ECON CHAP 15
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. multiplying its checkable deposits by the reserve ratio.
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. paying back money borrowed from a Federal Reserve Bank.
A
A fractional reserve banking system: A. is susceptible to bank panics. B. prevents money creation through the lending process. C. only tends to exist in developing economies. D. prevents the Federal Reserve from influencing the money supply.
A
Checkable deposits are also called: A. checking accounts. B. high-powered money. C. savings balances. D. Federal Reserve Notes.
A
Commercial bank reserves are an asset to commercial banks but a liability to the Federal Reserve Bank holding them. A. true B. false
A
Commercial banks increase the supply of money when they purchase either personal IOU's or government bonds from businesses and households. A. true B. false
A
Federal deposit insurance discourages but does not prevent bank runs. A. true B. false
A
If the reserve requirement is 10 percent, the monetary multiplier will be 10. A. true B. false
A
In an uncontrolled or unregulated system commercial bank lending will tend to intensify the business cycle. A. true B. false
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. banking is a highly competitive industry.
A
The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of reserves to the banking system as a whole. A. true B. false
A
The higher the reserve requirement, the lower is the monetary multiplier. A. true B. false
A
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
When commercial banks retire outstanding loans, the supply of money is increased. A. true B. false
B
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
An individual bank can safely lend out a multiple of its excess reserves, but the banking system can safely lend out only an amount equal to the excess reserves in the banking system. A. true B. false
B
Balance sheets always balance because reserves must always equal liabilities plus net worth A. true B. false
B
Bank panics: A. occur frequently in fractional reserve banking systems. B. are a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently. C. cannot occur in a fractional reserve banking system. D. occur more frequently when the monetary system is backed by gold.
B
Commercial banks monetize claims when they sell securities to Federal Reserve Banks. A. true B. false
B
Commercial banks monetize claims when they: A. collect checks through the Federal Reserve System. B. make loans to the public. C. accept repayment of outstanding loans. D. borrow from the Federal Reserve Banks.
B
If the reserve requirement is 20 percent, the monetary multiplier will be 4. A. true B. false
B
Loans made to customers are a liability on a bank's balance sheet. A. true B. false
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. 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
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
The supply of money increases when the public buys government securities from commercial banks. A. true B. false
B
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
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. Federal Reserve Banks borrow from one another.
C
When the receipts given by goldsmiths to depositors were used to make purchases: A. the gold standard was created. B. existing banking laws were violated. C. the receipts became in effect paper money. D. a fractional reserve banking system was created.
C
Which of the following describes the identity embodied in a balance sheet? A. Net worth plus assets equal liabilities B. Assets plus liabilities equal net worth C. Assets equal liabilities plus 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. A check clears from Bank A to Bank B.
C
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. B. assets of $150 billion. C. excess reserves of $150 billion. D. assets of $170 billion.
D
A commercial bank's reserves are: A. liabilities to both the commercial bank and the Federal Reserve Bank holding them. 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. assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.
D
Banks create money when they: A. add to their reserves in the Federal Reserve Bank. B. accept deposits of cash. C. sell government bonds. D. exchange checkable deposits for the IOU's of businesses and individuals.
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. difference between actual reserves and required reserves.
D
If a bank has liabilities that exceed its net worth it: A. will not be able to meet the legal reserve ratio. B. is considered to be insolvent. C. most likely is a heavy borrower from its district Federal Reserve Bank. D. may or may not be a profitable firm.
D
The goldsmith's ability to create money was based on the fact that: A. withdrawals of gold tended to exceed deposits of gold in any given time period. 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. paper money in the form of gold receipts was rarely redeemed for gold.
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. required reserves and vault cash to its checkable deposits.
D
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
D
