econ chapter 33

If the reserve requirement is 25% and a customer deposits $2000 in a demand deposit account, the bank's excess reserves will increase by

$1,500

The balance sheet above shows the current financial status of Horvath National Bank. If the reserve requirement is 20 percent and the bank does not sell any securities, by how much could it increase loans?

$15,000

When a customer deposits $200 cash into his checking account at the bank, the money supply

does not change

The portion of demand deposits banks are legally allowed to loan are known as

excess reserves

The federal funds rate is the

interest rate banks charge each other for short-term loans

When individuals decide to hold money as currency and not deposit it in banks, the growth of the money supply will be

less than potential

A customer's checkable deposits would be entered on a bank's balance sheet as

liabilities

The primary purpose of the reserve requirement is to

limit the lending ability of commercial banks

Commercial banks create money by

making loans

A fractional reserve system requires banks to keep a fraction of demand deposits in

vault cash or deposits at a Federal Reserve Bank

QXR bank suddenly acquires excess reserves of $10,000 and decides to lend an amount equal to its newly acquired excess reserves. If the required reserve ratio is 20 percent, the total amount of new money created will be

$40,000

If the reserve requirement is 25% and a customer deposits $2000 into a demand deposit account, the bank's required reserves will increase by

$500

If the reserve requirement is 25% and a customer deposits $2000 in a demand deposit, what is the largest possible expansion of the money supply?

$6,000

Assume a bank has no excess reserves and the reserve requirement is 20 percent. If a customer deposits $20,000 in currency into his checking account, what is the maximum amount by which banks will increase the money supply through multiple deposit expansion in the banking system?

$80,000

Assume the reserve requirement is 15 percent and a bank initially has no excess reserves. If a customer deposits $1,000, how much of that deposit can be loaned?

$850

If the reserve requirement is 25%, what is the money multiplier?

4

A customer deposits $2,000 into a checkable account. The receiving bank holds no excess reserves and issues loans to the full amount of $1,200. The reserve requirement is

40 percent

The reserve requirement is determined by the

Federal Reserve

The money supply would fail to fully expand to its potential growth if I. customers chose to hold their money in cash rather than re-deposit funds into banks II. customers chose not to take out loans from banks III. banks chose not to loan out all of their excess reserves

I, II, and III

Thebalance sheet of a commercial bank is a statement of I. what is owned by the bank II. what is owed to the bank III. all claims on what is owned by or owed to the bank

I, II, and III

A higher reserve requirement will cause I. a larger money multiplier II. a smaller potential growth of the money supply III. a larger percentage of each checkable deposit to be loaned

II only

Money is created or destroyed whenever I. checks are deposited into checkable accounts at commercial banks II. checks are drawn against checkable accounts at commercial banks III. loans are made by commercial banks that are then converted into checkable deposits IV. loans at commercial banks are repaid by borrowers

III and IV only

Commercial banks increase the money supply by

buying bonds from the public