Chapter 32 example #56815

1. The fractional reserve system of banking started when goldsmiths began: A. Accepting deposits of gold for safe storage B. Charging people who deposited their gold C. Using deposited gold to produce products for sale to others D. Issuing paper receipts in excess of the amount of gold held.

2. What is one significant consequence of fractional reserve banking? A. Banks are vulnerable to "panics" or "bank runs." B. Banks can only lend an amount equal to its deposits. C. Banks hold a portion of their deposits in gold. D. Banks can serve the withdrawals of all their depositors.

3. What is one significant characteristic of fractional reserve banking? A. Banks hold a fraction of their loans in reserve B. Banks use deposit insurance for loans to customers C. Bank loans will be equal to the amount of gold on deposit D. Banks can create money through lending their reserves

4. A bank owns a 10-story office building. In the bank's balance sheet, this would be listed as part of: A. Assets B. Liabilities C. Capital stock D. Net worth

5. A checkable deposit at a commercial bank is a(n): A. Liability to the depositor and an asset to the bank B. Liability to both the depositor and the bank C. Asset to the depositor and a liability to the bank D. Asset to both the depositor and the bank

6. Cash held by a bank in its vault is a part of the bank's: A. Reserves B. Liabilities C. Money supply D. Net worth

7. When cash is withdrawn from a checkable-deposit account at a bank: A. The money supply M1 increases B. The money supply M1 decreases C. The money supply M1 does not change but its composition changes D. The composition of money supply M1 does not change

8. A bank's required reserves can be calculated by: A. Dividing its excess reserves by its required reserves B. Dividing its required reserves by its excess reserves C. Multiplying its checkable-deposit liabilities by the reserve ratio D. Multiplying its checkable-deposit liabilities by its excess reserves

9. 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: A. $30 million B. $3 million C. $1.8 million D. $1.2 million

10. Refer to the above table. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are: A. $0.35 million B. $0.65 million C. $1.35 million D. $1.65 million

11. A bank is in the position to make loans when required reserves: A. Equal actual reserves B. Equal excess reserves C. Are less than actual reserves D. Are greater than actual reserves

12. 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: A. $11,000 B. $10,800 C. $9,600 D. $6,000

13. 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? A. $5.6 million B. $6 million C. $2 million D. $2.4 million

14. 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: A. $1,000 B. $1,500 C. $2,000 D. $2,500

15. 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? A. Increase by $10,000 at Bank A, and decrease by $10,000 at Bank B B. Increase by $10,000 at Bank A, and decrease by $50,000 at Bank B C. Reserves stay the same in both banks D. Increase by $50,000 at Bank A, and decrease by $50,000 at Bank B

16. When loans are repaid at commercial banks: A. Money is created B. Money is destroyed C. The assets of commercial banks increase D. The net worth of commercial banks increases

17. 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: A. Increased by $2,100 B. Increased by $3,300 C. Increased by $5,400 D. Decreased by $3,300

18. Which of the following statements is correct? A. When borrowers repay bank loans, the money supply is increased B. When borrowers take out bank loans, the money supply is decreased C. A single bank can legally lend an amount equal to its total reserves D. A bank can only grant loans to customers if it has excess reserves

19. 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: A. Not affected B. Increased by $200 C. Increased by $300 D. Increased by $500

20. The relative importance of various asset items on a commercial bank's balance sheet reflects a bank's pursuit of which two conflicting goals? A. Profits and risk B. Liquidity and profits C. Assets and liabilities D. Buying and selling government securities

21. If the reserve ratio is 25 percent, what level of excess reserves does a bank acquire when a customer deposits a $12,000 check drawn on another bank? A. $3,000 B. $6,000 C. $9,000 D. $12,000

22. Banks can lend their excess reserves to other banks in the: A. Mutual funds market B. Treasury funds market C. Federal funds market D. Bank funds market

23. The Federal funds rate is the rate that banks pay for loans from: A. The Fed B. The U.S. Treasury C. Other banks

24. A commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system can increase loans are respectively: A. $30,000 and $150,000 B. $50,000 and $250,000 C. $50,000 and $500,000 D. $100,000 and $500,000

25. When bankers hold excess reserves: A. The size of the monetary multiplier increases B. The money-creating potential of the banking system increases C. The money-creating potential of the banking system decreases D. There is no change in the money-creating potential of the banking system

26. Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25 percent, the banking system can expand the supply of money by a maximum of: A. $75,000 B. $25,000 C. $5,000 D. $100,000

27. Refer to the above information. This commercial bank has required reserves of: A. $40,000 B. $60,000 C. $100,000 D. $200,000

28. Refer to the above information. This bank can safely expand its loans by a maximum of: A. $20,000 B. $40,000 C. $100,000 D. $200,000

29. Refer to the above information. The monetary multiplier is: A. 3.00 B. 4.00 C. 5.00 D. 6.67

30. Refer to the above information. Using the original bank balance sheet, assume that the bank makes a loan of $20,000 and has a check cleared against it for the amount of the loan. The bank's reserves and checkable deposits will now be: A. $100,000 and $100,000 B. $100,000 and $200,000 C. $80,000 and $300,000 D. $80,000 and $100,000

31. Refer to the above information. Using the original bank balance sheet, assume that the bank makes a loan of $30,000 and has a check cleared against it for the amount of the loan. The bank will then have excess reserves of: A. $10,000 B. $20,000 C. $30,000 D. $40,000