4) Which of the following is a bank liability?
A) reserve deposits held at the Fed
B) loans made to customers
C) required reserves
D) demand deposit balances
5) Which of the following is a bank asset?
A) demand deposits
B) savings account deposits
C) certificates of deposit held by the public
D) loans made to customers
6) Which one of the following statements is true?
A) Demand deposits are assets of a bank.
B) A bank’s assets plus its liabilities equals must equal zero.
C) A bank’s reserves can only be kept as cash in its vault.
D) Assets generate income for a bank.
7) The fraction of deposits that banks are required by law to hold and not lend out are called its
A) reserves.
B) excess reserves.
C) required reserves.
D) net worth.
8) A bank’s reserves
A) are the sum of its excess and required reserves.
B) can be held as cash in its vault.
C) can be held as deposits with the Federal Reserve.
D) all of the above
9) Given the following information about AAA bank:
Bank Deposits $200,000
Loans 100,000
Required Reserves 40,000
Excess Reserves 60,000
What is the reserve ratio?
A) 50%
B) 40%
C) 20%
D) 10%
10) Given the following information about AAA bank:
Bank Deposits $50,000
Loans 25,000
Required Reserves 15,000
Excess Reserves 10,000
What is the reserve ratio?
A) 50%
B) 30%
C) 20%
D) 15%
11) By law, banks are required to
A) hold 100% of customer deposits as reserves.
B) hold a fraction of their reserves at the Federal Reserve bank.
C) hold a fraction of demand deposits as reserves.
D) lend out no more than the amount of their required reserves.
12) Suppose that while vacationing in Switzerland, you won 9,375 Swiss francs, which is the
equivalent of $8,000. When you return to the United States, you deposit the $8,000 into your
checking account. If the required reserve ratio is 15%, this would increase your bank’s
A) liabilities by $8,000.
B) excess reserves by $8,000.
C) required reserves by $8,000.
D) assets by $1,200.
13) Logan finds $10 in his jacket pocket and deposits it into a bank. As a result of this single
transaction, M1 has
A) increased by $10.
B) increased by more than $10.
C) increased by less than $10.
D) not changed.
14) Given the following information about Gotham Bank:
Bank Deposits $50,000
Loans 34,000
Reserves 12,000
Reserve Requirement 20%
Gotham Bank is holding ________ in excess reserves.
A) $22,000
B) $12,000
C) $2,000
D) -$2,000
15) Given the following information about Metropolis Bank:
Bank Deposits $50,000
Loans 17,500
Required Reserves 30,000
Excess Reserves 2,500
The required reserve ratio must be
A) 75%.
B) 60%.
C) 30%.
D) 15%.
16) Suppose a bank has $200,000 in deposits and a reserve ratio of 15%. Its required reserves are
A) $350.
B) $1,500.
C) $3,000.
D) $30,000.
17) Suppose a bank has $8 million in deposits and a reserve ratio of 20%. Its required reserves
are
A) $40,000.
B) $400,000.
C) $1,600,000.
D) $16,000,000.
18) Suppose a bank has $200,000 in deposits, a reserve ratio of 10%, and reserves of $45,000.
This bank has excess reserves of
A) $155,000.
B) $25,000.
C) $10,000.
D) $5,000.
19) Suppose a bank has $1 million in deposits, a reserve ratio of 25%, and reserves of $250,000.
This bank has excess reserves of
A) $250,000.
B) $125,000.
C) $62,500.
D) $0.
20) Suppose a bank has $600,000 in deposits, a reserve ratio of 20%, and bank reserves of
$240,000. This bank can make new loans in the amount of
A) $840,000.
B) $360,000.
C) $120,000.
D) $12,000.
21) Suppose a bank has $300,000 in deposits, a reserve ratio of 5%, and bank reserves of
$45,000. This bank can make new loans in the amount of
A) $345,000.
B) $45,000.
C) $30,000.
D) $15,000.
22) Suppose Diego deposits $4,000 in his bank. If the reserve ratio is 10%, this will lead to a
maximum increase of ________ in checking account balances throughout all banks.
A) $0
B) $4,000
C) $10,000
D) $40,000
23) Suppose Ariana deposits $75,000 in her bank. If the reserve ratio is 20%, this will lead to a
maximum increase of ________ in checking account balances throughout all banks.
A) $15,000
B) $375,000
C) $750,000
D) $1,500,000
24) Suppose Darrell has $4,000 in currency which he deposits in his bank. If the reserve ratio is
25%, this will lead to a maximum increase of ________ in M1 throughout all banks.
A) $0
B) $4,000
C) $6,000
D) $12,000
25) Suppose Jennifer has $42,000 in currency which she deposits in her bank. If the reserve ratio
is 50%, this will lead to a maximum increase of ________ in M1 throughout all banks.
A) $0
B) $21,000
C) $42,000
D) $84,000
26) If the banking system has a required reserve ratio of 40%, then the money multiplier is
A) 2.
B) 2.5.
C) 4.
D) 8.
27) If the banking system has a required reserve ratio of 25%, then the money multiplier is
A) 2.
B) 4.
C) 5.
D) 10.
28) The money multiplier is equal to
A) the government spending multiplier.
B) the marginal propensity to consume.
C) the reserve ratio.
D) 1/(reserve ratio).
29) A bank may make loans until its
A) required reserves are exhausted.
B) excess reserves are exhausted.
C) total assets are exhausted.
D) total liabilities are exhausted.
30) The money multiplier tends to be greater when
A) individuals hold less cash.
B) individuals hold more cash.
C) banks hold more excess reserves.
D) the reserve ratio increases.
31) The money multiplier will be smaller when
A) bank customers prefer to hold a bigger amount of their money as cash (instead of in their
checking account).
B) banks prefer to lend out 9% of their excess reserves instead of 90%.
C) when the marginal propensity to save declines.
D) when the reserve ratio decreases.
32) If people never withdrew money, how much money could the banking system create given a
new amount of deposits, assuming that excess reserves were zero?
A) zero
B) as much as the new deposits
C) the amount of new deposits multiplied by the reserve ratio
D) the amount of new deposits multiplied by the money multiplier
Recall the Application about the Fed increasing bank reserves during the financial crisis in
2008 to answer the following question(s). During the height of the financial crisis in
September 2008, The Fed injected large amounts of reserves into banks, and in the next
month, they started paying interest to banks on these reserves. Prior to this time, banks
earned no interest on either required or excess reserves.
33) Recall the application. The Fed started paying interest to banks on reserves. Since this
change has occurred,
A) total reserves now far exceed required reserves.
B) total reserves are finally equal to required reserves.
C) all total reserves are now excess reserves.
D) required reserves now exceed total reserves.
34) Recall the application. The Fed started paying interest to banks on reserves. All else equal,
this would tend to ________ on a bank’s balance sheet.
A) increase loans
B) increase deposits
C) increase reserves
D) all of the above
35) Recall the application. The Fed injected large amounts of reserves into banks during the 2008
financial crisis. The Fed needs to make sure that, in the long run, banks do not loan out too many
of these reserves or the result will be
A) higher inflation.
B) higher interest rates.
C) additional unemployment.
D) a smaller money multiplier.
36) Suppose Kaylee withdraws $4,000 from her bank. If the reserve ratio is 25%, then this will
lead to a decrease in M1 of
A) $1,000.
B) $4,000.
C) $8,000.
D) $12,000.
37) Suppose George withdraws $60,000 from his bank. If the reserve ratio is 25%, then this
transaction will lead to a decrease of ________ in checking account balances.
A) $15,000
B) $45,000
C) $90,000
D) $180,000
38) Isabel receives a check for $7,000 from Kermit and deposits it in her bank. Suppose that the
reserve ratio is 10%. As a result of this transaction the money supply will
A) increase by $70,000.
B) decrease by $63,000 and then increase by $70,000.
C) decrease by $70,000 and then increase by $63,000.
D) not change.
39) Mr. Garrison has recently obtained a bank card from South Park National Bank. Excited
about the concept of using a little plastic card to get money from a machine, he quickly runs
down to the nearest Automatic Teller Machine and withdraws $500. This action has
A) increased the money supply by $500.
B) reduced the money supply by $500.
C) reduced the bank’s required reserves by $25 assuming the reserve ratio is 5%.
D) not changed the money supply.
40) Which one of the following would lead to an eventual change in the total money supply?
A) a customer’s cash withdrawal from an ATM
B) a customer moves funds from her checking account to her savings account
C) using a credit card to purchase a new television
D) depositing a paycheck in a bank
41) Banks prefer to make loans than keep reserves because they earn interest on loans and must
pay interest on reserves.
42) A bank’s required reserves are the fraction of deposits they are required by law to hold as
reserves.
43) A bank’s excess reserves are the fraction of a bank’s deposits held at the Federal Reserve.
44) If cash is deposited into a checking account, the supply of money increases.
45) U.S. banks are required by law to keep most of their assets as reserves.
46) If the reserve ratio is 0.3 and a deposit of $1,000 is made to the bank, the bank can lend out
$700.
47) Banks will never hold any additional reserves beyond what is required.