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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. If the legal reserve
ratio falls from 25 percent to 10 percent, excess reserves of this single bank will
92. 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
93.
If actual reserves in the banking system are $40,000, excess reserves are $10,000, and
checkable deposits are $240,000, then the legal reserve requirement is
35-42
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B. 12.5 percent.
C. 20 percent.
D.
5 percent.
94. If actual reserves in the banking system are $50,000, excess reserves are $5,000, and
checkable deposits are $225,000, then the monetary multiplier is
95.
If the monetary authorities want to reduce the monetary multiplier, they should
35-43
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Topic: The Monetary Multiplier
96.
If the reserve ratio is 100 percent, the value of the monetary multiplier is
97. The greater the required reserve ratio, the
98. Money is destroyed when
35-44
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 35-03 Describe how a bank can create money.
Learning Objective: 35-04 Describe the multiple expansion of loans and money by the entire
banking system.
Test Bank: I
Topic: Money-Creating Transactions of a Commercial Bank
T o p i c : The Banking System: Multiple-Deposit Expansion
99. When a bank loan is repaid, the supply of money
100.
Reserves
$100
Checkable Deposits
1,000
Loans (to customers)
300
Property
400
Securities (owned)
300
Stock Shares
100
Refer to the accompanying table of information for the Moolah Bank. Assume that the
listed amounts constitute this bank's complete set of accounts. Moolah's
35-45
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
between a banks actual reserves and its required reserves.
Test Bank: I
Topic: A Single Commercial Bank
Type: Table
101.
Reserves
$100
Checkable Deposits
1,000
Loans (to customers)
300
Property
400
Securities (owned)
300
Stock Shares
100
Refer to the accompanying table of information for the Moolah Bank. Assume that the listed
amounts constitute this bank's complete set of accounts. Moolah's
102.
Reserves
$100
Checkable Deposits
1,000
Loans (to customers)
300
Property
400
Securities (owned)
300
Stock Shares
100
Refer to the accompanying table of information for the Moolah Bank. Assume that the
listed amounts constitute this bank's complete set of accounts. Moolah's
35-46
103.
Reserves
$100
Checkable Deposits
1,000
Loans (to customers)
300
Property
400
Securities (owned)
300
Stock Shares
100
Refer to the accompanying table of information for the Moolah Bank. If Moolah Bank is legally
"loaned up," the reserve requirement must be
104.
Reserves
$100
Checkable Deposits
1,000
Loans (to customers)
300
Property
400
Securities (owned)
300
Stock Shares
100
Refer to the accompanying table of information for the Moolah Bank. If Moolah Bank is legally
"loaned up," the banking system's monetary multiplier must be
105.
Reserves
$100
Checkable Deposits
1,000
Loans (to customers)
300
Property
400
Securities (owned)
300
Stock Shares
100
Refer to the accompanying table of information for the Moolah Bank, and assume that Moolah
bank is "loaned up." If it receives a $100 deposit of currency, it could safely expand its loans
by
35-48
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
AACSB: Knowledge Application
Blooms: Understand
D i f f i c u l t y : 02 Medium
Learning Objective: 35-03 Describe how a bank can create money.
Test Bank: I
Topic: Money-Creating Transactions of a Commercial Bank
Type: Table
106.
Reserves
$100
Checkable Deposits
1,000
Loans (to customers)
300
Property
400
Securities (owned)
300
Stock Shares
100
Refer to the accompanying table of information for the Moolah Bank, and assume that
Moolah Bank is "loaned up." If it receives a $100 deposit of currency, the banking system
of which Moolah is a part could expand loans by
107. (Last Word) The term "leverage" refers to
35-49
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: 35-04 Describe the multiple expansion of loans and money by the entire
banking system.
Test Bank: I
Topic: The Banking System: Multiple-Deposit Expansion
108.
(Last Word) The greater the leverage in the financial system, all else equal,
109.
(Last Word) Suppose Balin has $100 to invest in an opportunity that returns, for every $100
invested, $120 if it goes well but only $80 if it goes poorly. If leverage allows Balin to borrow
$90 for every $10 he invests, what are his rates of profit and loss, respectively, if he
borrows the full amount to invest in the opportunity?
110. (Last Word) Leverage in the financial system
35-50
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A. magnifies profits but reduces losses.
B. magnifies both profits and losses.
C. reduces profits but magnifies losses.
D.
reduces both profits and losses.
AACSB: Knowledge Application
A c c e s s i b i l i t y : Keyboard Navigation
Blooms: Understand
D i f f i c u l t y : 02 Medium
Learning Objective: 35-04 Describe the multiple expansion of loans and money by the entire
banking system.
Test Bank: I
Topic: The Banking System: Multiple-Deposit Expansion
True / False Questions
111. Excess reserves are the amount by which required reserves exceed actual reserves.
112.
Actual reserves equal required reserves plus excess reserves.
113. Commercial bank reserves are an asset to commercial banks but a liability to the
Federal Reserve Bank holding them.
114. Balance sheets always balance because reserves must always equal liabilities plus
net worth.
115.
Loans made to customers are a liability on a bank's balance sheet.
116. Checkable deposits are a liability on a bank's balance sheet.
35-52
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
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: 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.
Test Bank: I
Topic: A Single Commercial Bank
117.
The supply of money increases when the public buys government securities from
commercial banks.
118. Commercial banks increase the supply of money when they purchase either personal
IOUs or government bonds from businesses and households.
119.
When commercial banks retire outstanding loans, the supply of money is increased.
35-53
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Test Bank: I
Topic: Money-Creating Transactions of a Commercial Bank
120. Commercial banks monetize claims when they sell securities to Federal Reserve
Banks.
121. The banking system can lend by a multiple of its excess reserves because lending
does not result in a loss of reserves to the banking system as a whole.
122.
The monetary multiplier and the spending multiplier are two ways of referring to the same
concept.
123. In an uncontrolled or unregulated system, commercial bank lending will tend to
intensify the business cycle.
124. 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.
125. If the reserve requirement is 20 percent, the monetary multiplier will be 4.
126.
The higher the reserve requirement, the lower is the monetary multiplier.
Multiple Choice Questions
127. Fractional reserve banking refers to a system where banks
128.
The fractional reserve system of banking started when goldsmiths began
35-56
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Test Bank: II
Topic: The Fractional Reserve System
129.
What is one significant consequence of fractional reserve banking?
130.
What is one significant characteristic of fractional reserve banking?
131. A bank's net worth is equal to its
35-57
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.
Test Bank: II
Topic: A Single Commercial Bank
132.
A bank's net worth is the
133. A bank owns a 10-story office building. In the bank's balance sheet, this would be
listed as part of
134.
A bank has $2 million in checkable deposits. In the bank's balance sheet, this would be part
of
35-58
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B. liabilities.
C.
capital stock.
D.
net worth.
135.
The claims of creditors of a bank against the bank's assets are called
136. Which of the following are liabilities to a bank?
137. One major component of money supply M1 is part of a bank's
138.
A checkable deposit at a commercial bank is a(n)
139. Cash held by a bank in its vault is a part of the bank's
35-60
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: II
Topic: A Single Commercial Bank
140.
When a bank sells capital stock (equity shares) in return for cash,
141.
When cash is deposited in a checkable-deposit account at a bank, there is
142. When cash is withdrawn from a checkable-deposit account at a bank,
