CHAPTER 35 MACRO

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 1)$90,000 in checkable deposit liabilities and $35,000 in reserves. 2)$20,000 in checkable deposit liabilities and $10,000 in reserves. 3)$90,000 in outstanding loans and $35,000 in reserves. 4)$90,000 in checkable deposit liabilities and $32,000 in reserves.

$90,000 in checkable deposit liabilities and $32,000 in reserves.

Reserve Requirement (%)Checkable DepositsActual ReservesExcess Reserves(1)W$ 100,000$ 10,000$ 0(2)8X20,00012,000(3)12200,000Y8,000(4)20300,00070,000Z The accompanying table gives data for a commercial bank or thrift. In row 1, the number appropriate for space W is 1)12. 2)6. 3)10. 4)4.

10

Which of the following describes the identity embodied in a balance sheet? 1)Assets equal liabilities plus net worth. 2)Assets plus reserves equal net worth. 3)Net worth plus assets equal liabilities. 4)Assets plus liabilities equal net worth.

Assets equal liabilities plus net worth.

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 1)are $20,000. 2)are $10,000. 3)are $1,000,000. 4)cannot be determined from the given information.

are $20,000.

A commercial bank's reserves are 1)assets to both the commercial bank and the Federal Reserve Bank holding them. 2)liabilities to the commercial bank and assets to the Federal Reserve Bank holding them. 3)assets to the commercial bank and liabilities to the Federal Reserve Bank holding them. 4)liabilities to both the commercial bank and the Federal Reserve Bank holding them.

assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

In a fractional reserve banking system, 1)banks can create money through the lending process. 2)the Federal Reserve has no control over the amount of money in circulation. 3)the monetary system must be backed by gold. 4)bank panics cannot occur.

banks can create money through the lending process.

Which one of the following is presently a major deterrent to bank panics in the United States? 1)the fractional reserve system 2)the legal reserve requirement 3)the gold standard 4)deposit insurance

deposit insurance

The reserves of a commercial bank consist of 1)deposits at the Federal Reserve Bank and vault cash. 2)the amount of money market funds it holds. 3)the bank's net worth. 4)government securities that the bank holds.

deposits at the Federal Reserve Bank and vault cash.

Most modern banking systems are based on 1)100 percent reserves. 2)commodity money. 3)fractional reserves. 4)money of intrinsic value.

fractional reserves.

A fractional reserve banking system 1)prevents money creation through the lending process. 2)is susceptible to bank "panics" or "runs." 3)prevents the Federal Reserve from influencing the money supply. 4)only tends to exist in developing economies.

is susceptible to bank "panics" or "runs."

A bank that has assets of $85 billion and a net worth of $10 billion must have 1)excess reserves of $10 billion. 2)liabilities of $75 billion. 3)excess reserves of $75 billion. 4)liabilities of $10 billion.

liabilities of $75 billion.

The claims of the owners of a bank against the bank's assets are called 1)working capital. 2)liabilities. 3)net worth. 4)assets.

net worth

The goldsmith's ability to create money was based on the fact that 1)withdrawals of gold tended to exceed deposits of gold in any given time period. 2)the goldsmith was required to keep 100 percent gold reserves. 3)paper money in the form of gold receipts was rarely redeemed for gold. 4)consumers and merchants preferred to use gold for transactions, rather than paper money.

paper money in the form of gold receipts was rarely redeemed for gold.

The primary purpose of the legal reserve requirement is to 1)prevent commercial banks from earning excess profits. 2)provide a dependable source of interest income for commercial banks. 3)prevent banks from hoarding too much vault cash. 4)provide a means by which the monetary authorities can influence the lending ability of commercial banks.

provide a means by which the monetary authorities can influence the lending ability of commercial banks.

When the receipts given by goldsmiths to depositors were used to make purchases, 1)existing banking laws were violated. 2)the receipts became in effect paper money. 3)a fractional reserve banking system was created. 4)the gold standard was created.

the receipts became in effect paper money.

Which of the following are all assets to a commercial bank? 1)vault cash, property, and reserves 2)vault cash, property, and stock shares 3)vault cash, stock shares, and demand deposits 4)demand deposits, stock shares, and reserves

vault cash, property, and reserves

Reserve Requirement (%)Checkable DepositsActual ReservesExcess Reserves(1)W$ 100,000$ 10,000$ 0(2)8X20,00012,000(3)12200,000Y8,000(4)20300,00070,000Z The accompanying table gives data for a commercial bank or thrift. In row 2, the number appropriate for space X is 1)$60,000. 2)$200,000. 3)$100,000. 4)$20,000.

$100,00

Which of the following statements is correct? 1)When borrowers repay bank loans, the supply of money increases. 2)The actual reserves of a commercial bank equal its excess reserves minus its required reserves. 3)A bank's liabilities plus its net worth equal its assets. 4)A single commercial bank can safely lend a multiple amount of its excess reserves.

A bank's liabilities plus its net worth equal its assets.

Bank panics 1)occur more frequently when the monetary system is backed by gold. 2)are a risk of fractional reserve banking but are unlikely when banks are highly regulated and lend prudently. 3)occur frequently in fractional reserve banking systems. 4)cannot occur in a fractional reserve banking system.

are a risk of fractional reserve banking but are unlikely when banks are highly regulated and lend prudently.

A bank that has liabilities of $150 billion and a net worth of $20 billion must have 1)excess reserves of $150 billion. 2)excess reserves of $130 billion. 3)assets of $170 billion. 4)assets of $150 billion.

assets of $170 billion.