question

The goldsmith's ability to create money was based on the fact that:

answer

paper money in the form of gold receipts was rarely redeemed for gold.

question

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

answer

the receipts became in effect paper money.

question

Which one of the following is presently a major deterrent to bank panics in the United States?

answer

deposit insurance

question

Most modern banking systems are based on:

answer

fractional reserves.

question

In a fractional reserve banking system:

answer

banks can create money through the lending process.

question

Which of the following statements is correct?

answer

B. A bank's liabilities plus its net worth equal its assets.

question

Which of the following describes the identity embodied in a balance sheet?

answer

Assets equal liabilities plus net worth

question

The claims of the owners of a firm against the firm's assets are called:

answer

net worth

question

The reserves of a commercial bank consist of:

answer

deposits at the Federal Reserve Bank and vault cash.

question

The primary purpose of the legal reserve requirement is to:

answer

provide a means by which the monetary authorities can influence the lending ability of commercial banks.

question

Answer the question on the basis of the following table for a commercial bank or thrift: Refer to row 1 in the above table. The number appropriate for space W is:

answer

10

question

Refer to row 2 in the above table. The number appropriate for space X is:

answer

$100,000.

question

Refer to row 3 in the above table. The number appropriate for space Y is:

answer

$32,000

question

Refer to row 4 in the above table. The number appropriate for space Z is:

answer

$10,000.

question

When a check is drawn and cleared, the

answer

bank against which the check is cleared loses reserves and deposits equal to the amount of the check.

question

Excess reserves refer to the:

answer

difference between actual reserves and required reserves.

question

Assume the Continental National Bank's balance statement is as follows: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?

answer

$6.000

question

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

answer

excess reserves.

question

Use the following balance sheet for the ABC National Bank in answering the question. Assume the required reserve ratio is 20 percent.Refer to the above data. This commercial bank has excess reserves of:

answer

5000

question

Refer to the above data. This bank can safely expand its loans by a maximum of:

answer

5000

question

Refer to the above data. 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:

answer

$22,000 and $105,000 respectively.

question

Refer to the above 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:

answer

$25,000.

question

When a commercial bank has excess reserves:

answer

it is in a position to make additional loans.

question

The amount of reserves that a commercial bank is required to hold is equal to:

answer

its checkable deposits multiplied by the reserve requirement.

question

Which of the following is correct?

answer

Actual reserves minus required reserves equal excess reserves.

question

Answer the question on the basis of the following balance sheet for the First National Bank of Bunco. All figures are in millions. Refer to the above data. If this bank has excess reserves of $6 million, the legal reserve ratio must be:

answer

14 percent

question

Refer to the above data. Suppose that this bank currently has $6 million in excess reserves and that customers of this bank collectively write checks for cash at the bank in the amount of $6 million. As a result, the bank's excess reserves diminish to:

answer

$0.84 million.

question

When commercial banks use excess reserves to buy government securities from the public:

answer

new money is created.

question

Overnight loans from one bank to another for reserve purposes entail an interest rate called the:

answer

Federal funds rate

question

A bank temporarily short of required reserves may be able to remedy this situation by:

answer

borrowing funds in the Federal funds market.

question

The market for immediately available reserve balances at the Federal Reserve is known as the:

answer

Federal funds market

question

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of:

answer

the reserve ratio.

question

The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to:

answer

the reciprocal of the required reserve ratio.

question

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system:

answer

m = 1/R.

question

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that:

answer

reserves lost by any particular bank will be gained by some other bank.

question

If the monetary authorities want to reduce the monetary multiplier, they should:

answer

raise the required reserve ratio.

question

If the reserve ratio is 100 percent, the value of the monetary multiplier is:

answer

1

question

(Last Word) Which of the following represents a change in today's banking policies that should prevent a recurrence of the bank panics of 1930-1933?

answer

the FDIC insures bank deposits and therefore depositors do not panic and rush to withdraw money when individual banks have financial problems

question

(Last Word) The bank panics of 1930-1933 and the resulting failures of many banks were caused by:

answer

the widespread conversion of checkable deposits to cash by the public.

question

(Last Word) Which of the following resulted from the financial crisis of 2007-2008?

answer

FDIC insurance was increased from $100,000 to $250,000 per account.

Econ 1040- chapter 7 – Flashcards

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