Macroeconomics Chapter 15 (Unit 3)
The legal reserve requirement is 10%. If a bank initially has no excess reserves and $1,000 cash is deposited into a savings account, the bank can increases its loans by a maximum of $_______________
$1,000
The legal reserve requirement is 10%. A check for $1,000 drawn on 1st National Bank and deposited in 2nd National Bank will increase the excess reserves of 2nd National Bank by $______________
$900
In a 100% reserve banking system the money multiplier is ...
1
In a 10% reserve banking system the money multiplier is ...
10
In a 100% reserve banking system
Banks serve only as a place for the safe-keeping of money and are prevented from making loans
A commercial bank temporarily short of required reserves may replenish reserves by ...
Borrowing reserves in the federal funds market
TRUE or FALSE: Individual commercial banks are limited in their ability to create money because banking is a highly competitive industry
False
TRUE or FALSE: The primary purpose of the legal reserve requirement is to prevent commercial banks from earning excess profits
False
A commercial bank creates money when ...
The bank creates checkable deposits in exchange for IOUs or lends its excess reserves
TRUE or FALSE: In a fractional reserve banking commercial banks create money through lending and therefore hold less in reserves than the amounts they owe their depositors
True
TRUE or FALSE: Overnight loans from one commercial bank to another for reserve purposes involve an interest rate called the federal funds rate
True
