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Exam 34: Money Creation

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Question 31

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The term "leverage" refers to:

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.

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Question 32

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Excess reserves refer to the:

A) difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank.
B) minimum amount of actual reserves a bank must keep on hand to back up its customers deposits.
C) difference between actual reserves and loans.
D) difference between actual reserves and required reserves.

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Question 33

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Answer the question on the basis of 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. Refer to the information.With the $40 billion deposit,the banking system will be able to expand the money supply through loans by:

A bank temporarily short of required reserves may be able to remedy this situation by:

Suppose the reserve requirement is 10 percent.If a bank has $5 million of checkable deposits and actual reserves of $500,000,the bank:

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 30 percent.All figures are in billions. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 51 \\109 \\100\\10\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$140\\130\\\\\\\end{array}\end{array}$ Refer to the data.If the commercial banking system actually loans the maximum amount it is able to lend:

If we both have checking accounts in the same commercial bank and I write a check in your favor for $200,the bank's:

Commercial banks monetize claims when they:

Which of the following is correct?

When commercial banks retire outstanding loans,the supply of money is increased.

Which of the following are all assets to a commercial bank?

Excess reserves are the amount by which required reserves exceed actual reserves.

Other things equal,if the required reserve ratio was lowered:

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

Answer the question on the basis of the following balance sheet for the First National Bank of Bunco.All figures are in millions. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 20 \\25 \\15 \\90\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$100\\50\\\\\\\end{array}\end{array}$ Refer to the data.If this bank has excess reserves of $6 million,the legal reserve ratio must be:

If the reserve ratio is 15 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits,then the relevant monetary multiplier for the banking system will be:

A commercial bank can expand its excess reserves by:

Most modern banking systems are based on:

If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves;E equals the amount of excess reserves;and m is the monetary multiplier,then:

An individual bank can safely lend out a multiple of its excess reserves,but the banking system can safely lend out only an amount equal to the excess reserves in the banking system.