978-1259723223 Test Bank TBChap035 Part 5

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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

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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

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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,

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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

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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

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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

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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

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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

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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

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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

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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