Econ HW 13

Suppose you withdraw $500 from your checking account and bury it in a jar in your back yard. If the required reserve ratio is 10 percent, checking account deposits in the banking system as a whole could drop up to a maximum of

$5,000

Refer to Scenario 14-2. As a result of Kristy's deposit, checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of

$50,000

Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A can make a maximum loan of

$8,000

Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's excess reserves increase by

$8,000

If the required reserve ratio (RR) is 20 percent, the simple deposit multiplier is

5

Which of the following best describes how banks create money?

Banks create checking account deposits when making loans from excess reserves.

Banks can continue to make loans until their

actual reserves equal their required reserves.

A bank will consider a car loan to a customer ________ and a customer's checking account to be ________.

an asset; a liability

The largest liability on the balance sheet of most banks is its

checking account and savings account deposits of its customers

The required reserves of a bank equal its ________ the required reserve ratio.

deposits multiplied by

Suppose the required reserve ratio is 20 percent. If banks are conservative and choose not to loan all of their excess reserves, the real-world deposit multiplier is

less than 5.

Banks can make additional loans when required reserves are

less than total reserves

The major assets on a bank's balance sheet are its

reserves, loans, and holdings of securities

The more excess reserves banks choose to keep,

the smaller the deposit multiplier.

Bank reserves include

vault cash and deposits with the Federal Reserve.

Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's reserves immediately increase by

$10,000

Refer to Scenario 14-2. As a result of Kristy's deposit, Bank A's required reserves increase by

$2,000