chapter 15 assessment

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?

$24,000.

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:

$3,750.

Suppose a credit union 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:

$54,000.

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:

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

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:

10 percent.

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:

40 percent.

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

Which of the following describes the identity embodied in a balance sheet?

Assets equal liabilities plus net worth

In prosperous times, commercial banks are likely to hold very small amounts of excess reserves because:

Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.

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

Granting a bank loan creates money; repaying a bank loan destroys money

When a check is drawn and cleared, the

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

In a fractional reserve banking system:

banks can create money through the lending process.

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

buy government bonds from households

Suppose the reserve requirement is 10 percent. If a bank has $5 million of checkable deposits and actual reserves of $500,000, the bank:

cannot safely lend out more money.

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

deposit insurance

The reserves of a commercial bank consist of:

deposits at the Federal Reserve Bank and vault cash

Excess reserves refer to the:

difference between actual reserves and required reserves.

The amount that a commercial bank can lend is determined by its:

excess reserves.

The market for immediately available reserve balances at the Federal Reserve is known as the:

federal funds market.

Most modern banking systems are based on:

fractional reserves.

Money is destroyed when: A) loans are repaid. B) loans are made. C) checks written on one bank are deposited in another bank. D) the net worth of the banking system declines.

loans are repaid

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:

m = 1/R.

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

new money is created

The goldsmith's ability to create money was based on the fact that:

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

The reserve ratio refers to the ratio of a bank's:

required reserves to its checkable-deposit liabilities.