31-32 , 2

A commercial bank's ability to create money depends on which of the following? a. A fractional reserve banking system b. A large national debt c. The existence of both checking accounts and savings accounts d. Gold or silver reserves backing up the currency e. The existence of a central bank

a. A fractional reserve banking system

Banks expand the money supply when a. making loans b. printing money c. issuing credit cards d. cashing checks e. accepting deposits

a. making loans

Assume that the reserve requirement is 20 percent. If a bank initially has no excess reserves and $10,000 cash is deposited in the bank, the maximum amount by which this bank may increase its loans is a. $2,000 b. $8,000 c. $10,000 d. $20,000 e. $50,000

b. $8,000

Assume that banks hold no excess reserves. A decrease in the required reserve ratio will cause total reserves in banks, the money multiplier, and the money supply to change in which of the following ways? a. Total Reserves (Increase); Money Multiplier (No change); Money Supply (Increase) b. Total Reserves (No change); Money Multiplier (Increase); Money Supply (Increase) c. Total Reserves (Decrease); Money Multiplier (Decrease); Money Supply (Decrease) d. Total Reserves (Increase); Money Multiplier (Increase); Money Supply (Increase) e. Total Reserves (No change); Money Multiplier (Increase); Money Supply (Decrease)

b. Total Reserves (No change); Money Multiplier (Increase); Money Supply (Increase)

Based on the balance sheets below for three different banks, which of the following is true, if the reserve requirement is 10 percent? a. Bank B can increase its loans by $500. b. Bank A has no excess reserves. c. Bank B has no excess reserves. d. Bank B can increase its loans by $40. e. Bank C has excess reserves.

d. Bank B can increase its loans by $40.