FINAL FINAL FINAL

(Last Word) The bank panics of 1930-1933 and the resulting failures of many banks were caused by: A) the widespread conversion of checkable deposits to cash by the public. B) the raising of the reserve requirement by the Board of Governors. C) a massive inflow of gold bullion to the United States. D) amassiveinflowofcashintobankdepositsbycitizenswhofearedtheirmoneywaslosingitsvalue.

A

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

A

A bank's actual reserves can be found by: A) adding its required and excess reserves. B) subtracting its required reserves from its excess reserves. C) multiplying its excess reserves by the reserve ratio. D) multiplyingitscheckabledepositsbythereserveratio.

A

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) payingbackmoneyborrowedfromaFederalReserveBank.

A

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) theMetroBankacquiresreservesfromotherbanks.

A

Checkable deposits are also called: A) checking accounts. B) high-powered money. C) savings balances. D) Federal Reserve Notes.

A

If the reserve requirement is 10 percent, how much excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank? A) $450 B) $550 C) $5000 D) $500

A

If we both have checking accounts in the same commercial bank and I write a check in your favor for $200, the bank's: A) balance sheet will be unchanged. B) reserves and checkable deposits will both decline by $200. C) liabilities will decline by $200, but its net worth will increase by $200. D) assetsandliabilitieswillbothdeclineby$200.

A

If you deposit a $50 bill in a commercial bank that has a 10 percent legal reserve requirement the bank will: A) have $45 of additional excess reserves. C) be capable of lending an additional $50. B) be capable of lending an additional $500. D) have $50 of required reserves.

A

Individual commercial banks are limited in their ability to create money by lending because: A) lending is likely to result in the loss of reserves to other banks. B) only the Treasury and the Federal Reserve Banks are authorized to create new money. C) the Board of Governors prohibits bank lending when the result is an expansion of the money supply. D) bankingisahighlycompetitiveindustry.

A

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: A) 40 percent. B) 20 percent. C) 10 percent. D) 5 percent.

A

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) thebankingsystemmustkeepreservesequalto100percentofitscheckable-depositliabilities.

A

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves: A) is larger the smaller the legal reserve ratio. B) is the reciprocal of the bank's actual reserves. C) is directly or positively related to the size of the required reserve ratio. D) willbezerowhentherequiredreserveratiois100percent.

A

The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to: A) the reciprocal of the legal reserve ratio. C) the reciprocal of the income velocity of money. B) 1 minus the legal reserve ratio. D) 1/MPS.

A

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: A) zero. B) 10 percent. C) 20 percent. D) 25 percent

B

Commercial banks monetize claims when they: A) collectchecksthroughtheFederalReserveSystem. B) make loans to the public. C) accept repayment of outstanding loans. D) borrowfromtheFederalReserveBanks.

B

Given a 25 percent reserve ratio, assume the commercial banking system is loaned up. Now assume the reserve ratio is reduced to 20 percent. As a result of this reduction: A) we can expect bank lending and bank profits to decline. B) each dollar of bank reserves will now support a maximum of $5 of checkable deposits. C) the banking system must now reduce outstanding loans by 5 percent. D) thebankingsystemcannowincreaselendingby5percent.

B

If actual reserves in the banking system are $40,000, excess reserves are $10,000, and checkable deposits are $240,000, then the legal reserve requirement is: A) 10 percent. B) 12.5 percent. C) 20 percent. D) 5 percent.

B

If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the legal reserve ratio is 10 percent, then excess reserves are: A) zero. B) $1,000. C) $2,000. D) $500.

B

If the monetary authorities want to reduce the monetary multiplier, they should: A) lower the legal reserve ratio. C) increase bank reserves. B) raise the legal reserve ratio. D) lower interest rates.

B

If the reserve ratio is 100 percent, the value of the monetary multiplier is: A) 0. B)1. C)10. D)100.

B

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) theFederalfundsinterestratewouldrise.

B

The ABC Commercial Bank has $5,000 in excess reserves and the reserve ratio is 30 percent. The bank must have: A) $90,000inoutstandingloansand$35,000inreserves. B) $90,000 in checkable deposit liabilities and $32,000 in reserves. C) $20,000 in checkable deposit liabilities and $10,000 in reserves. D) $90,000incheckabledepositliabilitiesand$35,000inreserves.

B

The amount that a commercial bank can lend is determined by its: A) required reserves. B) excess reserves. C) outstanding loans. D) outstanding checkable deposits.

B

The primary purpose of the legal reserve requirement is to: A) preventbanksfromhoardingtoomuchvaultcash. 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) provideadependablesourceofinterestincomeforcommercialbanks.

B

The reserves of a commercial bank consist of: A) theamountofmoneymarketfundsitholds. B) deposits at the Federal Reserve Bank and vault cash. C) government securities that the bank holds. D) thebank'snetworth.

B

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) mayeitherincreaseordecrease.

B

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) bankagainstwhichthecheckisclearedacquiresreservesanddepositsequaltotheamountofthe check.

B

(Last Word) The bank panics of 1930-1933: A) resulted in the passage of the Smoot-Hawley Act. B) boosted the nation's money supply, causing inflation. C) directly resulted in the Federal insured deposit program. D) causedasignificantoutflowofgoldfromtheUnitedStates.

C

(Last Word) Which of the following represents a change in today's banking policies that should prevent a recurrence of the bank panics of 1930-1933? A) banksaremorecautiouslenders B) banks keep large amounts of excess reserves on hand C) the FDIC insures bank deposits and therefore depositors do not panic and rush to withdraw money when individual banks have financial problems D) thePresidentnowhastheauthoritytoclosebankswheneverpanicsoccur

C

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: A) $50,000. B) $180,000. C) $80,000. D) $500,000.

C

Banks create money when they: A) allow loans to mature. B) accept deposits of cash. C) buy government bonds from households. D) sell government bonds from households.

C

Banks destroy money when they: A) buy government bonds. B) accept deposits of cash into checkable accounts. C) fail to reissue loans that are paid off. D) clear checks against another bank.

C

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) raisetheirinterestrates.

C

If actual reserves in the banking system are $50,000, excess reserves are $5,000, and checkable deposits are $225,000, then the monetary multiplier is: A) 10. B)4. C)5. D)10.

C

If borrowers take a portion of their loans as currency rather than checkable deposits, the maximum amount by which the commercial banking system can increase the money supply by lending will: A) decrease because the legal reserve ratio varies directly with the amount of currency in circulation. B) increase because currency is the basis for all checkable-deposit creation. C) decrease because the amount of reserves transferred to other banks will diminish. D) increasebecausecommercialbankscanlendbythereciprocaloftheamountofcurrencyincirculation.

C

If excess reserves in the banking system are $4,000, checkable deposits are $40,000, and the legal reserve ratio is 10 percent, then actual reserves are: A) $4,000. B) $6,000. C) $8,000. D) $5,000.

C

If the reserve ratio is 15 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the relevant monetary multiplier for the banking system will be: A) 31/2. B) 4. C) 5. D) 10.

C

In an unregulated banking system there will be a tendency for: A) interest rates to vary directly with the rate of increase in the money supply. B) the money supply to grow at a constant rate through time. C) the money supply to decrease during recession. D) themoneysupplytoincreaseduringrecession.

C

In prosperous times banks are likely to hold very small amounts of excess reserves because: A) the Fed wants commercial banks to increase the money supply during economic expansions. B) it is very costly to transfer funds between commercial banks and the central banks. C) the Federal Reserve Banks do not pay interest on bank reserves. D) theFederalReserveBankswanttominimizetheirinterestpaymentsonsuchdeposits.

C

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

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$30,000. B) are $10,000. C) are $20,000. D) cannotbedeterminedfromthegiveninformation.

C

Suppose a savings and loan association has checkable deposits of $500,000 and the legal reserve ratio is 10 percent. If the institution has excess reserves of $4,000, then its actual reserves are: A) $46,000. B) $50,000. C) $54,000. D) $4,000.

C

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? A) $16,000 B) $84,000 C) $24,000 D) $20,000

C

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: A) $1 million. B) $1.2 million. C) $200,000. D) $800,000.

C

The Federal funds market is the market in which: A) banks borrow from the Federal Reserve Banks. B) U.S. securities are bought and sold. C) banks borrow reserves from one another on an overnight basis. D) FederalReserveBanksborrowfromoneanother.

C

The amount of reserves that a commercial bank is required to hold is equal to: A) the amount of its checkable deposits. B) the sum of its checkable deposits and time deposits. C) its checkable deposits multiplied by the reserve requirement. D) itscheckabledepositsdividedbyitstotalassets.

C

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

The greater the legal reserve ratio, the: A) higher is the income multiplier. B) lower is the income multiplier. C) lower is the monetary multiplier. D) higher is the monetary multiplier.

C

When the receipts given by goldsmiths to depositors were used to make purchases: A) thegoldstandardwascreated. B) existing banking laws were violated. C) the receipts became in effect paper money. D) afractionalreservebankingsystemwascreated.

C

Which of the following describes the identity embodied in a balance sheet? A) Net Worth plus Assets equal Liabilities C) Assets equal Liabilities plus Net Worth B) Assets plus Liabilities equal Net Worth D) Assets plus Reserves equal Net Worth

C

Which of the following would reduce the money supply? A) Commercial banks use excess reserves to buy government bonds from the public. B) Commercial banks loan out excess reserves. C) Commercial banks sell government bonds to the public. D) AcheckclearsfromBankAtoBankB.

C

(Last Word) A "national bank holiday" that closed all banks for a week and resulted in Federal deposit insurance occurred in the United States in: A) 1903, following the "Louisiana stampede." B) 1987, following the collapse of numerous savings and loan associations. C) 1945, following the end of the Second World War. D) 1933,followingthebankpanicsof1930-1933.

D

A commercial bank's reserves are: A) liabilitiestoboththecommercialbankandtheFederalReserveBankholdingthem. B) liabilities to the commercial bank and assets to the Federal Reserve Bank holding them. C) assets to both the commercial bank and the Federal Reserve Bank holding them. D) assetstothecommercialbankandliabilitiestotheFederalReserveBankholdingthem.

D

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

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? A) decreased by $600 B) increased by $1,800 C) increased by $600 D) increased by $1,200

D

Banks create money when they: A) addtotheirreservesintheFederalReserveBank. B) accept deposits of cash. C) sell government bonds. D) exchangecheckabledepositsfortheIOU'sofbusinessesandindividuals.

D

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 actual reserves a bank must keep on hand to back up its customers deposits. C) difference between actual reserves and loans. D) differencebetweenactualreservesandrequiredreserves.

D

If a bank has liabilities that exceed its net worth it: A) willnotbeabletomeetthelegalreserveratio. B) is considered to be insolvent. C) most likely is a heavy borrower from its district Federal Reserve Bank. D) mayormaynotbeaprofitablefirm.

D

If a portion of the loans extended by commercial banks is taken as cash rather than as checkable deposits, the maximum money-creating potential of the commercial banking system will: A) beequaltotwicethereciprocalofthereserveratio. B) be unaffected. C) increase. D) decrease.

D

The goldsmith's ability to create money was based on the fact that: A) withdrawalsofgoldtendedtoexceeddepositsofgoldinanygiventimeperiod. B) consumers and merchants preferred to use gold for transactions, rather than paper money. C) the goldsmith was required to keep 100 percent gold reserves. D) papermoneyintheformofgoldreceiptswasrarelyredeemedforgold.

D

The market for immediately available reserve balances at the Federal Reserve is known as the: A) money market. B) long-term bond market. C) short-term bond market. D) Federal funds market.

D

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 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) reservesandvaultcashtoitscheckabledeposits.

D

When a bank has a check drawn and cleared against it: A) excess reserves in the banking system decline. B) the nation's total money supply falls. C) the bank's balance sheet does not change. D) theamountofrequiredreservesthebankmusthavewillfall.

D

Which of the following is correct? A) Both the granting and repaying of bank loans expand the aggregate money supply. B) Granting and repaying bank loans do not affect the money supply. C) Granting a bank loan destroys money; repaying a bank loan creates money. D) Grantingabankloancreatesmoney;repayingabankloandestroysmoney.

D

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

D

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

D

A bank temporarily short of required reserves may be able to remedy this situation by: A) borrowing funds in the Federal funds market. B) granting new loans. C) shifting some of its vault cash to its reserve account at the Federal Reserve. D) buyingbondsfromthepublic.

A

When a commercial bank has excess reserves: A) it is in a position to make additional loans. B) its actual reserves are less than its required reserves. C) it is charging too high an interest rate on its loans. D) itsreservesexceeditsassets.

A

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

A

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

B

Which of the following statements is correct? A) Theactualreservesofacommercialbankequalitsexcessreservesminusitsrequiredreserves. B) A bank's liabilities plus its net worth equal its assets. C) When borrowers repay bank loans, the supply of money increases. D) Asinglecommercialbankcansafelylendamultipleamountofitsexcessreserves.

B

A reserve requirement of 20 percent means a bank must have $1000 of reserves if its checkable deposits are: A) $100. B) $1,000. C) $5,000. D) $12,000.

C

Money is destroyed when: A) loansaremade. B) checks written on one bank are deposited in another bank. C) loans are repaid. D) thenetworthofthebankingsystemdeclines.

C

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system: A) m=R-1. B) R=m/1. C) R=m-1. D) m=1/R.

D

Most modern banking systems are based on: A) money of intrinsic value. B) commodity money. C) 100 percent reserves. D) fractional reserves.

D

A bank that has liabilities of $150 billion and a net worth of $20 billion must have: A) excess reserves of $130 billion. C) excess reserves of $150 billion. B) assets of $150 billion. D) assets of $170 billion.

D

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of: A) $122,000. B) $175,000. C) $300,000. D) $75,000.

D

Suppose the reserve requirement is 10 percent. If a bank has $5 million of checkable deposits and actual reserves of $500,000, the bank: A) can safely lend out $500,000. C) can safely lend out $50,000 B) can safely lend out $5 million. D) cannot safely lend out more money

D

The legal reserve ratio applies to checkable deposits at: A) national banks. B) credit unions. C) savings and loans. D) institutions of all of the above types.

D

The value of the monetary multiplier is: A) 1/MPS. B) 1/Excess Reserves. C) 1/MPC. D) 1/Required Reserve Ratio.

D