Chapter 15 – Money Creation
1. The fractional reserve system of banking started when goldsmiths began:
2. What is one significant consequence of fractional reserve banking?
Chapter 15 – Money Creation
3. What is one significant characteristic of fractional reserve banking?
4. A bank’s net worth is equal to its:
5. A bank’s net worth is the:
Chapter 15 – Money Creation
6. A bank owns a 10-story office building. In the bank’s balance sheet, this would be listed as
part of:
7. A bank has $2 million in checkable deposits. In the bank’s balance sheet, this would be part
of:
8. The claims of creditors of a bank against the bank’s assets are called:
Chapter 15 – Money Creation
9. Which are liabilities to a bank?
10. Money supply M1 includes a component that is part of a bank’s:
11. A checkable deposit at a commercial bank is a(n):
Chapter 15 – Money Creation
12. Cash held by a bank in its vault is a part of the bank’s:
13. When a bank sells capital stock (equity shares) in return for cash:
14. When cash is deposited in a checkable-deposit account at a bank, there is:
Chapter 15 – Money Creation
15. When cash is withdrawn from a checkable-deposit account at a bank:
16. The reserve ratio is equal to:
17. A bank’s required reserves can be calculated by:
Chapter 15 – Money Creation
18. A commercial bank has actual reserves of $50,000 and checkable deposits of $200,000,
and the required reserve ratio is 20%. The excess reserves of the bank are:
19. Refer to the table above. If a bank has $60 million in savings deposits and $40 million in
checkable deposits, then its required reserves are:
Chapter 15 – Money Creation
20. Refer to the above table. If a bank has checkable deposits of $45 million and reserves of
$2 million, then its excess reserves are:
21. A commercial bank’s checkable-deposit liabilities can be estimated by:
22. A commercial bank has required reserves of $6,000 and the reserve ratio is 20 percent.
How much are the commercial bank’s checkable-deposit liabilities?
Chapter 15 – Money Creation
23. A commercial bank has checkable-deposit liabilities of $50,000 and a reserve ratio of 20
percent. What is the amount of required reserves?
24. A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of
$9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are:
25. A bank is in the position to make loans when required reserves:
Chapter 15 – Money Creation
26. Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of
Kansas City. She then deposits the funds in her checking account at First Commerce Bank.
Her checking account had a $150,000 balance before this deposit. The reserves of First
Commerce Bank would:
27. An individual deposits $12,000 in a commercial bank. The bank is required to hold 10
percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases
the loan capacity of the bank by:
28. A bank’s checkable deposits shrink from $40 million to $33 million. What happens to its
required reserves if the reserve ratio is 3%?
Chapter 15 – Money Creation
29. Suppose that the reserve ratio is 6%, and applies only to checkable deposits. A bank has
non-checkable time deposits of $300 million, checkable deposits of $100 million, and
reserves of $8 million. What are the excess reserves of this bank?
30. Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million
cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and
$60 million in checkable deposits, then its excess reserves equal:
31. Suppose the Northwestern Bank has excess reserves of $12,000 and outstanding
checkable deposits of $125,000. If the reserve requirement is 20 percent, what are the bank’s
actual reserves?
Chapter 15 – Money Creation
32. A bank has excess reserves of $5,000 and demand deposits of $50,000 when the required
reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, then this bank can lend a
maximum of:
33. A depositor places $5,000 in cash in a commercial bank, and the reserve ratio is 20
percent; the bank sends the $5,000 to the Federal Reserve Bank. As a result, the reserves and
excess reserves of the bank have been increased, respectively, by:
34. A depositor places $10,000 in cash in a commercial bank, and the reserve ratio is 10
percent. The bank sends the $10,000 to its Federal Reserve Bank. As a result, the actual
reserves, required reserves, and excess reserves of the bank have been increased by:
Chapter 15 – Money Creation
The figures in the table below are for a single commercial bank. All figures are in thousands
of dollars.
35. Refer to the above data. This bank has total assets of:
36. Refer to the above data. This bank has liabilities and net worth totaling:
Chapter 15 – Money Creation
37. Refer to the above data. If the required reserve ratio is 10 percent, the bank has excess
reserves of:
38. Refer to the above data. If the reserve ratio is 10 percent and a check for $10,000 is drawn
and cleared in favor of another bank, then the actual reserves of the bank above will:
39. Refer to the above data. If the reserve ratio is 10 percent and a check for $10,000 is drawn
and cleared in favor of another bank, then the bank above will end up with excess reserves of:
Chapter 15 – Money Creation
40. Assume that the required reserve ratio is 20 percent. A business deposits a $50,000 check
at Bank A; the check is drawn against Bank B. What happens to the reserves at Bank A and
Bank B?
41. Assume that the required reserve ratio is 20 percent. A business deposits a $50,000 check
at Bank A; the check is drawn against Bank B. What happens to the excess reserves at Bank A
and Bank B?
42. The Norfolk Bank has $18,000 in excess reserves and the reserve ratio is 20 percent. How
much checkable deposits and reserves does this bank hold?
Chapter 15 – Money Creation
43. When required reserves exceed actual reserves, commercial banks will be forced to have
borrowers:
44. When loans are repaid at commercial banks:
45. Henry Trudeau deposits $2,000 in currency in the First Street Bank. Later that same day
Jane Harris negotiates a loan for $5,400 at the same bank. After these transactions, the supply
of money has:
Chapter 15 – Money Creation
46. Which of the following statements is correct?
47. Money is “created” when:
48. When a check is cleared against a bank, it will lose:
Chapter 15 – Money Creation
49. Other things being equal, an expansion of commercial bank lending:
50. The primary reason commercial banks must keep required reserves on deposit at Fed is
to:
51. When a bank grants a loan to a customer who then keeps the funds in her checking
account at that bank, then the bank’s:
Chapter 15 – Money Creation
52. When a bank grants a loan to a customer who gets the funds and keeps it at home for a
while, then the money supply will:
53. A commercial bank has no excess reserves until a depositor places $5000 in cash at the
bank. The commercial bank then lends $4000 to a borrower. As a consequence of these
transactions the size of the money supply has:
54. A commercial bank has excess reserves of $5000 and a required reserve ratio of 20
percent. It makes a loan of $6000 to a borrower. The borrower writes a check for $6000 that is
deposited in another commercial bank. After the check clears, the first bank will be short of
reserves in the amount of:
Chapter 15 – Money Creation
55. A commercial bank has no excess reserves until a depositor places $2,000 in cash in the
bank. The reserve ratio is 10%. The bank then lends $1,500 to a borrower. As a consequence
of these transactions the bank’s excess reserves are:
56. A commercial bank has excess reserves of $10,000 and a required reserve ratio of 20%. It
grants a loan of $8,000 to a customer, who then writes out a check for $8,000 that is deposited
in another bank. The first bank will find its reserves decrease by:
57. A commercial bank buys a $50,000 government security from a securities dealer. The
bank pays the dealer by increasing the dealer’s checkable deposit balance by $50,000. The
money supply has: