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Exam 15: Money Creation

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Question 21

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Most modern banking systems are based on

A) money of intrinsic value.
B) commodity money.
C) 100 percent reserves.
D) fractional reserves.

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

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Question 22

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$\begin{array} { | l | r | l | l | } \hline & & \text { Assets } & \text { Liabilities and Net Worth } \\\hline \text { Stock Shares } & \$ 400 & & \\\hline \text { Reserves } & 40 & & \\\hline \text { Property } & 300 & & \\\hline \text { Securities } & 160 & & \\\hline \text { Loans } & 80 & & \\\hline \text { Demand Deposits } & 180 & & \\\hline\end{array}$ 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

A) $400 million.
B) $440 million.
C) $550 million.
D) $580 million.

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

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Question 23

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Define the monetary multiplier.

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

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

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

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.

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

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

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.

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

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

Banks create money when they

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?

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

$\begin{array} { | l | c | } \hline { \text { Type of Deposit } } & \text { Reserve Requirement } \\\hline \text { Checkable Deposits } & \\\hline \$ 7.8 \text { - 48.3 Million } & 3 \% \\\hline \text { Over \$48.3 Million } & 10 \\\hline \text { Noncheckable personal savings and time deposits } & 0 \\\hline\end{array}$ 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

Actual reserves equal required reserves plus excess reserves.