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Exam 15: Money Creation

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Question 81

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The fractional reserve system of banking started when goldsmiths began

A) accepting deposits of gold for safe storage.
B) charging people who deposited their gold.
C) using deposited gold to produce products for sale to others.
D) issuing paper receipts in excess of the amount of gold held.

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Question 82

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Which of the following statements is correct?

A) The actual reserves of a commercial bank equal its excess reserves minus its required reserves.
B) A bank's liabilities plus its net worth equal its assets.
C) When borrowers repay bank loans, the supply of money increases.
D) A single commercial bank can safely lend a multiple amount of its excess reserves.

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Question 83

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Refer to the accompanying balance sheet for the First National Bank. Assume the reserve ratio is 15 percent. If the balance sheet was for the whole commercial banking system rather than a single bank, then loans and deposits Could expand by a maximum of approximately

In a fractional reserve banking system,

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 initially create

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

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

Refer to the accompanying balance sheet for the First National Bank of Bunco. All figures are in millions. If this bank has excess reserves of $6 million, the legal reserve ratio must be

When a commercial bank buys government (Treasury) bonds from the general public, money is created.

Commercial banks monetize claims when they sell securities to Federal Reserve Banks.

cess reserves refer to the

When a commercial bank has excess reserves,

What is the effect on the money supply when a commercial bank sells government securities to the public?

$\begin{array} { | l | c | } \hline { \text { Type of Deposit } } & \text { Reserve Requirement } \\\hline \text { Checkable Deposits } & \\\hline \$ 7.8 \text { - 48.3 Million } & 3 \% \\\hline \text { Over \$48.3 Million } & 10 \\\hline \text { Noncheckable personal savings and time deposits } & 0 \\\hline\end{array}$ Refer to the accompanying table. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are

When loans are repaid at commercial banks,

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars. The maximum amount by which the commercial Banking system can expand the supply of money by lending is

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

A commercial bank sells a $10,000 government bond to a securities dealer. The dealer pays for the bond in cash, which the bank adds to its vault cash. The money supply has

How can money be "destroyed" in the same way that checkable deposits expand the money supply?

The federal funds rate is the rate that banks pay for loans from