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Exam 34: Money Creation

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Question 61

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Answer the question on the basis of the following table for a commercial bank or thrift: $\begin{array}{c}\begin{array}{c}(1) \\\text {Legal Reserve}\\\underline{\text {Ratio (\%) }}\\10 \\20 \\25 \\30\end{array}\begin{array}{c}(2) \\\text {Checkable}\\\underline{\text {Deposits}}\\ \$ 40,000 \\40,000\\40,000\\40,000\end{array}\begin{array}{c}(3) \\\text {Actual}\\\underline{\text {Reserves}}\\\$ 10,000 \\10,000\\10,000\\10,000\end{array}\end{array}$ Refer to the table.When the legal reserve ratio is 30 percent,the monetary multiplier is:

A) 5.
B) 4.
C) 3.33.
D) 2.5.

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

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Question 62

Multiple Choice

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If a portion of the loans extended by commercial banks is taken as cash rather than as checkable deposits,the maximum money-creating potential of the commercial banking system will:

A) be equal to twice the reciprocal of the reserve ratio.
B) be unaffected.
C) increase.
D) decrease.

E) All of the above
F) None of the above

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Question 63

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Assume that a bank initially has no excess reserves.If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500,the reserve requirement must be:

Answer the question on the basis of the following table for a commercial bank or thrift: Refer to row 1 in the table.The number appropriate for space W is:

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000.If the reserve ratio is 20 percent,the banking system can expand the supply of money by the maximum amount of:

The amount of reserves that a commercial bank is required to hold is equal to:

Which of the following statements is correct?

Checkable deposits are a liability on a bank's balance sheet.

Commercial bank reserves are an asset to commercial banks but a liability to the Federal Reserve Bank holding them.

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

Use the following balance sheet for the ABC National Bank in answering the question.Assume the required reserve ratio is 20 percent. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 27,000 \\50,000 \\33,000 \\200,000\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$1,100\\200,000\\\\\\\end{array}\end{array}$ Refer to the data.Assuming the bank loans out all of its remaining excess reserves as a checkable deposit,and has a check cleared against it for that amount,its reserves and checkable deposits will now be:

Suppose Balin has $100 to invest in an opportunity that returns,for every $100 invested,$120 if it goes well but only $80 if it goes poorly.If leverage allows Balin to borrow $90 for every $10 he invests,what are his rates of profit and loss,respectively,if he borrows the full amount to invest in the opportunity?

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

In prosperous times,commercial banks are likely to hold very small amounts of excess reserves because:

Money is destroyed when:

Use the following balance sheet for the ABC National Bank in answering the question.Assume the required reserve ratio is 20 percent. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 27,000 \\50,000 \\33,000 \\200,000\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$1,100\\200,000\\\\\\\end{array}\end{array}$ Refer to the data.This commercial bank has excess reserves of:

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:

Assume the Continental National Bank's balance statement is as follows: $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Loans}\\\text { Securities} \end{array}\begin{array}{l}\\\$ 40,000 \\25,000 \\110,000 \\\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\end{array}\begin{array}{lll}\\\$130,000\\45,000\\\\\end{array}\end{array}$ Assuming a legal reserve ratio of 20 percent,how much in excess reserves would this bank have after a check for $10,000 was drawn and cleared against it?

If actual reserves in the banking system are $40,000,excess reserves are $10,000,and checkable deposits are $240,000,then the legal reserve requirement is:

A fractional reserve banking system: