A. reduce the value of holding money.
B. create the need to hold highly liquid assets.
C. create money.
D. are financial assets.
65. If you purchase a good on credit, you are:
A. exchanging a financial asset for another financial asset.
B. incurring a real liability to acquire a real asset.
C. incurring a financial liability to acquire a real asset.
D. exchanging a financial liability for a real liability.
66. When considering policy, measures of access to credit can often be:
A. measures of individual assets.
B. unimportant to the economy.
C. included in the measures of money.
D. as important as measure of money.
67. Why do banks package loans into securities?
A. The banking regulations require them to do so.
B. To get around adhering to current banking regulations.
C. To spread the risk of default and increase liquidity.
D. To take advantage of tax breaks passed by the federal government as part of stimulus
packages.
68. The process of packaging a variety of loans together and slicing them up into new financial
instruments is called:
A. defaulting.
B. diversifying.
C. liquidating.
D. securitization.
69. Banks hold people’s cash for free, and sometimes even pay for the privilege of holding it,
because:
A. they are nice.
B. deposits allow banks to make profitable loans.
C. the Federal Reserve requires that they do so.
D. the cash can be deposited at the Federal Reserve Bank to earn interest.
70. Liability management refers to:
A. a bank’s handling of the assets in individual trust funds.
B. a bank’s handling of loans and other assets.
C. how a bank attracts deposits and what it pays for them.
D. how a bank manages its accounts receivable.
71. Asset management refers to:
A. a bank’s handling of how much interest it pays on deposits.
B. a bank’s handling of loans and other assets.
C. how a bank attracts deposits and what it pays for them.
D. how a bank manages its accounts payable.
72. When the Fed prints and issues bills, it creates:
A. a financial liability for the holder of the IOU.
B. a financial asset for itself.
C. a real asset.
D. money.
73. A commercial bank is a financial institution that:
A. prints and distributes currency.
B. borrows from and lends to individuals and businesses.
C. holds the savings of individuals for a fee until they need them.
D. determines the value of currency.
74. Early medieval bankers were similar to modern bankers in that they:
A. would also lend a portion of the deposits.
B. could not create money.
C. took deposits in gold.
D. were not subject to any regulation.
75. The goldsmith’s ability to create money was based on the fact that:
A. gold receipts were rarely exchanged for gold.
B. the goldsmith was required to keep 100 percent gold reserves.
C. consumers preferred to use gold for transactions.
D. withdrawals of gold tended to exceed deposits of gold.
76. A commercial bank’s reserve ratio equals the ratio of its reserves to its:
A. assets.
B. required reserves.
C. deposits.
D. excess reserves.
77. Bank reserves are:
A. real assets deposited at banks.
B. cash and deposits a bank keeps on hand or at the central bank.
C. loans issued by banks deposited into checking accounts.
D. checks held by depositors.
78. Bank required reserves are:
A. a financial asset for the Fed.
B. a financial liability for the bank.
C. counted as money.
D. a financial liability for the Fed.
79. Modern bankers:
A. focus on asset management.
B. focus on liability management.
C. focus on both asset management and liability management.
D. are unconcerned with asset and liability management and instead are concerned with how to
make money.
80. If the reserve requirement is 20 percent, and banks keep no excess reserves, an increase in an
initial inflow of $100 into the banking system will cause an increase in the money supply of:
A. $20.
B. $50.
C. $100.
D. $500.
81. If the reserve requirement is 10 percent, and banks keep no excess reserves, an increase in an
initial $300 into the banking system will cause an increase in total money of:
A. $30.
B. $300.
C. $3,000.
D. $30,000.
82. If banks hold excess reserves whereas before they did not, the money multiplier:
A. will become larger.
B. will become smaller.
C. will be unaffected.
D. might increase or might decrease.
83. The money supply is best described as being:
A. determined by the size of the money multiplier.
B. determined by the amount of reserves.
C. endogenously determined by the monetary system.
D. fixed, to avoid inflation.
84. If commercial banks hold all their assets in the form of required reserves:
A. only they will be able to create money.
B. only the central bank will be able to create money.
C. no one will be able to create money.
D. both commercial banks and the central bank will be able to create money.
85. Which of the following is not counted as money?
A. Bank reserves
B. Currency held by the public
C. Loans made by a bank
D. Federal Reserve notes
86. Banks must keep an amount equal to a percentage of their deposits on hand as:
A. excess reserves.
B. savings accounts.
C. required reserves.
D. safe deposit reserves.
87. The actual reserve ratio is usually:
A. less than the required reserve ratio.
B. equal to the required reserve ratio.
C. greater than the required reserve ratio.
D. the inverse of the required reserve ratio.
88. If the reserves in U.S. banks totaled $10,000 and total deposits were $20,000, the banking
system’s reserve ratio would be:
A. 0.05.
B. 0.20.
C. 0.50.
D. 0.95.
89. If the reserves in U.S. banks totaled $8,000 and total deposits were $100,000, the banking
system’s reserve ratio would be:
A. 0.08.
B. 0.10.
C. 0.80
D. 0.92
90. The fraction of deposits a bank must hold in the form of reserves is called the:
A. reserve ratio.
B. excess reserve ratio.
C. required reserve ratio.
D. currency to reserve ratio.
91. Suppose total deposits in the First Bank of Commerce are $100,000 and required reserves
are $10,000. Based on this information, the required reserve ratio is:
A. 0.10.
B. 0.9.
C. 1.0.
D. 10.0.
92. Suppose total deposits in the First Bank of Commerce are $200,000 and required reserves
are $10,000. Based on this information, the required reserve ratio is:
A. 0.05.
B. 0.10.
C. 0.20.
D. 20.0.
93. If the required reserve ratio is 0.12, the amount a bank can lend is equal to:
A. 12 percent of its deposits.
B. 12 percent of its reserves.
C. 88 percent of its deposits.
D. 88 percent of its reserves.
94. A reserve ratio of 0.10 means that a bank can lend an amount equal to:
A. 10 percent of its deposit liabilities.
B. 10 percent of its excess reserves.
C. 90 percent of its deposit liabilities.
D. 90 percent of its excess reserves.
95. A single bank has a reserve requirement of 10 percent. This means that if a customer
deposits $100 million, the bank may increase lending by:
A. $9 million.
B. $10 million.
C. $90 million.
D. $91 million.
96. A bank has a reserve requirement of 10 percent. This means that if a customer deposits
$10,000, the bank may increase lending by:
A. $1,000.
B. $9,000.
C. $10,000.
D. $11,000.
97. A bank has a reserve requirement of 0.10. If it has demand deposits of $100,000 and is
holding $12,000 in reserves:
A. all the bank’s reserves are excess reserves.
B. the bank is not meeting its reserve requirement.
C. the bank is holding $2,000 in excess reserves.
D. all reserves are required reserves.
98. A bank has a reserve requirement of 0.08. If it has demand deposits of $200,000 and is
holding $4,000 in reserves:
A. all the bank’s reserves are excess reserves.
B. the bank is not meeting its reserve requirement.
C. the bank is holding $2,000 in excess reserves.
D. the bank could extend additional loans and still meet its reserve requirement.
99. If a bank’s reserve ratio is increasing,
A. reserves must be increasing.
B. deposits must be decreasing.
C. the rate of change in reserves must exceed the rate of change in deposits.
D. the rate of change in deposits must exceed the rate of change in reserves.
100. After the beginning of the 2008 recession, excess reserves rose significantly. This increase
most likely:
A. decreased the money supply.
B. did not affect the money supply.
C. increased the money supply.
D. had an unpredictable effect on the money supply.
101. When a bank makes a loan, the money supply:
A. does not increase.
B. decreases.
C. increases.
D. may increase or decrease depending on how the loan is used.
102. If people held all their money as cash:
A. money would no longer be a financial liability of the Fed.
B. money would lose its value as a store of wealth.
C. banks would still be able to create money by making loans.
D. banks could not create money.
103. Which institutions can create money?
A. The government and its agencies
B. The Fed and the banks
C. Mutual funds and retirement funds
D. Households and corporations
104. When banks offer checking accounts, they are issuing a(n):
A. financial asset that functions as money.
B. financial liability.
C. financial asset that cannot function as money.
D. IOU.
105. When a $100 bill is printed by the Fed, the Fed has a financial liability because the:
A. Fed is part of the government.
B. Fed issued the bill.
C. Fed has the printing machine.
D. bill will not be counted as part of M1.
106. The amount of money ultimately created per dollar deposited when people hold no cash is
found using the:
A. money demand ratio.
B. excess reserve ratio.
C. required reserve ratio.
D. money multiplier.
107. The formula for the money multiplier is:
A. 1/e where e is the excess reserve ratio.
B. 1/r where r is the reserve ratio.
C. 1(1-r) where r is the required reserve ratio
D. 1/c where c is the ratio of cash people hold to deposits.
108. As the reserve ratio goes up, the money multiplier goes:
A. up, and more money will be created.
B. down, and less money will be created.
C. up, and less money will be created.
D. down, and more money will be created.
109. As the reserve ratio goes up, less money will be created because:
A. people will hold less cash.
B. people will hold more cash.
C. banks will extend more loans.
D. banks will extend fewer loans.
110. The higher the reserve ratio, the:
A. greater the money multiplier.
B. more money will be created.
C. smaller the money multiplier.
D. greater the level of required reserves.
111. If the reserve ratio is 0.08, the money multiplier is:
A. 1.0.
B. 8.0.
C. 10.5.
D. 12.5.
112. If the reserve ratio is 0.25, the money multiplier is:
A. 4.0.
B. 5.0.
C. 20.0.
D. 25.0.
113. If the money multiplier is 5, what is the reserve ratio?
A. 0.10
B. 0.20
C. 0.25
D. 0.80
114. If the reserve ratio is 0.1, the money multiplier will be:
A. 1.
B. 10.
C. 100.D. 1,000.
115. If the money multiplier is 2.5, the reserve ratio is:
A. 0.3.
B. 0.4.
C. 0.5.
D. 0.6.
116. Assuming that the reserve ratio is 0.05 the money multiplier is:
A. 10.
B. 20.
C. 30.
D. 40.
117. Suppose the money multiplier is 5. If banks hold excess reserves, the required reserve ratio
must:
A. be less than 0.10.
B. be less than 0.20.
C. equal 0.20.
D. be greater than 0.20.
118. If the total deposits of the banking system are $400 billion, how much money could these
reserves support if the required reserve ratio is 0.20 and banks hold no excess reserves?
A. $400 billion
B. $1,200 billion
C. $1,600 billion
D. $2,000 billion
119. If the required reserve ratio is 0.10, what is the maximum amount of money that can be
created from a $2 million deposit in the banking system?
A. $2 million
B. $4 million
C. $20 million
D. $200 million
120. If the required reserve ratio is 0.20, what is the maximum amount of money that can be
created from a $5 million deposit in the banking system?
A. $5 million
B. $20 million
C. $25 million
D. $50 million
121. Suppose the required reserve ratio is 0.20. Total bank deposits are $200 million and the
bank holds $50 million in reserves. How much more money could the bank create if it does not
hold excess reserves?
A. $5 million
B. $25 million
C. $30 million
D. $50 million
122. Suppose the required reserve ratio is 0.15. Total bank deposits are $100 million and the
bank holds $20 million in reserves. How much more money can the bank create if it does not
hold excess reserves?
A. $33 million
B. $66 million
C. $100 million
D. $667 million
123. The reason why the banking system can increase checkable deposits by a multiple of initial
deposits is that:
A. the banking system must keep reserves equal to 100 percent of its checkable deposits.
B. the central bank follows policies that prevent reserves from falling below the level required
by law.
C. reserves lost by any particular bank are gained by the Federal Reserve Bank.
D. borrowers often spend most of a loan which is then deposited.
124. If a deposit of $50 in the banking system can lead to a maximum expansion in bank
deposits of $250, using the money multiplier formula, the required reserve ratio must be:
A. 20 percent.
B. 25 percent.
C. 40 percent.
D. 50 percent.