55. If the reserve ratio is 7.5 percent, the money multiplier is
a.
7.5.
b.
10.3.
c.
13.3.
d.
11.3.
56. If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would
a.
rise from 10 to 20.
b.
rise from 5 to 10.
c.
fall from 10 to 5.
d.
not change.
57. If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to
a.
b.
c.
d.
58. If the reserve ratio is 5 percent, then $500 of additional reserves can create up to
a.
$10,500 of new money.
b.
$10,000 of new money.
c.
$9,500 of new money.
d.
$2,500 of new money.
59. If the reserve ratio is 5 percent, then $600 of additional reserves can create up to
a.
b.
c.
d.
60. If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money supply by as much as
a.
$6,400.
b.
$8,000.
c.
$12,500.
d.
$10,000.
61. If the reserve ratio is 10 percent, $1,400 of additional reserves can create up to
a.
b.
c.
d.
62. If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to
a.
$159,000 of new money.
b.
$54,000 of new money.
c.
$150,000 of new money.
d.
$141,000 of new money.
63. If the reserve ratio is 8 percent, then a decrease in reserves of $6,000 can cause the money supply to fall by as much as
a.
$48,000.
b.
$75,000.
c.
$55,200.
d.
$10,800.
64. If the reserve ratio is 12.5 percent, then $2,000 of additional reserves can create up to
a.
b.
c.
d.
65. If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to
a.
$7,000 of new money.
b.
$8,000 of new money.
c.
$11,500 of new money.
d.
$12,500 of new money.
66. If the reserve ratio is 20 percent, then $100 of new reserves can generate
a.
$60 of new money in the economy.
b.
$250 of new money in the economy.
c.
$500 of new money in the economy.
d.
$2,000 of new money in the economy.
67. If the reserve ratio is 4 percent, then $81,250 of new money can be generated by
a.
$325 of new reserves.
b.
$3,250 of new reserves.
c.
$20,312.50 of new reserves.
d.
$2,031,250 of new reserves.
68. If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by
a.
$64 of new reserves.
b.
$448 of new reserves.
c.
$700 of new reserves.
d.
$800 of new reserves.
69. Suppose the Federal Reserve increases bank reserves and banks lend out some of these reserves, but at some point
banks still have $5 million more they wish to lend out. If the reserve requirement is 10 percent, how much more money
can banks create if they lend out the remaining amount?
a.
$55 million
b.
$50 million
c.
$45 million
d.
$40 million
70. If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio is
a.
2.7 percent.
b.
12.5 percent.
c.
37.5 percent.
d.
40 percent.
71. In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming that people hold only
deposits and no currency, and that banks hold no excess reserves, then the reserve requirement is
a.
b.
c.
d.
72. In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that people hold only deposits and
no currency, and that banks hold no excess reserves, then the reserve requirement is
a.
b.
c.
d.
Table 29–3. An economy starts with $50,000 in currency. All of this currency is deposited into a single bank, and the bank
then makes loans totaling $45,750. The T-account of the bank is shown below.
Assets
Liabilities
Reserves $4,250
Deposits $50,000
Loans 45,750
73. Refer to Table 29–3. The bank’s reserve ratio is
a.
17.5 percent.
b.
8.5 percent.
c.
91.5 percent.
d.
100 percent.
74. Refer to Table 29–3. If all banks in the economy have the same reserve ratio as this bank, then the value of the
economy’s money multiplier is
a.
9.33.
b.
1.09.
c.
10.76.
d.
11.76.
75. Refer to Table 29–3. If all banks in the economy have the same reserve ratio as this bank, then an increase in reserves
of $150 for this bank has the potential to increase deposits for all banks by
a.
$287.25.
b.
$1,614.71.
c.
$1,764.71.
d.
$2,000 or more.
Table 29–4.
The First Bank of Fairfield
Assets
Liabilities
Reserves $1,000
Deposits $8,000
Loans 7,000
76. Refer to Table 29-4. The reserve ratio for this bank is
a.
8 percent.
b.
12.5 percent.
c.
87.5 percent.
d.
25 percent.
77. Refer to Table 29-4. If $800 is deposited into the First Bank of Fairfield, and the bank takes no other actions, its
a.
reserves will increase by $100.
b.
liabilities will increase by $800.
c.
assets will decrease by $800.
d.
loans will increase by $800.
78. Refer to Table 29-4. Starting from the situation as depicted by the T-account, if someone deposits $500 into the First
Bank of Fairfield, and if the bank makes new loans so as to keep its reserve ratio unchanged, then the amount of new
loans that it makes will be
a.
$40.
b.
$437.50.
c.
$71.42.
d.
$428.57.
Table 29–5.
The First Bank of Roswell
Assets
Liabilities
Reserves $30,000
Deposits $200,000
Loans 170,000
79. Refer to Table 29-5. If the bank faces a reserve requirement of 6 percent, then the bank
a.
is in a position to make a new loan of $12,000.
b.
is in a position to make a new loan of $18,000.
c.
has excess reserves of $12,000.
d.
None of the above is correct.
80. Refer to Table 29-5. If the bank faces a reserve requirement of 8 percent, then the bank
a.
is in a position to make a new loan of $14,000.
b.
has fewer reserves than are required.
c.
has excess reserves of $16,400.
d.
None of the above is correct.
81. Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as
depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no
other action it will
a.
have $64,000 in excess reserves.
b.
have $4,000 in excess reserves.
c.
be in a position to make new loans equal to $6,000
d.
None of the above is correct.
82. Refer to Table 29-5. If the bank faces a reserve requirement of 20 percent, then it
a.
has $10,000 of excess reserves.
b.
needs $10,000 more reserves to meet its reserve requirements.
c.
needs $20,000 more reserves to meet its reserve requirements.
d.
just meets its reserve requirement.
83. Refer to Table 29-5. If the bank is holding $4,000 in excess reserves, then the reserve requirement with which it must
comply is
a.
17 percent.
b.
12 percent.
c.
13 percent.
d.
14 percent.
Table 29–6.
Bank of Pleasantville
Assets
Liabilities
Reserves
$3,000
Deposits
$50,000
Loans
47,000
84. Refer to Table 29-6. From the table it follows that the Bank of Pleasantville operates in a
a.
fractional-reserve banking system, since its reserves are less than its deposits.
b.
fractional-reserve banking system, since its reserves are less than its loans.
c.
100-percent-reserve banking system, since its assets are equal to its liabilities.
d.
100-percent-reserve banking system if the Fed’s reserve requirement is 10 percent; otherwise, it operates in a
fractional-reserve banking system.
85. Refer to Table 29-6. The Bank of Pleasantville’s reserve ratio is
a.
6.4 percent.
b.
16.7 percent.
c.
6.0 percent.
d.
15.7 percent.
86. Refer to Table 29-6. Assume there is a reserve requirement and the Bank of Pleasantville is exactly in compliance
with that requirement. Assume the same is true for all other banks. Lastly, assume people hold only deposits and no
currency. What is the money multiplier?
a.
6
b.
16.7
c.
15.6
d.
6.4
87. Refer to Table 29-6. If the Fed’s reserve requirement is 5 percent, then what quantity of excess reserves does the
Bank of Pleasantville now hold?
a.
$500
b.
$250
c.
$2,000
d.
$3,600
88. Refer to Table 29-6. Assume the Fed’s reserve requirement is 5 percent and all banks besides the Bank of
Pleasantville are exactly in compliance with the 5 percent requirement. Further assume that people hold only deposits and
no currency. Starting from the situation as depicted by the T-account, if the Bank of Pleasantville decides to make new
loans so as to end up with no excess reserves, then by how much does the money supply eventually increase?
a.
$10,833.33.
b.
$13,000.
c.
$8,333.33.
d.
$10,000.
Table 29–7.
Bank of Springfield
Assets
Liabilities
Reserves
$19,800
Deposits
$180,000
Loans
160,200
89. Refer to Table 29-7. If the Bank of Springfield has lent out all the money it can given its level of deposits, then what
is the reserve requirement?
a.
8.1 percent
b.
11.0 percent
c.
12.4 percent
d.
89.0 percent
90. Refer to Table 29-7. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is
the value of the money multiplier?
a.
1.1
b.
12.3
c.
8.1
d.
9.1
91. Refer to Table 29-7. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves does the
Bank of Springfield now hold?
a.
$9,600
b.
$10,800
c.
$10,200
d.
$9,000
92. Refer to Table 29-7. Assume the Fed’s reserve requirement is 10 percent and that the Bank of Springfield makes new
loans so as to make its new reserve ratio 10 percent. From then on, no bank holds any excess reserves. Assume also that
people hold only deposits and no currency. Then by what amount does the economy’s money supply increase?
a.
$37,800
b.
$18,000
c.
$2,000
d.
$16,300
Table 29-8
First National Bank
Assets
Liabilities and Owners’ Equity
Reserves
$1,200
Deposits
$9,000
Loans
$8,000
Debt
$800
Short-term securities
$800
Capital (owners’ equity)
$200
93. Refer to Table 29-8. The required reserve ratio is 12 percent. Which of the following is true?
a.
This banks reserve ratio is 12 percent. Its excess reserves are $0.
b.
This banks reserve ratio is 13.3 percent. Its excess reserves are $120.
c.
This banks reserve ratio is 15 percent. Its excess reserves are $240.
d.
This banks reserve ratio is 10 percent. Its excess reserves are $300.
94. Refer to Table 29-8. The required reserve ratio is 12 percent and First National Bank sells $120 of its short-term
securities to the Federal Reserve. This action will
a.
increase First National’s reserves by $120. Its excess reserves are $240.
b.
decrease First National’s reserves by $120. Its excess reserves are $0.
c.
increase First National’s loans by $120. Its reserves decrease by $120.
d.
decrease First National’s loans by $120. Its reserves increase by $120.
95. Refer to Table 29-8. This bank’s leverage ratio is
a.
2.
b.
50.
c.
13.3.
d.
7.5.
96. First National Bank (FNB) has a reserve ratio of 20 percent, a required reserve ratio of 10 percent, and deposits of
$1,000. If FNB receives an additional deposit of $100,
a.
then it has required reserves of $210 and holds excess reserves of $10.
b.
then it has required reserves of $10 and holds excess reserves of $20.
c.
then it has required reserves of $110 and holds excess reserves of $190.
d.
then it has required reserves of $110 and holds excess reserves of $0.
97. Bank capital is
a.
the machinery, structures, and equipment of the bank.
b.
the resources that owners have put into the bank.
c.
the reserves of the bank.
d.
the bank’s total assets.
98. The leverage ratio is calculated as
a.
assets minus liabilities.
b.
assets divided by bank capital
c.
the reciprocal of the required reserve ratio
d.
the required reserve ratio multiplied by bank capital.
99. Suppose a bank is operating with a leverage ratio of 10. A 6 percent increase in the value of assets
a.
will reduce liabilities by 6 percent.
b.
will result in a 60 percent increase in owner’s equity.
c.
will result in a 60 percent decrease in owner’s equity.
d.
will reduce liabilities by 10 percent.
100. Bank regulators impose capital requirements in order to
a.
increase the amount of leverage in the economy.
b.
provide an incentive for banks to hold risky assets.
c.
ensure banks can pay off depositors.
d.
increase the probability of a credit crunch.
101. Lisa deposits $750 with her bank. The T-account for her bank account is now:
Assets
Liabilities
Reserves $750
Deposits $750
What is the change in the money supply?
a.
No change, and Lisa’s bank is an example of 100-percent-reserve banking
b.
No change, and Lisa’s bank is an example of fractional-reserve banking
c.
$750, and Lisa’s bank is an example of 100-percent-reserve banking
d.
$750, and Lisa’s bank is an example of fractional-reserve banking
102. If the reserve ratio increased from 5 percent to 10 percent, then the money multiplier would
a.
rise from 5 to 10.
b.
rise from 10 to 20.
c.
fall from 20 to 10.
d.
fall from 10 to 5.
103. If $500 of new reserves generates $1000 of new money in the economy, then the money multiplier is
a.
2 and the reserve ratio is 50 percent.
b.
2 and the reserve ratio is 2 percent.
c.
0.5 and the reserve ratio is 50 percent.
d.
0.5 and the reserve ratio is 2 percent.
104. The 2008 credit crunch occurred when banks reduced lending in response to
a.
the loss of asset value for mortgage backed securities and mortgage loans.
b.
having too little capital to satisfy capital requirements.
c.
an excess of bank capital.
d.
an increase in the required reserve ratio.