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35-81
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: Money-Creating Transactions of a Commercial Bank
190. A single commercial bank must meet a 25 percent reserve requirement. If it initially
has no excess reserves and then $2,000 in cash is deposited in the bank, it can increase its
loans by a maximum of
191. If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire
when a customer deposits a $12,000 check drawn on another bank?
192. In an unregulated environment, the commercial banking system would tend to vary the
supply of money in a way that
35-82
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 ty : 02 Medium
Learning Objective: 35-03 Describe how a bank can create money.
Test Bank: II
Topic: Money-Creating Transactions of a Commercial Bank
193. The basic purpose of imposing legal reserve requirements on commercial banks is to
194.
A bank can get additional excess reserves by doing any of the following except
195.
Banks can lend their excess reserves to other banks in the
35-83
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
D. bank funds market.
196. In the federal funds market, a bank that needs to meet reserve requirements can
borrow reserves, usually for
197.
The federal funds rate is the rate that banks pay for loans from
198. When banks borrow and lend reserves in the federal funds market,
35-84
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
A.
the total reserves of the banking system increase.
B.
the total reserves of the banking system shrink.
C.
the total reserves of the banking system stay the same.
D. the reserves of the banking system become part of M1.
199.
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
200.
If the Federal Reserve System sells $5 billion of government securities to commercial
banks, the banks' reserves would
201. Which of the following transactions has the immediate effect of increasing the money
supply M1?
202. The two major income-earning assets of commercial banks are
203.
A banker must strike a balance in the pursuit of two conflicting goals: profits and liquidity.
In terms of asset management, this translates into achieving a balance between holding
35-86
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.
Test Bank: II
Topic: Money-Creating Transactions of a Commercial Bank
204. If Bank A has excess reserves of $1 million and all other banks in the system do not
have any excess reserves, then the amount of additional loans that can be made by the
banking system will be
205. The fact that reserves lost by any particular bank will be gained by some other bank
explains why the commercial banking system
206.
The commercial banking system can lend by a multiple of its excess reserves primarily
because
35-87
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
C. it loses reserves when it extends credit.
D. its required reserves are fractional.
207.
When people withdraw money from their deposits in the banking system, the
208. The multiple by which the commercial banking system can expand the supply of
money is equal to
209.
If the required reserve ratio were 15 percent, the value of the monetary multiplier would be
210. If the monetary multiplier is 6, then the reserve ratio must be
211.
Assume the required reserve ratio is 16.67 percent and that the commercial banking system
has $110 million in excess reserves. The maximum amount of new money that the banking
system
could create is about
35-89
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Di ffi cul ty : 01 Easy
Learning Objective: 35-05 Define the monetary multiplier, explain how to calculate it, and
demonstrate its relevance.
Test Bank: II
Topic: The Monetary Multiplier
212. If the required reserve ratio is 20 percent and commercial bankers decide to hold
additional excess reserves equal to 5 percent of any newly acquired checkable deposits,
then the effective monetary multiplier for the banking system will be
213. Maximum checkable-deposit expansion in the banking system is equal to
214. A commercial bank has checkable-deposit liabilities of $500,000, reserves of
$150,000, and a required reserve ratio of 20 percent. The amount by which a single
commercial bank and the amount by which the banking system can increase loans are
35-90
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
B.
$50,000 and $250,000, respectively.
C. $50,000 and $500,000, respectively.
D. $100,000 and $500,000, respectively.
215. The commercial banking system has excess reserves of $200,000. Then new loans of
$800,000 are made, and the system ends up just meeting its reserve requirements. The
required reserve ratio must be
216. The commercial banking system, because of a recent change in the required reserve
ratio from 8 percent to 10 percent, finds that it is $50 million short of reserves. If it is
unable to obtain any additional reserves, it must reduce deposits and money supply by
35-91
Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior
written consent of McGraw-Hill Education.
Learning Objective: 35-05 Define the monetary multiplier, explain how to calculate it, and
demonstrate its relevance.
Test Bank: II
Topic: The Monetary Multiplier
217.
Only one commercial bank in the banking system has an excess reserve, and its excess
reserve is $400,000. This bank makes a new loan of $300,000 and keeps an excess reserve of
$100,000. If the required reserve ratio for all banks is 12.5 percent, the potential expansion
of the money supply from this new loan is
218.
When bankers hold excess reserves,
219.
Assets
Liabilities + Net Worth
Reserves
$50,000
Checkable Deposits
$120,000
Loans
75,000
Stock Shares
130,000
Securities
25,000
Property
100,000
Refer to the accompanying balance sheet for the First National Bank. Assume the reserve
ratio is 15 percent. First National Bank can make new loans of up to
220.
Assets
Liabilities + Net Worth
Reserves
$50,000
Checkable Deposits
$120,000
Loans
75,000
Stock Shares
130,000
Securities
25,000
Property
100,000
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
35-93
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
221.
Assets
Liabilities + Net Worth
Reserves
$60
Checkable Deposits
$150
Loans
100
Stock Shares
135
Securities
25
Property
100
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
commercial banking system has excess reserves of
222.
Assets
Liabilities + Net Worth
Reserves
$60
Checkable Deposits
$150
Loans
100
Stock Shares
135
Securities
25
Property
100
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
35-94
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written consent of McGraw-Hill Education.
C. $450 billion.
D.
$600 billion.
223.
Assets
Liabilities + Net Worth
Reserves
$60
Checkable Deposits
$150
Loans
100
Stock Shares
135
Securities
25
Property
100
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. If the
commercial banking system actually loans out the maximum amount it is able to lend,
excess reserves will fall
224.
Assets
Liabilities + Net Worth
Reserves
$60
Checkable Deposits
$150
Loans
100
Stock Shares
135
Securities
25
Property
100
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 claims
of owners in the commercial banking system are equal to
225.
Assets
Liabilities + Net Worth
Reserves
$60
Checkable Deposits
$150
Loans
100
Stock Shares
135
Securities
25
Property
100
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. If
commercial bankers decide to hold additional excess reserves equal to 7 percent of any
newly acquired deposits, then the relevant monetary multiplier for this banking system will
be
