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."