Macro Chapter 15 Review Questions

A

A bank temporarily short of required reserves may be able to remedy this situation by A) borrowing funds in the federal funds market. B) buying bonds from the public. C) granting new loans. D) shifting some of its vault cash to its reserve account at the Federal Reserve.

B

A commercial bank can expand its excess reserves by A) buying bonds from the public. B) demanding and receiving payment on an overdue loan. C) paying back money borrowed from a Federal Reserve Bank. D) buying bonds from a Federal Reserve Bank.

B

A reserve requirement of 20 percent means a bank must have at least $1,000 of reserves if its checkable deposits are A) $100. B) $5,000. C) $12,000. D) $1,000.

B

Assume the Continental National Bank's balance statement is as shown in the accompanying table. Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for $10,000 was drawn and cleared against it? A) $3,000 B) $6,000 C) $16,000 D) $24,000

C

Banks create money when they A) sell government bonds to households. B) allow loans to mature. C) buy government bonds from households. D) accept deposits of cash.

C

Excess reserves refer to the A) difference between actual reserves and loans. B) difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank. C) difference between actual reserves and required reserves. D) minimum amount of actual reserves a bank must keep on hand to back up its customers deposits.

B

In a fractional reserve banking system, A) the monetary system must be backed by gold. B) banks can create money through the lending process. C) the Federal Reserve has no control over the amount of money in circulation. D) bank panics cannot occur.

B

In prosperous times, commercial banks are likely to hold very small amounts of excess reserves because A) the Fed forces commercial banks to increase the money supply during economic expansions. B) Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves. C) it is very costly to transfer funds between commercial banks and the central banks. D) Federal Reserve Banks want to minimize their interest payments on such deposits.

B

Most modern banking systems are based on A) 100 percent reserves. C) commodity money. B) fractional reserves. D) money of intrinsic value.

B

Overnight loans from one bank to another for reserve purposes entail an interest rate called the A) treasury bill rate. B) federal funds rate. C) prime rate. D) discount rate.

C

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit and has a check cleared against it for that amount, its reserves and checkable deposits will now be A) $32,000 and $115,000, respectively. B) $25,000 and $122,000, respectively. C) $22,000 and $110,000, respectively. D) $22,000 and $105,000, respectively.

C

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and checkable deposits could have been expanded by a maximum of A) $8,000. B) $15,000. C) $25,000. D) $48,000.

B

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This bank can safely expand its loans by a maximum of A) $25,000. B) $5,000. C) $12,000. D) $7,000.

A

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This commercial bank has excess reserves of A) $5,000. B) $3,000. C) $0. D) $12,000.

B

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. If the commercial banking system actually loans the maximum amount it is able to lend, A) excess reserves will fall to $1.7 billion. B) excess reserves will be reduced to zero. C) excess reserves will be $2.6 billion. D) reserves and deposits equal to that amount will be gained.

A

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. The commercial banking system has excess reserves of A) $9 billion. B) $5 billion. C) $7 billion. D) $6.1 billion.

C

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. The maximum amount by which the commercial banking system can expand the supply of money by lending is A) $15 billion. B) $27 billion. C) $30 billion. D) $23.1 billion.

B

Suppose a commercial bank has checkable deposits of $100,000 and the legal reserve ratio is 10 percent. If the bank's required and excess reserves are equal, then its actual reserves A) are $10,000. B) are $20,000. C) are $1,000,000. D) cannot be determined from the given information.

B

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of A) $175,000. B) $75,000. C) $300,000. D) $122,000.

A

Suppose the reserve requirement is 10 percent. If a bank has $5 million of checkable deposits and actual reserves of $500,000, the bank A) cannot safely lend out more money. B) can safely lend out $50,000. C) can safely lend out $500,000. D) can safely lend out $5 million.

B

The ABC Commercial Bank has $5,000 in excess reserves, and the reserve ratio is 30 percent. This information is consistent with the bank having A) $90,000 in checkable deposit liabilities and $35,000 in reserves. B) $90,000 in checkable deposit liabilities and $32,000 in reserves. C) $90,000 in outstanding loans and $35,000 in reserves. D) $20,000 in checkable deposit liabilities and $10,000 in reserves.

C

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that A) the central banks follow policies that prevent reserves from falling below the level required by law. B) the banking system must keep reserves equal to 100 percent of its checkable-deposit liabilities. C) reserves lost by any particular bank will be gained by some other bank. D) the MPC of borrowers is greater than zero but less than 1.

C

The goldsmith's ability to create money was based on the fact that A) consumers and merchants preferred to use gold for transactions, rather than paper money. B) withdrawals of gold tended to exceed deposits of gold in any given time period. C) paper money in the form of gold receipts was rarely redeemed for gold. D) the goldsmith was required to keep 100 percent gold reserves.

B

The greater the leverage in the financial system, all else equal, A) the greater the stability of the financial system. B) the greater the instability of the financial system. C) the smaller the profit and loss margins of financial firms. D) the smaller the monetary multiplier.

D

The market for immediately available reserve balances at the Federal Reserve is known as the A) short-term bond market. B) long-term bond market. C) money market. D) federal funds market.

C

The primary purpose of the legal reserve requirement is to A) provide a dependable source of interest income for commercial banks. B) prevent commercial banks from earning excess profits. C) provide a means by which the monetary authorities can influence the lending ability of commercial banks. D) prevent banks from hoarding too much vault cash.

D

The reserve ratio refers to the ratio of a bank's A) reserves to its liabilities and net worth. B) checkable deposits to its total liabilities. C) capital stock to its total assets. D) required reserves to its checkable-deposit liabilities.

A

The reserves of a commercial bank consist of A) deposits at the Federal Reserve Bank and vault cash. B) the bank's net worth. C) the amount of money market funds it holds. D) government securities that the bank holds.

D

The term "leverage" refers to A) the Fed's ability to control money creation through the reserve ratio. B) Fed sales and purchases of bonds to stabilize the money supply. C) investing in stocks from multiple companies in an effort to spread risk. D) using borrowed money in an attempt to increase profits.

C

When a check is drawn and cleared, the A) bank receiving the check loses reserves and deposits equal to the amount of the check. B) reserves and deposits of both the bank against which the check is cleared and the bank receiving the check are unchanged by this transaction. C) bank against which the check is cleared loses reserves and deposits equal to the amount of the check. D) bank against which the check is cleared acquires reserves and deposits equal to the amount of the check.

B

When a commercial bank has excess reserves, A) its reserves exceed its assets. B) it is in a position to make additional loans. C) it is charging too high an interest rate on its loans. D) its actual reserves are less than its required reserves.

A

Which of the following are all assets to a commercial bank? A) vault cash, property, and reserves B) vault cash, stock shares, and demand deposits C) vault cash, property, and stock shares D) demand deposits, stock shares, and reserves

A

Which of the following describes the identity embodied in a balance sheet? A) Assets equal liabilities plus net worth. B) Net worth plus assets equal liabilities. C) Assets plus reserves equal net worth. D) Assets plus liabilities equal net worth.

B

Which of the following is correct? A) Granting a bank loan destroys money; repaying a bank loan creates money. B) Granting a bank loan creates money; repaying a bank loan destroys money. C) Both the granting and repaying of bank loans expand the aggregate money supply. D) Granting and repaying bank loans do not affect the money supply.

C

Which of the following would reduce the money supply? A) A check clears from Bank A to Bank B. B) Commercial banks use excess reserves to buy government bonds from the public. C) Commercial banks sell government bonds to the public. D) Commercial banks loan out excess reserves.