QUIZ 3

Bank Balance Sheet Assets Liabilities & Net Worth Reserves $ 10,000 Deposits $100,000 Loans 100,000 Debt 20,000 Securities 40,000 Equity 30,000 Reference: Ref 4-1 (Table: Bank Balance Sheet) Based on the table, what is the leverage ratio at the bank?

5

If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the monetary base equals:

$150 billion.

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:

$800 billion.

A bank balance sheet consists of only the following items: Deposits $1,000 Reserves $100 Securities $400 Debt $500 Loans $2,000 What is the value of bank capital?

+$1,000

Bank Balance Sheet Assets Liabilities & Net Worth Reserves $ 10,000 Deposits $100,000 Loans 100,000 Debt 20,000 Securities 40,000 Equity 30,000 Reference: Ref 4-1 (Table: Bank Balance Sheet) Based on the table, what is the reserve-deposit ratio at the bank?

10 percent

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

2.5.

Bank Balance Sheet Assets Liabilities & Net Worth Reserves $ 10,000 Deposits $100,000 Loans 100,000 Debt 20,000 Securities 40,000 Equity 30,000 Reference: Ref 4-1 (Table: Bank Balance Sheet) Based on the table, owners' equity will fall to zero if loan defaults reduce the value of total assets by _____ percent.

20

The money supply will decrease if the:

currency-deposit ratio increases.

If the Federal Reserve wishes to increase the money supply, it should:

decrease the discount rate.

In a fractional-reserve banking system, banks create money because:

each dollar of reserves generates many dollars of demand deposits.

Money that has no value other than as money is called ______ money.

fiat

Assets of banks include:

loans to customers.

If the Federal Reserve increases the interest rate paid on reserves, banks will tend to hold _____ excess reserves, which will _____ the money multiplier.

more; decrease

In a system with 100-percent-reserve banking:

no banks can make loans.

To reduce the money supply, the Federal Reserve:

sells government bonds.

If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits (rr) is constant and the monetary base (B) is constant, then:

the money supply decreases.

The monetary base consists of:

currency held by the public, plus reserves held by banks.

The money supply consists of:

currency plus demand deposits.

The central bank in the United States is the:

Federal Reserve.

Banks create money in:

a fractional-reserve banking system but not in a 100-percent-reserve banking system.