Econ Quiz 15
the sum of assets must equal the sum of liabilities plus net worth.
A balance sheet must always balance because
one bank loses reserves to other banks, but the banking system as a whole does not.
A single commercial bank can safely lend only an amount equal to its excess reserves, but the commercial banking system as a whole can lend by a multiple of its excess reserves because
excess reserves
A single commercial bank in a multibank banking system can lend only an amount equal to its initial preloan __________.
True, lending increases the money supply, but repayment reduces checkable deposits, which lowers the money supply.
True or False. "When a commercial bank makes loans, it creates money; when loans are repaid, money is destroyed."
decreased
Suppose that last year $30 billion in new loans were extended by banks while $50 billion in old loans were paid off by borrowers. What happened to the money supply?
owned by the bank, whereas a liability is something owed by the bank.
An asset on a bank's balance sheet is something
can be lent out, thereby increasing the money supply.
Excess reserves
actual reserves - required reserves.
Excess reserves are equal to
guarantees that depositors will always get their money, thus avoiding most bank runs.
In a fractional reserve system, deposit insurance
assets - liabilities.
Net worth is equal to
reserves provide the Fed a means of controlling the money supply.
The Federal Reserve requires commercial banks to have reserves because
reserves, securities, loans, and vault cash.
The major assets on a commercial bank's balance sheet include
checkable deposits.
The major claim on a commercial bank's balance sheet is
inversely related to the reserve ratio.
The monetary multiplier is
1/R, where R is the required reserve ratio.
The monetary multiplier is defined as
these funds are cash belonging to commercial banks, but they are a claim that commercial banks have against the Federal Reserve Banks.
Reserves are an asset to commercial banks but a liability to the Federal Reserve Banks because
banks hold a fraction of deposits in reserve.
The banking system in the United States is referred to as a fractional reserve banking system because
False, because a checkable deposit in a commercial bank is also part of the money supply.
True or False. "Whenever currency is deposited in a commercial bank, cash goes out of circulation and, as a result, the supply of money is reduced."