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Exam 34: Money Creation

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Question 51

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Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion;legal reserve ratio = 0.20;excess reserves prior to the currency deposit = $0. Refer to the information.The $40 billion deposit of currency into checking accounts will create excess reserves of:

A) $20 billion.
B) $32 billion.
C) $40 billion.
D) $0.

E) C) and D)
F) B) and D)

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Question 52

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Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion;legal reserve ratio = 0.20;excess reserves prior to the currency deposit = $0. Refer to the information.The $40 billion deposit of currency into checking accounts will initially create:

A) $8 billion of new checkable deposits.
B) $10 billion of new checkable deposits.
C) $40 billion of new checkable deposits.
D) $200 billion of new checkable deposits.

E) None of the above
F) A) and B)

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Question 53

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A commercial bank's reserves are:

When a bank has a check drawn and cleared against it:

Answer the question on the basis of the following information for the Moolah Bank. $\begin{array} { l r } \text { Reserves } & \$ 100 \\\text { Checkable Deposits } & 1,000 \\\text { Loans (to customers) } & 300 \\\text { Property } & 400 \\\text { Securities (owned) } & 300 \\\text { Stock Shares } & 100\end{array}$ Refer to the information and assume that Moolah bank is "loaned up." If it receives a $100 deposit of currency,it could safely expand its loans by:

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves:

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 30 percent.All figures are in billions. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 51 \\109 \\100\\10\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$140\\130\\\\\\\end{array}\end{array}$ Refer to the data.The commercial banking system has excess reserves of:

When a check is drawn and cleared,the

Banks create money when they:

Answer the question on the basis of the following information for the Moolah Bank. $\begin{array} { l r } \text { Reserves } & \$ 100 \\\text { Checkable Deposits } & 1,000 \\\text { Loans (to customers) } & 300 \\\text { Property } & 400 \\\text { Securities (owned) } & 300 \\\text { Stock Shares } & 100\end{array}$ Assume that the listed amounts constitute this bank's complete set of accounts.Moolah's:

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:

Use the following balance sheet for the ABC National Bank in answering the question.Assume the required reserve ratio is 20 percent. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 27,000 \\50,000 \\33,000 \\200,000\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$1,100\\200,000\\\\\\\end{array}\end{array}$ Refer to the data.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:

In an uncontrolled or unregulated system,commercial bank lending will tend to intensify the business cycle.

If actual reserves in the banking system are $8,000,checkable deposits are $70,000,and the legal reserve ratio is 10 percent,then excess reserves are:

The amount that a commercial bank can lend is determined by its:

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 10 percent.All figures are in billions. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$30\\130 \\70\\200\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$300\\130\\\\\\\end{array}\end{array}$ Refer to the data.After the deposit of $10 billion of new currency,the maximum amount by which this commercial banking system can expand the supply of money by lending is:

When the receipts given by goldsmiths to depositors were used to make purchases:

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 10 percent.All figures are in billions. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$30\\130 \\70\\200\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$300\\130\\\\\\\end{array}\end{array}$ Refer to the data.The commercial banking system has excess reserves of:

If the reserve requirement is 20 percent,the monetary multiplier will be 4.

Answer the question on the basis of the following table for a commercial bank or thrift: $\begin{array}{c}\begin{array}{c}(1) \\\text {Legal Reserve}\\\underline{\text {Ratio (\%) }}\\10 \\20 \\25 \\30\end{array}\begin{array}{c}(2) \\\text {Checkable}\\\underline{\text {Deposits}}\\ \$ 40,000 \\40,000\\40,000\\40,000\end{array}\begin{array}{c}(3) \\\text {Actual}\\\underline{\text {Reserves}}\\\$ 10,000 \\10,000\\10,000\\10,000\end{array}\end{array}$ Refer to the table.When the legal reserve ratio is 10 percent,the money-creating potential of this single bank is: