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Chapter 15 - Money Creation
1. The goldsmith's ability to create money was based on the fact that:
2. When the receipts given by goldsmiths to depositors were used to make purchases:
Chapter 15 - Money Creation
3. Which one of the following is presently a major deterrent to bank panics in the United
States?
4. Most modern banking systems are based on:
5. A fractional reserve banking system:
Chapter 15 - Money Creation
6. In a fractional reserve banking system:
7. Bank panics:
8. Which of the following statements is correct?
Chapter 15 - Money Creation
9. A bank that has assets of $85 billion and a net worth of $10 billion must have:
10. A bank that has liabilities of $150 billion and a net worth of $20 billion must have:
11. Which of the following describes the identity embodied in a balance sheet?
Chapter 15 - Money Creation
12. The claims of the owners of a firm against the firm's assets are called:
13. Which of the following are all assets to a commercial bank?
14. The reserves of a commercial bank consist of:
Chapter 15 - Money Creation
15. A commercial bank's reserves are:
16. The primary purpose of the legal reserve requirement is to:
17. The ABC Commercial Bank has $5,000 in excess reserves and the reserve ratio is 30
percent. This information is consistent with the bank having:
Chapter 15 - Money Creation
18. Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio
is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves:
Answer the question on the basis of the following table for a commercial bank or thrift:
19. Refer to row 1 in the above table. The number appropriate for space W is:
Chapter 15 - Money Creation
20. Refer to row 2 in the above table. The number appropriate for space X is:
21. Refer to row 3 in the above table. The number appropriate for space Y is:
22. Refer to row 4 in the above table. The number appropriate for space Z is:
Chapter 15 - Money Creation
23. When a check is drawn and cleared, the
24. Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits
of $80,000. If the reserve requirement is 25 percent, what is the size of the bank's actual
reserves?
Chapter 15 - Money Creation
25. Excess reserves refer to the:
26. Suppose the reserve requirement is 10 percent. If a bank has $5 million of checkable
deposits and actual reserves of $500,000, the bank:
27. A reserve requirement of 20 percent means a bank must have $1,000 of reserves if its
checkable deposits are:
Chapter 15 - Money Creation
28. Assume that a bank initially has no excess reserves. If it receives $5,000 in cash from a
depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must
be:
29. Suppose the reserve requirement is 20 percent. If a bank has checkable deposits of $4
million and actual reserves of $1 million, it can safely lend out:
30. Suppose that a bank's actual reserves are $5 million, its checkable deposits are $5 million,
and its excess reserves are $3 million. The reserve requirement must be:
Chapter 15 - Money Creation
15-12
31. Assume the Continental National Bank's balance statement is as follows:
Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank
have after a check for $10,000 was drawn and cleared against it?
32. The reserve ratio refers to the ratio of a bank's:
Chapter 15 - Money Creation
33. The amount that a commercial bank can lend is determined by its:
34. A commercial bank can expand its excess reserves by:
35. Commercial banks monetize claims when they:
Chapter 15 - Money Creation
36. Commercial banks create money when they:
37. Assume Company X deposits $100,000 in cash in commercial Bank A. If no excess
reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can
increase the money supply by a maximum of:
38. Assume that Smith deposits $600 in currency into her checking account in the XYZ Bank.
Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and
by what amount has the supply of money changed?
Chapter 15 - Money Creation
39. Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro
National Bank and receives a checkable deposit for that amount in exchange for its
promissory note (IOU). As a result of this transaction:
Use the following balance sheet for the ABC National Bank in answering the question.
Assume the required reserve ratio is 20 percent.
40. Refer to the above data. This commercial bank has excess reserves of:
Chapter 15 - Money Creation
41. Refer to the above data. This bank can safely expand its loans by a maximum of:
42. Refer to the above data. Assuming the bank loans out all of its remaining excess reserves
as a checkable deposit, and has a check cleared against it for that amount, its reserves and
checkable deposits will now be:
43. Refer to the above data. If the original balance sheet was for the commercial banking
system, rather than a single bank, loans and checkable deposits could have been expanded by
a maximum of:
Chapter 15 - Money Creation
44. A single commercial bank must meet a 25 percent reserve requirement. If the bank has no
excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans
by a maximum of:
45. If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve
requirement the bank will:
46. When a commercial bank has excess reserves:
Chapter 15 - Money Creation
47. If we both have checking accounts in the same commercial bank and I write a check in
your favor for $200, the bank's:
48. Which of the following is correct?
49. If the reserve requirement is 10 percent, what amount of excess reserves does a bank
acquire when a business deposits a $500 check drawn on another bank?
Chapter 15 - Money Creation
50. The amount of reserves that a commercial bank is required to hold is equal to:
51. Banks create money when they:
52. In prosperous times commercial banks are likely to hold very small amounts of excess
reserves because:
Chapter 15 - Money Creation
53. Which of the following is correct?
Answer the question on the basis of the following balance sheet for the First National Bank
of Bunco. All figures are in millions.
54. Refer to the above data. If this bank has excess reserves of $6 million, the legal reserve
ratio must be:
