48. Which of the following is correct?
49. If the reserve requirement is 10 percent, what amount of excess reserves does a bank
acquire when a business deposits a $500 check drawn on another bank?
50. The amount of reserves that a commercial bank is required to hold is equal to
35–22
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 35–02 Explain the basics of a banks balance sheet and the distinction
between a banks actual reserves and its required reserves.
Test Bank: I
Topic: A Single Commercial Bank
51.
Banks create money when they
52. In prosperous times, commercial banks are likely to hold very small amounts of excess
reserves because
53. Which of the following is correct?
35–23
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written consent of McGraw-Hill Education.
C.
Required reserves equal actual reserves plus excess reserves.
D.
Actual reserves minus required reserves equal excess reserves.
54.
Assets
Liabilities and Net Worth
Reserves
$20
Checkable Deposits
$100
Loans
25
Stock Shares
50
Securities
15
Property
90
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
55.
Assets
Liabilities and Net Worth
Reserves
$20
Checkable Deposits
$100
Loans
25
Stock Shares
50
Securities
15
Property
90
Refer to the accompanying balance sheet for the First National Bank of Bunco. All figures
are in millions. Suppose that this bank currently has $6 million in excess reserves and that
customers of this bank collectively write checks for cash at the bank in the amount of $6
million. As a result, the bank’s excess reserves diminish to
56. When a bank has a check drawn and cleared against it,
57.
Suppose a credit union has checkable deposits of $500,000 and the legal reserve ratio is 10
percent. If the institution has excess reserves of $4,000, then its actual reserves are
35–25
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written consent of McGraw-Hill Education.
D. $4,000.
58.
When commercial banks use excess reserves to buy government securities from the public,
59. Which of the following would reduce the money supply?
60. Overnight loans from one bank to another for reserve purposes entail an interest rate
called the
35–26
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written consent of McGraw-Hill Education.
A.
prime rate.
B.
discount rate.
C.
federal funds rate.
D. treasury bill rate.
61. A bank temporarily short of required reserves may be able to remedy this situation by
62.
The market for immediately available reserve balances at the Federal Reserve is known as
the
35–27
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Understand
D i f f i c u l t y : 02 Medium
Learning Objective: 35–02 Explain the basics of a banks balance sheet and the distinction
between a banks actual reserves and its required reserves.
Learning Objective: 35-03 Describe how a bank can create money.
Test Bank: I
Topic: A Single Commercial Bank
Topic: Money-Creating Transactions of a Commercial Bank
63. The federal funds market is the market in which
64. Since 2009, how much has been borrowed through the federal funds market?
65. The last transaction in the federal funds market occurred in 2008 because
66. The multiple by which the commercial banking system can expand the supply of money
is equal to the reciprocal of
67. The multiple by which the commercial banking system can expand the supply of money
on the basis of excess reserves
35–29
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written consent of McGraw-Hill Education.
AACSB: Knowledge Application
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 35–05 Define the monetary multiplier, explain how to calculate it, and
demonstrate its relevance.
Test Bank: I
Topic: The Monetary Multiplier
68. The multiple by which the commercial banking system can increase the supply of
money on the basis of each dollar of excess reserves is equal to
69.
If m equals the maximum number of new dollars that can be created for a single dollar of
excess reserves and R equals the required reserve ratio, then for the banking system,
70. 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
71. 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
72. Other things equal, if the required reserve ratio was lowered,
35–31
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Blooms: Remember
Difficulty: 01 Easy
Learning Objective: 35–05 Define the monetary multiplier, explain how to calculate it, and
demonstrate its relevance.
Test Bank: I
Topic: The Monetary Multiplier
73. Suppose a commercial banking system has $100,000 of outstanding checkable deposits
and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can
expand the supply of money by the maximum amount of
74.
If a portion of the loans extended by commercial banks is taken as cash rather than as
checkable deposits, the maximum money-creating potential of the commercial banking system
will
75.
The basic reason why the commercial banking system can increase its checkable deposits by
a multiple of its excess reserves is that
76.
Assets
Liabilities and Net Worth
Reserves
$51
Checkable Deposits
$140
Loans
109
Stock Shares
130
Securities
100
Property
10
Refer to the accompanying consolidated balance sheet for the commercial banking system.
Assume the required reserve ratio is 30 percent. All figures are in billions. The
commercial banking system has excess reserves of
35–33
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written consent of McGraw-Hill Education.
Topic: A Single Commercial Bank
Topic: The Banking System: Multiple-Deposit Expansion
Type: Table
77.
Assets
Liabilities and Net Worth
Reserves
$51
Checkable Deposits
$140
Loans
109
Stock Shares
130
Securities
100
Property
10
Refer to the accompanying consolidated balance sheet for the commercial banking system.
Assume the required reserve ratio is 30 percent. All figures are in billions. The maximum
amount
by which the commercial banking system can expand the supply of money by lending is
78.
Assets
Liabilities and Net Worth
Reserves
$51
Checkable Deposits
$140
Loans
109
Stock Shares
130
Securities
100
Property
10
Refer to the accompanying consolidated balance sheet for the commercial banking system.
Assume the required reserve ratio is 30 percent. All figures are in billions. If the
commercial banking system actually loans the maximum amount it is able to lend,
35–34
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written consent of McGraw-Hill Education.
A. reserves and deposits equal to that amount will be gained.
B.
excess reserves will be $2.6 billion.
C.
excess reserves will fall to $1.7 billion.
D.
excess reserves will be reduced to zero.
79. Given a 25 percent reserve ratio, assume the commercial banking system is loaned up.
Now assume the reserve ratio is reduced to 20 percent. As a result of this reduction,
80.
Assets
Liabilities and Net Worth
Reserves
$30
Checkable Deposits
$300
Loans
130
Stock Shares
130
Securities
70
Property
200
Refer to the accompanying consolidated balance sheet for the commercial banking system.
Assume the required reserve ratio is 10 percent. All figures are in billions. The
commercial banking system has excess reserves of
35–35
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written consent of McGraw-Hill Education.
A.
$0 billion.
B.
$30 billion.
C.
$60 billion.
D.
$70 billion.
81.
Assets
Liabilities and Net Worth
Reserves
$30
Checkable Deposits
$300
Loans
130
Stock Shares
130
Securities
70
Property
200
Refer to the accompanying consolidated balance sheet for the commercial banking system.
Assume the required reserve ratio is 10 percent. All figures are in billions. After a deposit of $10
billion of new currency into a checking account in the banking system, excess reserves will
increase by
82.
Assets
Liabilities and Net Worth
Reserves
$30
Checkable Deposits
$300
Loans
130
Stock Shares
130
Securities
70
Property
200
Refer to the accompanying consolidated balance sheet for the commercial banking system.
Assume the required reserve ratio is 10 percent. All figures are in billions. After the deposit of
$10 billion of new currency, the maximum amount by which this commercial banking
system can expand the supply of money by lending is
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
35–37
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written consent of McGraw-Hill Education.
84.
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 create excess reserves
of
the system = $40 billion, legal reserve ratio = 0.20, excess reserves prior to the currency
deposit =
$0. With the $40 billion deposit, the banking system will be able to expand the money
supply through loans by
86.
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 new currency will support total checkable deposits of
87.
(1)
(2)
(3)
Legal Reserve Ratio (%)
Checkable Deposits
Actual Reserves
10
$40,000
$10,000
20
40,000
10,000
25
40,000
10,000
30
40,000
10,000
The accompanying table gives data for a commercial bank or thrift. When the legal reserve ratio
is 25 percent, the excess reserves of this single bank are
88.
(1)
(2)
(3)
Legal Reserve Ratio (%)
Checkable Deposits
Actual Reserves
10
$40,000
$10,000
20
40,000
10,000
25
40,000
10,000
30
40,000
10,000
The accompanying table gives data for a commercial bank or thrift. When the legal reserve ratio
is 10 percent, the money-creating potential of this single bank is
89.
(1)
(2)
(3)
Legal Reserve Ratio (%)
Checkable Deposits
Actual Reserves
10
$40,000
$10,000
20
40,000
10,000
25
40,000
10,000
30
40,000
10,000
The accompanying table gives data for a commercial bank or thrift. When the legal reserve ratio
is 20 percent, the money-creating potential of the entire banking system is
35–40
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written consent of McGraw-Hill Education.
B. $6,000.
C. $8,000.
D.
$10,000.
90.
(1)
(2)
(3)
Legal Reserve Ratio (%)
Checkable Deposits
Actual Reserves
10
$40,000
$10,000
20
40,000
10,000
25
40,000
10,000
30
40,000
10,000
The accompanying table gives data for a commercial bank or thrift. When the legal reserve ratio
is 30 percent, the monetary multiplier is
91.
(1)
(2)
(3)
Legal Reserve Ratio (%)
Checkable Deposits
Actual Reserves