8) The Second National Bank of Townville has $400,000 in checking deposits, $125,000 in
savings deposits, $500,000 in loans, $20,000 in its reserve account at the Fed, and $5,000
of currency in its vault. What is the amount of its reserves?
Skill: Level 3: Using models
Section: Checkpoint 11.2
Status: Old
AACSB: Analytical thinking
9) The Second National Bank of Townville has $400,000 in checking deposits, $125,000 in
savings deposits, $500,000 in loans, $20,000 in its reserve account at the Fed, and $5,000
of currency in its vault. What is the amount of these assets and liabilities that is in M1?
Skill: Level 3: Using models
Section: Checkpoint 11.2
Status: Old
AACSB: Analytical thinking
10) A bank has checking deposits of $400, saving deposits of $900, time deposits of $900,
loans of $950, government securities of $900, outstanding credit card balances of $400,
currency in its vault of $40, and deposits in its reserve account at the Fed of $40.
a. What is the amount of this bank’s deposits that are in M1?
b. What is the amount of this bank’s deposits that are in M2?
c. What is the amount of this bank’s reserves?
Skill: Level 3: Using models
Section: Checkpoint 11.2
Status: Old
AACSB: Analytical thinking
111
11.8 Essay: The Federal Reserve System
1) The Federal Reserve is the nation’s central bank. Therefore, does it provide banking
services to individual citizens?
Skill: Level 1: Deinition
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
2) Does the Federal Reserve conduct both the nation’s monetary policy and its iscal policy?
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
3) Are the members of the Board of Governors of the Federal Reserve System elected
oicials?
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
4) The president of which Federal Reserve Bank is always a voting member of the FOMC?
Why?
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
112
5) What is the FOMC? Who are the members of the FOMC? What policy does the FOMC
decide?
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Written and oral communication
6) “Because monetary policy must be approved by the president of the United States, the
president is chair of the Federal Open Market Committee.” Analyze the previous statement
—is it correct or incorrect?
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Written and oral communication
7) What is the interaction between the Federal Reserve districts and the Board of
Governors of the Federal Reserve System?
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Written and oral communication
113
8) What is the structure of the Federal Reserve Bank System?
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Written and oral communication
9) Briely describe the Federal Reserve System, how it is governed, and its roles in the
economy.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Written and oral communication
114
10) List the Fed’s main policy tools and briely explain each one.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Written and oral communication
11) What is the discount rate?
Skill: Level 2: Using deinitions
Section: Checkpoint 11.3
Status: Old
AACSB: Relective thinking
12) The Federal Reserve reports that it has coins valued at $10 billion, bank reserves at the
Fed of $15 billion, gold valued at $10 billion, Federal Reserve notes of $400 billion, and
U.S. government securities of $300 billion. What is the size of the monetary base?
Skill: Level 3: Using models
Section: Checkpoint 11.3
Status: Old
AACSB: Analytical thinking
115
11.9 Essay: Regulating the Quantity of Money
1) Describe how actual reserves are calculated. Explain the diference between required
reserves and excess reserves. How do reserves afect the amount of loans a bank can
make?
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Written and oral communication
2) “A bank can only use its excess reserves to make loans, while required reserves can only
be used to buy U.S. government securities.” Explain whether the previous statement is
correct or incorrect.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Written and oral communication
3) A bank reports reserves of $100,000, government securities of $250,000, loans of
$750,000, checkable deposits of $900,000, and owners’ equity of $200,000. The desired
reserve ratio is 10 percent and the bank wants to hold as reserves only the amount it is
required to hold. What is the amount of excess reserves for this bank? Show your work.
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
116
4) The desired reserve ratio is 10 percent. Fly By Night Bank has deposits of $250,000 and
reserves of $25,000. What is the amount of its excess reserves?
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
5) A bank has reserves of $50, deposits of $100, loans of $20, and government securities of
$30. Assume the desired reserve ratio is 20 percent.
a. What are the bank’s assets and what are its liabilities?
b. How much does the bank have in excess reserves?
c. What can the bank do with its excess reserves that will afect the quantity of money?
Skill: Level 3: Using models
Section: Checkpoint 11.4
Status: Old
AACSB: Analytical thinking
6) Explain the process by which the banking system creates money.
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Written and oral communication
7) Does an open market operation in which the Fed buys securities from the general public
decrease or increase the banking system’s reserves?
Skill: Level 2: Using deinitions
Section: Checkpoint 11.4
Status: Old
AACSB: Relective thinking
8) The Fed conducts an open market operation and buys $50,000 of government securities
from Commerce Bank. The desired reserve ratio is 25 percent. What is the change in
Commerce Bank’s total reserves and its excess reserves?