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1. In a system of 100-percent-reserve banking,
a.
banks do not make loans.
b.
currency is the only form of money.
c.
deposits are banks’ only assets.
d.
All of the above are correct.
2. In a system of 100-percent-reserve banking,
a.
banks do not accept deposits.
b.
banks do not influence the supply of money.
c.
loans are the only asset item for banks.
d.
All of the above are correct.
3. In a system of 100-percent-reserve banking, the purpose of a bank is to
a.
make loans to households.
b.
influence the money supply.
c.
give depositors a safe place to keep their money.
d.
buy and sell gold.
4. In a 100-percent-reserve banking system, if people decided to decrease the amount of currency they held by increasing
the amount they held in checkable deposits, then
a.
M1 would increase.
b.
M1 would decrease.
c.
M1 would not change.
d.
M1 might rise or fall.
5. A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150. If
customers deposit $50 into the bank, what is the value of the money supply?
a.
$50
b.
$100
c.
$150
d.
$200
6. In a fractional-reserve banking system, a bank
a.
does not make loans.
b.
does not accept deposits.
c.
keeps only a fraction of its deposits in reserve.
d.
None of the above is correct.
7. Under a fractional-reserve banking system, banks
a.
hold more reserves than deposits.
b.
generally lend out a majority of the funds deposited.
c.
cause the money supply to fall by lending out reserves.
d.
All of the above are correct.
8. Banks are able to create money only when
a.
interest rates are above 2%.
b.
the Fed sells U.S. government bonds.
c.
the reserve ratio is 100%.
d.
only a fraction of deposits are held in reserve.
9. If a bank has a reserve ratio of 8 percent, then
a.
government regulation requires the bank to use at least 8 percent of its deposits to make loans.
b.
the bank’s ratio of loans to deposits is 8 percent.
c.
the bank keeps 8 percent of its deposits as reserves and loans out the rest.
d.
the bank keeps 8 percent of its assets as reserves and loans out the rest.
10. A bank’s reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount to
a.
$8.
b.
$80.
c.
$92.
d.
$920.
11. A bank’s reserve ratio is 10 percent and the bank has $5,000 in deposits. Its reserves amount to
a.
$50.
b.
$500.
c.
$4,500.
d.
$4,950.
12. A bank’s reserve ratio is 5 percent and the bank has $2,280 in reserve. Its deposits amount to
a.
$114.
b.
$2,166.
c.
$2,400.
d.
$45,600.
13. Suppose the banking system currently has $400 billion in reserves, the reserve requirement is 8 percent, and excess
reserves amount to $5 billion. What is the level of deposits?
a.
$5,000 billion
b.
$4,937.5 billion
c.
$5,062.5 billion
d.
$4,995 billion
14. If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15
percent receives a deposit of $600, it has a
a.
$600 increase in excess reserves and no increase in required reserves.
b.
$600 increase in required reserves and no increase in excess reserves.
c.
$510 increase in excess reserves and a $90 increase in required reserves.
d.
$90 increase in excess reserves and a $510 increase in required reserves.
15. On a bank's T-account, which are part of the bank’s assets?
a.
both deposits made by its customers and reserves
b.
deposits made by its customers but not reserves
c.
reserves but not deposits made by its customers
d.
neither deposits made by its customers nor reserves
16. On a bank's T-account, which are part of the banks liabilities?
a.
both deposits made by its customers and reserves
b.
deposits made by its customers but not reserves
c.
reserves but not deposits made by its customers
d.
neither deposits made by its customers nor reserves
17. Which of the following is an asset of a bank and a liability for its customers?
a.
deposits of its customers and loans to its customers
b.
deposits of its customers but not loans to its customers
c.
loans to its customers but not the deposits of its customers
d.
neither the deposits of its customers nor the loans to its customers
18. Which of the following is a liability of a bank and an asset of its customers?
a.
deposits of its customers and loans to its customers
b.
deposits of its customers but not loans to its customers
c.
loans of its customers but not the deposits of its customers
d.
neither the deposits of its customers nor the loans to its customers
19. A bank’s assets equal its liabilities under
a.
both 100-percent-reserve banking and fractional-reserve banking.
b.
100-percent-reserve banking but not under fractional-reserve banking.
c.
fractional-reserve banking but not under 100-percent-reserve banking.
d.
neither 100-percent-reserve banking nor fractional-reserve banking.
20. A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store. On their
respective balance sheets, this loan is
a.
an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money supply.
b.
an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the money supply.
c.
a liability for the bank and an asset for Kellie's Print Shop. The loan increases the money supply.
d.
a liability for the bank and an asset for Kellie's Print Shop. The loan does not increase the money supply.
21. A bank loans Greg’s Ice Cream $250,000 to remodel a building near campus to use as a new store. On their respective
balance sheets, this loan is
a.
a liability for the bank and an asset for Greg's Ice Cream. The loan increases the money supply.
b.
a liability for the bank and an asset for Greg's Ice Cream. The loan does not increase the money supply.
c.
an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money supply.
d.
an asset for the bank and a liability for Greg's Ice Cream. The loan does not increase the money supply.
22. Reserves are
a.
the central bank of the U.S.
b.
deposits that banks hold in excess of the required amount.
c.
the purchase of bonds by the Federal Open Market Committee.
d.
deposits that banks have received but have not yet loaned out.
23. A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can given the reserve
requirement.
a.
It has $25 in reserves and $4,975 in loans.
b.
It has $250 in reserves and $4,750 in loans.
c.
It has $1,000 in reserves and $4,000 in loans.
d.
None of the above is correct.
24. A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can given the reserve
requirement.
a.
It has $80 in reserves and $9,920 in loans.
b.
It has $800 in reserves and $9,200 in loans.
c.
It has $1,250 in reserves and $8,750 in loans.
d.
None of the above is correct.
25. A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the reserve requirement. It follows
that the reserve requirement is
a.
2.5 percent.
b.
33.3 percent.
c.
25 percent.
d.
75 percent.
26. A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a reserve ratio of
a.
2.5 percent.
b.
5 percent.
c.
9.5 percent.
d.
25 percent.
27. The manager of the bank where you work tells you that your bank has $6 million in excess reserves. She also tells you
that the bank has $400 million in deposits and $362 million dollars in loans. Given this information you find that the
reserve requirement must be
a.
44/400.
b.
6/362.
c.
38/400.
d.
32/400.
28. The manager of the bank where you work tells you that your bank has $10 million in excess reserves. She also tells
you that the bank has $400 million in deposits and $375 million dollars in loans. Given this information you find that the
reserve requirement must be
a.
10/400.
b.
25/400.
c.
35/400.
d.
15/400.
29. A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can given the reserve
requirement.
a.
It has $3,600 in deposits.
b.
It has $32,400 in deposits.
c.
It has $39,600 in deposits.
d.
It has $40,000 in deposits.
30. A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve
requirement.
a.
It has $6,400 in deposits.
b.
It has $10,000 in deposits.
c.
It has $9,600 in deposits.
d.
It has $1,600 in deposits.
31. Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess
reserves are $30 billion. What is the level of loans?
a.
$270 billion
b.
$5,400 billion
c.
$6,000 billion
d.
$5,100 billion
32. The reserve requirement is 12 percent. Lucy deposits $600 into a bank. By how much do excess reserves change?
a.
$600
b.
$528
c.
$72
d.
$12
33. If a bank desires to hold no excess reserves, the reserve requirement is 8 percent, and it receives a new deposit of
$500,
a.
its required reserves increase by $40.
b.
its total reserves initially increase by $460.
c.
it will be able to make a new loan of up to $492.
d.
All of the above are correct.
34. If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it receives a new deposit of
$500, it
a.
must increase required reserves by $50.
b.
will initially see reserves increase by $500.
c.
will be able to use this deposit to make new loans amounting to $450.
d.
All of the above are correct.
35. If the reserve requirement is 12 percent and banks desire to hold no excess reserves, when a bank receives a new
deposit of $1,000,
a.
it must increase its required reserves by more than $150.
b.
its total reserves initially increase by $120.
c.
it will be able to make new loans up to a maximum of $880.
d.
None of the above is correct.
36. Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 6 percent. If you
deposit $8,000 into First Raven Bank,
a.
First Raven’s required reserves increase by $480.
b.
First Raven will be able to lend out $7,520.
c.
First Raven’s assets and liabilities both will increase by $8,000.
d.
All of the above are correct.
37. If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10,
then this bank
a.
must increase its required reserves by $10.
b.
will initially see its total reserves increase by $10.50.
c.
will be able to make new loans up to a maximum of $9.50.
d.
All of the above are correct.
38. Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves
and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only
required reserves?
a.
$27,000
b.
$27,190
c.
$26,190
d.
$9,000
39. When a bank loans out $1,000, the money supply
a.
does not change.
b.
decreases.
c.
increases.
d.
may do any of the above.
40. If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15 percent, this action by itself
initially makes the money supply
a.
and wealth increase by $200.
b.
and wealth decrease by $200.
c.
increase by $200 while wealth does not change.
d.
decrease by $200 while wealth decreases by $200.
41. If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent, this action by itself
initially makes the money supply
a.
and wealth increase by $500.
b.
and wealth decrease by $500.
c.
increase by $500 while wealth does not change.
d.
decrease by $500 while wealth decreases by $500.
42. If R represents the reserve ratio for all banks in the economy, then the money multiplier is
a.
1/(1-R).
b.
1/R.
c.
1/(1+R).
d.
(1+R)/R.
43. The money multiplier equals
a.
1/R, where R represents the quantity of reserves in the economy.
b.
1/R, where R represents the reserve ratio for all banks in the economy.
c.
1/(1+R), where R represents the quantity of reserves in the economy.
d.
1/(1+R), where R represents the reserve ratio for all banks in the economy.
44. As the reserve ratio decreases, the money multiplier
a.
increases.
b.
does not change.
c.
decreases.
d.
could do any of the above.
45. If the central bank in some country raised the reserve requirement, then the money multiplier for that country
a.
would increase.
b.
would not change.
c.
would decrease.
d.
could do any of the above.
46. In the special case of the 100 percent-reserve banking, the money multiplier is
a.
1 and banks create money.
b.
1 and banks do not create money.
c.
2 and banks create money
d.
2 and banks do not create money.
47. Which of the following statements is correct? In the special case of the 100-percent reserve banking the money
multiplier is
a.
0 and banks create money.
b.
0 and banks do not create money.
c.
1 and banks create money
d.
1 and banks do not create money.
48. If the reserve ratio is 100-percent, then a new deposit of $1000 into a bank account
a.
eventually increases the money supply by $1000.
b.
leaves the size of the money supply unchanged.
c.
eventually decreases the size of the money supply by $1000.
d.
eventually increases the money supply by $2000.
49. If you deposit $100 of currency into a demand deposit at a bank, this action by itself
a.
does not change the money supply.
b.
increases the money supply.
c.
decreases the money supply.
d.
has an indeterminate effect on the money supply.
50. If the reserve ratio is 4 percent, then the money multiplier is
a.
24.
b.
25.
c.
26.
d.
4.
51. If the reserve ratio is 8 percent, then the money multiplier is
a.
12.5.
b.
11.5.
c.
13.5.
d.
8.
52. If the reserve ratio is 12 percent, then the money multiplier is
a.
9.3.
b.
8.3.
c.
7.3.
d.
12.
53. If the reserve ratio is 10 percent, the money multiplier is
a.
100.
b.
10.
c.
9/10.
d.
1/10.
54. If the reserve ratio is 15 percent, the money multiplier is
a.
7.7.
b.
6.7.
c.
5.7.
d.
15.
