned) } & 300 \\\hline \text { Stock Shares } & 100 \\\hline\end{array}$ 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, it could safely expand its loans by

Consider the following information about a banking system: new currency deposited in the system = $40 billion, legal reserve ratio = 0.20, excess reserves prior to the currency deposit = $0. The $40 billion deposit of currency Into checking accounts will create excess reserves of

A bank that has assets of $85 billion and a net worth of $10 billion must have

Suppose that a bank's actual reserves are $5 million, its checkable deposits are $5 million, and its excess reserves are $3 million. The reserve requirement must be

Which of the following is correct?

What is the history behind the idea of a fractional reserve banking system?

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

Money is destroyed when

If the banking system has $20 billion in excess reserves and the reserve ratio is 10 percent, the system can increase its loans by a maximum of $22 billion.

Assume Company X deposits $100,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can increase the money supply by a maximum of

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This commercial bank has excess reserves of

Commercial banks monetize claims when they

When cash is deposited at a bank, the composition of the money supply is changed but the total supply of money is not.

Explain what is meant by fractional reserve banking.

Which of the following are liabilities to a bank?

A bank owns a 10-story office building. In the bank's balance sheet, this would be listed as part of

Consider the following information about a banking system: new currency deposited in the system = $40 billion, legal reserve ratio = 0.20, excess reserves prior to the currency deposit = $0. With the $40 billion deposit, the Banking system will be able to expand the money supply through loans by