Econ Chapter 15

A commercial bank can expand its excess reserves by: A. demanding and receiving payment on an overdue loan. B. buying bonds from a Federal Reserve Bank. C. buying bonds from the public. D. paying back money borrowed from a Federal Reserve Bank.

A. demanding and receiving payment on an overdue loan

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: A. the supply of money is increased by $5,000. B. the supply of money declines by the amount of the loan. C. a claim has been "demonetized." D. the Metro Bank acquires reserves from other banks.

A. the supply of money is increased by $5,000

When a bank loan is repaid the supply of money: A. is constant, but its composition will have changed. B. is decreased. C. is increased. D. may either increase or decrease.

B. is decreased

Which of the following are all assets to a commercial bank? A. demand deposits, stock shares, and reserves B. vault cash, property, and reserves C. vault cash, property, and stock shares D. vault cash, stock shares, and demand deposits

B. vault cash, property, and reserves

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 total (actual) reserves? A. $16,000 B. $84,000 C. $24,000 D. $20,000

C. $24,000

Overnight loans from one bank to another for reserve purposes entail an interest rate called the: A. prime rate. B. discount rate. C. Federal funds rate. D. treasury bill rate.

C. Federal Funds Rate

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: A. $1,250. B. $120,000. C. $5,000. D. $3,750.

D. $5,000

Which of the following is correct? A. Required reserves minus total (actual) reserves equal excess reserves. B. Required reserves equal excess reserves minus actual reserves. C. Required reserves equal actual reserves plus excess reserves. D. Actual reserves minus required reserves equal excess reserves.

D. Actual reserves minus required reserves equal excess reserves

Refer to the above data. The maximum amount by which the commercial banking system can expand the supply of money by lending is: A. $30 billion. B. $23.1 billion. C. $27 billion. D. $15 billion.

A. $30 billion

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? A. $450 B. $400 C. $5,000 D. $550

A. $450

A bank that has assets of $85 billion and a net worth of $10 billion must have: A. liabilities of $75 billion. B. excess reserves of $10 billion. C. liabilities of $10 billion. D. excess reserves of $75 billion.

A. liabilities of $75 billion

When commercial banks use excess reserves to buy government securities from the public: A. new money is created. B. commercial bank reserves increase. C. the money supply falls. D. checkable deposits decline.

A. new money is created

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that: A. reserves lost by any particular bank will be gained by some other bank. B. the central banks follow policies that prevent reserves from falling below the level required by law. C. the MPC of borrowers is greater than zero, but less than 1. D. the banking system must keep reserves equal to 100 percent of its checkable-deposit liabilities.

A. reserves lost by any particular bank will be gained by some other bank

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

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

When a check is drawn and cleared, the A. reserves and deposits of both the bank against which the check is cleared and the bank receiving the check are unchanged by this transaction. B. bank against which the check is cleared loses reserves and deposits equal to the amount of the check. C. bank receiving the check loses reserves and deposits equal to the amount of the check. D. bank against which the check is cleared acquires reserves and deposits equal to the amount of the check

B. bank against which the check is cleared loses reserves and deposits equal to the amount of the check

The reserves of a commercial bank consist of: A. the amount of money market funds it holds. B. deposits at the Federal Reserve Bank and vault cash. C. government securities that the bank holds. D. the bank's net worth.

B. deposits at the Federal Reserve Bank and vault cash

The primary purpose of the required (legal) reserve requirement is to: A. prevent banks from hoarding too much vault cash. B. provide a means by which the monetary authorities can influence the lending ability of commercial banks. C. prevent commercial banks from earning excess profits. D. provide a dependable source of interest income for commercial banks.

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

Other things equal, if the required reserve ratio was lowered: A. banks would have to reduce their lending. B. the size of the monetary multiplier would increase. C. the actual reserves of banks would increase. D. the Federal funds interest rate would rise.

B. the size of the monetary multiplier would increase

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: A. are $1,000,000. B. are $10,000. C. are $20,000. D. cannot be determined from the given information

C. are $20,000

The claims of the owners of a firm against the firm's assets are called: A. working capital. B. assets. C. net worth. D. liabilities.

C. net worth

12. 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? A. $3,000 B. $24,000 C. $6,000 D. $16,000

C.$6,000

Commercial banks create money when they: A. accept cash deposits from the public. B. purchase government securities from the central banks. C. create checkable deposits in exchange for IOUs. D. raise their interest rates.

C.create checkable deposits in exchange for IOUs

Which one of the following is presently a major deterrent to bank panics in the United States? A. the legal reserve requirement B. the fractional reserve system C. the gold standard D. deposit insurance of the FDIC

D. deposit insurance of the FDIC

Excess reserves refer to the: A. difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank. B. minimum amount of total (actual) reserves a bank must keep on hand to back up its customers deposits. C. difference between total (actual) reserves and loans. D. difference between total (actual) reserves and required reserves.

D. difference between total (actual) reserves and required reserves

The reserve ratio refers to the ratio of a bank's: A. reserves to its liabilities and net worth. B. capital stock to its total assets. C. checkable deposits to its total liabilities. D. required reserves to its checkable-deposit liabilities.

D. required reserves to its checkable-deposit liabilities

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of: A. the MPS. B. its actual reserves. C. its excess reserves. D. the reserve ratio.

D. the reserve ratio