Question 1

When people withdraw money from their deposits in the banking system, the

Accepted Answer

A)  excess reserves of the banking system will decrease.
B)  excess reserves of the banking system will increase.
C)  excess reserves of the banking system will not be affected.
D)  money supply will immediately decrease.Accessibility: Keyboard Navigation

Question 2

The last transaction in the federal funds market occurred in 2008 because Topic: Money-Creating Transactions of a Commercial Bank

Accepted Answer

A)  the Federal Reserve closed down the federal funds market.
B)  in response to the financial crisis, the Federal Reserve raised the reserve ratio to 100 percent.
C)  the federal funds rate has been set too high.
D)  since the financial crisis, nearly every bank has significant excess reserves.Topic: Money-Creating Transactions of a Commercial Bank

Question 3

The claims of the owners of a firm against the firm's assets are called

Accepted Answer

A)  working capital.
B)  assets.
C)  net worth.
D)  liabilities.

Question 4

If the reserve ratio is 100 percent, the value of the monetary multiplier is

Accepted Answer

A)  0.
B)  1.
C)   10
D)   100

Question 5

During a recession, when banks tend to increase their excess reserves, the money supply M1 decreases.

Accepted Answer

A) True 
 B)False

Question 6

Which one of the following is presently a major deterrent to bank panics in the United States?

Accepted Answer

A)  the legal reserve requirement
B)  the fractional reserve system
C)  the gold standard
D)  deposit insurance

Question 7

When a bank buys government securities from the Fed, then the bank's ability to "create money" will be reduced.

Accepted Answer

A) True 
 B)False

Question 8

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank.Later that same day, Jones negotiates a loan for $1,200 at the same bank.In what direction and by what amounthas the supply of moneychanged?

Accepted Answer

A)  decreased by $600
B)  increased by $1,800
C)  increased by $600
D)  increased by $1,200

Question 9

Banks create money when they

Accepted Answer

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

Question 10

Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent.If the bank's required and excess reserves are equal, then its actual reserves

Accepted Answer

A)  are $1,000,000.
B)  are $10,000.
C)  are $20,000.
D)  cannot be determined from the given information.

Question 11

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are

Accepted Answer

A)  zero.
B)  $1,000.
C)  $2,000.
D)  $500.

Question 12

A depositor places $10,000 in cash in a commercial bank, where the required reserve ratio is 10 percent.The bank sends the $10,000 to its Federal Reserve Bank.As a result, the actual reserves, required reserves, and excess reserves of the bank have been increased by

Accepted Answer

A)  $10,000, $9,000, and $1,000, respectively.
B)  $10,000, $500, and $4,500, respectively.
C)  $10,000, $1,000, and $9,000, respectively.
D)  $1,000, $10,000, and $9,000, respectively.

Question 13

A bank has excess reserves of $5,000 and demand deposits of $50,000; the required reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent, then this bank can lend a maximum of

Accepted Answer

A)  $1,000.
B)  $1,500.
C)  $2,000.
D)  $2,500.

Question 14

When bank loans are repaid and the banks hold on to the funds as additional reserves, then the banking system's ability to "create" money decreases.

Accepted Answer

A) True 
 B)False

Question 15

One major component of money supply M1 is part of a bank's

Accepted Answer

A)  assets.
B)  reserves.
C)  liabilities.
D)  net worth.

Question 16

Money is "created" when

Accepted Answer

A)  a depositor deposits money at the bank.
B)  a bank grants a loan to a customer.
C)  someone lends money to a friend or a family member.
D)  people use money to pay for stuff they buy from one another.

Question 17

Requiring banks to use less leveraging is equivalent to

Accepted Answer

A)  expanding the loan portfolio of banks.
B)  reducing the banks' reserve ratio.
C)  requiring a higher level of bank net worth.
D)  requiring banks to accept more deposits.

Question 18

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

Accepted Answer

A)  the MPS.
B)  its actual reserves.
C)  its excess reserves.
D)  the reserve ratio.

Question 19

The commercial banking system has excess reserves of $200,000.Then new loans of $800,000 are made, and the system ends up just meeting its reserve requirements.The required reserve ratio must be

Accepted Answer

A)  10 percent.
B)  20 percent.
C)  25 percent.
D)  30 percent.

Question 20

(Last Word)  The term "leverage" refers to

Accepted Answer

A)  using borrowed money in an attempt to increase profits.
B)  the Fed's ability to control money creation through the reserve ratio.
C)  investing in stocks from multiple companies in an effort to spread risk.
D)  Fed sales and purchases of bonds to stabilize the money supply.

Exam 35: Money Creation

The claims of the owners of a firm against the firm's assets are called

Correct AnswerverifiedShow Answer

When bank loans are repaid and the banks hold on to the funds as additional reserves, then the banking system's ability to "create" money decreases.

Correct AnswerverifiedShow Answer

A depositor places $10,000 in cash in a commercial bank, where the required reserve ratio is 10 percent.The bank sends the $10,000 to its Federal Reserve Bank.As a result, the actual reserves, required reserves, and excess reserves of the bank have been increased by

Correct AnswerverifiedShow Answer

When a bank buys government securities from the Fed, then the bank's ability to "create money" will be reduced.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The commercial banking system has excess reserves of $200,000.Then new loans of $800,000 are made, and the system ends up just meeting its reserve requirements.The required reserve ratio must be

Correct AnswerverifiedShow Answer

The last transaction in the federal funds market occurred in 2008 because Topic: Money-Creating Transactions of a Commercial Bank

Correct AnswerverifiedShow Answer

Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank.Later that same day, Jones negotiates a loan for $1,200 at the same bank.In what direction and by what amounthas the supply of moneychanged?

Correct AnswerverifiedShow Answer

If the reserve ratio is 100 percent, the value of the monetary multiplier is

Correct AnswerverifiedShow Answer

Money is "created" when

Correct AnswerverifiedShow Answer

One major component of money supply M1 is part of a bank's

Correct AnswerverifiedShow Answer

(Last Word) The term "leverage" refers to

Correct AnswerverifiedShow Answer

A bank has excess reserves of $5,000 and demand deposits of $50,000; the required reserve ratio is 20 percent.If the reserve ratio is raised to 25 percent, then this bank can lend a maximum of

Correct AnswerverifiedShow Answer

When people withdraw money from their deposits in the banking system, the

Correct AnswerverifiedShow Answer

During a recession, when banks tend to increase their excess reserves, the money supply M1 decreases.

Correct AnswerverifiedShow Answer

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are

Correct AnswerverifiedShow Answer

Which one of the following is presently a major deterrent to bank panics in the United States?

Correct AnswerverifiedShow Answer

Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent.If the bank's required and excess reserves are equal, then its actual reserves

Correct AnswerverifiedShow Answer

Banks create money when they

Correct AnswerverifiedShow Answer

Requiring banks to use less leveraging is equivalent to

Correct AnswerverifiedShow Answer

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