61. For a depository institution, reserves are:
a.
assets on the balance sheet.
b.
loans to individuals and businesses.
c.
borrowings from the central bank.
d.
liabilities it owes to customers.
e.
checkable deposits.
62. In the United States, the reserve requirement is set by the:
a.
Bank of America.
b.
federal government.
c.
U.S. Treasury.
d.
Federal Reserve Board.
e.
Department of Commerce.
MACR.BOYE.16.64 – ch. 12, 6
United States – The Role of Money
Banks and the Money Supply
63. Excess reserves are equal to:
a.
total reserves plus required reserves.
b.
total reserves multiplied by required reserves.
c.
total reserves minus loans.
d.
total reserves minus required reserves.
e.
required reserves minus loans.
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply
64. What is the immediate effect when Bank A lends $1,000 to a local business?
a.
The money supply increases by $1,000.
b.
The money supply decreases by $1,000.
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply
c.
Bank A’s liability increases by $1,000.
d.
Bank A’s excess reserves increase by $1,000.
e.
Bank A’s demand deposits decrease by $1,000.
65. Suppose the reserve requirement is 10 percent and a person deposits $1,500 in a local bank. The local bank can now
create a maximum of:
a.
$150 in additional money, by lending $150.
b.
$15,000 in additional money, by lending $15,000.
c.
$1,500 in additional money, by lending $1,500.
d.
$1,350 in additional money, by lending $1,350.
e.
$135 in additional money, by lending $135.
66. Assume that the reserve requirement is 25 percent and that the amount of checkable deposits in Federal Bank is $200.
If the bank has loaned out $120, then the bank’s excess reserves must equal:
a.
$0.
b.
$25.
c.
$30.
d.
$80.
e.
$225.
67. Assume that the reserve requirement is 10 percent. If a bank has total deposits of $80 million, then the required
reserves must equal:
a.
$80 million.
b.
$12 million.
c.
$50 million.
Easy
MACR.BOYE.16.64 – ch. 12, 6
United States – The Role of Money
Banks and the Money Supply
Application
d.
$8 million.
e.
$10 million.
68. If a bank’s required reserves equal $270,000. Suppose the bank holds no excess reserves, and the reserve requirement
is equal to 18 percent, what is the value of the bank’s total deposits?
a.
$900,000
b.
$1,500,000
c.
$48,000
d.
$486,000
e.
$150,000
69. Suppose Bank X is holding total cash reserves of $32,000 on deposits of $90,000. If the reserve requirement is 15
percent, then the excess reserves held by this bank is:
a.
$27,200.
b.
$58,000.
c.
$4,800.
d.
$13,200.
e.
$18,500.
Table 12.2
Balance Sheet
Assets
Liabilities
Cash
$ 5,000
Demand Deposits
$20,000
Loans
15,000
Total Assets
$20,000
Total Liabilities
$20,000
d
Easy
MACR.BOYE.16.64 – ch. 12, 6
United States – The Role of Money
Banks and the Money Supply
Application
70. Refer to Table 12.2. With a reserve requirement of 20 percent, the bank has excess reserves of _____.
a.
$5,000
b.
$3,000
c.
$2,000
d.
$1,000
e.
$2,500
71. Refer to Table 12.2. Assume a reserve requirement of 10 percent. The maximum amount of new loans the bank could
extend is _____.
a.
$500
b.
$1,000
c.
$2,000
d.
$3,000
e.
$4,000
72. Refer to Table 12.2. If the reserve requirement is 12 percent and the bank receives a new deposit of $10,000, then
required reserves will increase by _____.
a.
$3,600
b.
$2,400
c.
$2,600
d.
$2,800
e.
$1,200
73. Refer to Table 12.2. If excess reserves equal $2,000, what must the reserve requirement be equal to?
a.
3 percent
b.
10 percent
d
Challenging
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply
Application
c.
15 percent
d.
20 percent
e.
25 percent
74. If a bank has deposits worth $800,000, total reserves worth $800,000, and the reserve ratio of 0.20, what is the value
of excess reserves?
a.
$620,000
b.
$1,000,000
c.
$1,160,000
d.
$640,000
e.
$160,000
75. Assume that the reserve requirement is 10 percent. A $1,000 cash deposit into a savings account will immediately
increase the bank’s required reserves by _____.
a.
$10,000.
b.
$500.
c.
$100.
d.
$1,500.
e.
$10.
76. Suppose the National Bank has total cash reserves of $2,000 and has $5,000 in total deposits. If its total excess
reserves are $1,250, then the reserve requirement is equal to:
a.
25 percent.
b.
15 percent.
c.
10 percent.
Challenging
MACR.BOYE.16.64 – ch. 12, 6
United States – The Role of Money
Banks and the Money Supply
Application
d.
5 percent.
e.
20 percent.
77. The reciprocal of the reserve requirement is called the:
a.
spending multiplier.
b.
tax multiplier.
c.
lending multiplier.
d.
deposit expansion multiplier.
e.
excess reserve multiplier.
d
Easy
MACR.BOYE.16.64 – ch. 12, 6
United States – The Role of Money
Banks and the Money Supply
Knowledge
78. If a banking system receives an initial deposit of $150,000 and the reserve requirement is 40 percent, the total deposit
in the banking system (including the initial deposit) can be expanded by _____.
a.
$375,000
b.
$150,000
c.
$60,000
d.
$250,000
e.
$450,000
The table given below records the amount of new deposits, the value of required reserves, and total amount loaned out by
Banks 1, 2, and 3.
Table 12.3
Bank
New Deposit
Required Reserves
Loans
Bank 1
$10,000
$1,000
$9,000
Bank 2
$9,000
$900
$8,100
Bank 3
$8,100
$810
$7,290
*Assume all excess reserves are loaned out.
b
Challenging
MACR.BOYE.16.64 – ch. 12, 6
United States – The Role of Money
Banks and the Money Supply
Application
79. Refer to Table 12.3. What is the reserve requirement?
a.
11 percent
b.
90 percent
c.
10 percent
d.
9 percent
e.
19 percent
80. Refer to Table 12.3. What is the total increase in the money supply created in the banking system as a result of the
initial deposit of $10,000 in Bank 1?
a.
$10,000
b.
$27,100
c.
$100,000
d.
$90,000
e.
$20,000
81. Refer to Table 12.3. If the reserve requirement changed to 8 percent, then total deposits in the economy would be
equal to:
a.
$125,000.
b.
$160,000.
c.
$77,500.
d.
$80,000.
e.
$75,000.
82. Refer to Table 12.3. If the reserve requirement changed to 8 percent, then total loans in the economy would be equal
to _____.
a.
$170,000
Moderate
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply
Application
b.
$115,000
c.
$70,000
d.
$90,000
e.
$150,000
83. If the reserve requirement is 33.3 percent, what is the approximate value of deposit expansion multiplier?
a.
3.33
b.
3
c.
0.33
d.
0.667
e.
1.5
84. If a bank has $500 in excess reserves and the reserve requirement is 20 percent, then the maximum amount by which
this individual bank can increase the money supply is _____.
a.
$100
b.
$400
c.
$500
d.
$1,000
e.
$2,500
85. If the deposit expansion multiplier is 20, what is the reserve requirement in the banking system?
a.
20 percent
b.
50 percent
c.
2 percent
d.
5 percent
b
Challenging
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply
Application
e.
10 percent
86. An increase in the reserve requirement from 20 percent to 25 percent is most likely to:
a.
reduce total deposits in the banking system.
b.
reduce excess reserves and the deposit expansion multiplier.
c.
increase the money supply.
d.
reduce the amount of reserves required.
e.
increase total deposits and the deposit expansion multiplier.
87. The money-creating ability of the banking system may be lowered by:
a.
a decrease in the cash balances that people wish to hold.
b.
a fall in the overall rate of inflation.
c.
an increase in the excess reserves.
d.
an increase in total deposits.
e.
an increase in the reserve requirement.
88. Which of the following constitutes a currency drain from the banking system?
a.
Purchase of government securities
b.
New demand deposits
c.
Banks lending out all excess reserves
d.
A banking panic that leads to large withdrawals from banks
e.
Lower required reserve holdings
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply
89. Suppose a bank has demand deposits of $2,500, excess reserves of $125, and a reserve requirement of 25 percent.
What is the loss in the money expansion process of the whole banking system if the bank decides to lend out only $100?
a.
$100
b.
$150
c.
$200
d.
$400
e.
$500
90. The maximum amount by which the entire banking system can create money is equal to:
a.
a fraction of its excess reserves.
b.
a fraction of its required reserves.
c.
a multiple of its total reserves.
d.
a multiple of its excess reserves.
e.
its excess reserves.
d
Easy
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply
Knowledge
91. Suppose that Mr. Chopp withdraws $500 from his checking account. If the reserve requirement is 5 percent, what will
be the maximum potential change in the money supply forthcoming from Mr. Chopp’s transaction?
a.
$10,000
b.
$500
c.
$0
d.
-$500
e.
-$10,000
Comprehension
Revised
92. Other things equal, when U.S. money moves to other countries to take advantage of better foreign investment
opportunities, then:
a.
the U.S. money supply will increase.
b.
the reserve requirement for U.S. banks will rise.
c.
the U.S. money supply will decrease.
d.
U.S. banks will have excess reserves to loan out.
e.
the effect of the U.S. deposit expansion multiplier will be increased.
Easy
MACR.BOYE.16.64 – ch. 12, 6
United States – The Role of Money
Banks and the Money Supply
Knowledge
Revised
93. Saltbricks will be considered as money if they are generally acceptable to sellers in exchange for goods and services.
a.
True
b.
False
94. Stocks and bonds are considered to be highly illiquid assets while real estate is considered to be a liquid asset.
a.
True
b.
False
95. The use of money as a medium of exchange requires a double coincidence of want.
a.
True
b.
False
False
MACR.BOYE.16.59 – ch. 12, 1
Banks and the Money Supply
Application
96. Scarcity and durability characterize the property of money as a medium of exchange.
a.
True
b.
False
False
Easy
MACR.BOYE.16.59 – ch. 12, 1
What Is Money?
Knowledge
97. Using money as a unit of account lowers information costs compared to barter exchanges.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.59 – ch. 12, 1
What Is Money?
Knowledge
98. A $1,000 price tag on a stereo system is an example of money as a unit of account.
a.
True
b.
False
99. When you save $1,500 for a spring-break vacation in Cancun, you are using money as a standard of deferred payment.
a.
True
b.
False
Knowledge
Revised
100. The higher the rate of inflation in Cuba, the greater the probability that Cuban residents will substitute U.S. currency
for Cuban currency.
a.
True
b.
False
101. In high-inflation countries, workers prefer to spend their income faster compared to low-inflation countries.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.59 – ch. 12, 1
United States – The Role of Money
What Is Money?
102. The available credit limit we have in a credit card reflects the amount of money we hold in our savings account.
a.
True
b.
False
103. Outstanding U.S. dollar-denominated travelers’ checks issued by non-bank institutions are not counted as part of the
M1 money supply.
a.
True
b.
False
False
Easy
What Is Money?
What Is Money?
Application
104. Currency includes coins and paper money in circulation and stored in the federal reserve vaults.
a.
True
b.
False
False
Easy
MACR.BOYE.16.60 – ch. 12, 2
What Is Money?
Knowledge
105. By Gresham’s law, commodity money will always drive out fiduciary money.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.60 – ch. 12, 2
United States – The Role of Money
What Is Money?
Knowledge
106. If Julia deposits $2,000 (which she has until now kept in her closet as cash) in her savings account, then the M1
money supply will decrease.
a.
True
b.
False
107. Sales contracts between developed countries are usually written (invoiced) in the national currency of the exporter.
a.
True
b.
False
True
Easy
MACR.BOYE.16.61 – ch. 12, 3
United States – International Trade and Finance
Knowledge
Knowledge
108. The U.S. dollar is a composite currency.
a.
True
b.
False
109. The euro is a composite currency; its value is an average of the changing values of several national currencies.
a.
True
b.
False
False
Easy
MACR.BOYE.16.61 – ch. 12, 3
United States – The Role of Money
What Is Money?
Knowledge
110. The U.S. dollar is the most important reserve currency in the world.
a.
True
b.
False
True
Easy
MACR.BOYE.16.61 – ch. 12, 3
United States – The Role of Money
What Is Money?
Knowledge
111. Prior to 1980, thrift institutions in the United States were allowed to offer checking accounts.
a.
True
b.
False
False
Easy
MACR.BOYE.16.62 – ch. 12, 4
Banking
112. Because a bank pays a lower interest rate on deposits than it charges on loans, it cannot fail.
a.
True
False
Easy
MACR.BOYE.16.61 – ch. 12, 3
What Is Money?
Knowledge
b.
False
113. Banks that operate under Islamic law are no longer considered intermediaries between borrowers and lenders because
they are not allowed to charge interest.
a.
True
b.
False
Moderate
MACR.BOYE.16.62 – ch. 12, 4
United States – The Role of Money
Global Business Insight – Islamic Banking
Knowledge
114. In the 1980s, the number of bank failures increased dramatically in the United States, most of which were uninsured.
a.
True
b.
False
Moderate
MACR.BOYE.16.62 – ch. 12, 4
Banking
Knowledge
115. The main advantage of the Eurocurrency market is that investment funds cannot be subject to foreign government
controls.
a.
True
b.
False
False
Easy
MACR.BOYE.16.63 – ch. 12, 5
United States – International Trade and Finance
Banking
Knowledge
116. The U.S. banks have been facing greater competition from the Eurocurrency market because of the establishment of
international banking facilities.
a.
True
False
Easy
MACR.BOYE.16.62 – ch. 12, 4
Banking
Knowledge
b.
False
117. If banks are prevented from lending out funds, there will be no money creation in an economy.
a.
True
b.
False
True
Moderate
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply
Knowledge
118. The cash reserves held by banks that are illegal are called excess reserves.
a.
True
b.
False
119. Under the system of fractional reserve banking, the reserve requirement is the ratio of excess reserves to total
reserves.
a.
True
b.
False
Challenging
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply
Knowledge
120. Total reserve holdings over and above required reserves constitute the minimum amount of loans a depository
institution can make.
a.
True
b.
False
False
Moderate
MACR.BOYE.16.63 – ch. 12, 5
Banking
Knowledge
121. When depository institutions have negative excess reserves, it indicates that the banking system is not “loaned up.”
a.
True
b.
False
122. If the entire banking system has total deposits of $4 billion and a reserve requirement of 5 percent, then the
maximum possible amount of loans that the banking system can make equals $2 million.
a.
True
b.
False
123. An increase in the amount of currency held by the public will raise the value of the deposit expansion multiplier.
a.
True
b.
False
False
MACR.BOYE.16.64 – ch. 12, 6
United States – The Role of Money
Banks and the Money Supply
Knowledge
124. An increase in the amount of excess reserves held by a bank helps to increase the economy’s money supply.
a.
True
b.
False
Moderate
False
Moderate
MACR.BOYE.16.64 – ch. 12, 6
United States – The Role of Money
Banks and the Money Supply
Knowledge
125. The maximum money that can be created by the entire banking system is equal to a multiple of its excess reserves.
a.
True
b.
False
True
Easy
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply
Knowledge
MACR.BOYE.16.64 – ch. 12, 6
Banks and the Money Supply
Knowledge