question

The reserves of a commercial bank consist of:

answer

deposits at the Federal Reserve Bank and vault cash.

question

Commercial banks create money when they:

answer

create checkable deposits in exchange for IOUs.

question

Suppose a credit union has checkable deposits of $500,000 and the legal reserve ratio is 10 percent. If the institution has excess reserves of $4,000, then its actual reserves are:

answer

$54,000.

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

A bank temporarily short of required reserves may remedy the situation by borrowing reserves:

answer

in the Federal funds market.

question

(Last Word) A "national bank holiday" that closed all banks for a week and resulted in Federal deposit insurance occurred in the United States in:

answer

1933, following the bank panics of 1930-1933.

question

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

answer

$10,000.

question

The monetary multiplier is equal to:

answer

the inverse (reciprocal) of the required reserve ratio.

question

In a fractional reserve banking system:

answer

banks can create money through the lending process.

question

The reserve ratio refers to the ratio of a bank's:

answer

required reserves to its checkable-deposit liabilities.

question

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

answer

the receipts became in effect paper money.

question

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

answer

$100,000.

question

T OR F: The higher the reserve requirement, the lower is the monetary multiplier.

answer

TRUE

question

A fractional reserve banking system:

answer

is susceptible to bank panics.

question

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:

answer

$1,000.

question

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

answer

is larger the smaller the required reserve ratio.

question

T OR F: Loans made to customers are a liability on a bank's balance sheet.

answer

FALSE

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

Suppose a bank has checkable deposits of $1,000,000 and the legal reserve ratio is 5 percent. If the institution has excess reserves of $5,000, then its actual reserves are:

answer

$55,000.

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

A commercial bank can expand its excess reserves by:

answer

demanding and receiving payment on an overdue loan.

question

T OR F: Checkable deposits are a liability on a bank's balance sheet.

answer

True

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

Money is created when:

answer

banks make additional loans.

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

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

answer

$32,000.

question

A commercial bank's reserves are:

answer

assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

question

Hassan deposits $50,000 in a commercial bank that is required to retain 20% in reserve. The deposit increases the lending capacity of the bank by:

answer

$40,000.

question

Suppose the ABC bank has excess reserves of $4,000 and outstanding checkable deposits of $80,000. If the reserve requirement is 25 percent, what is the size of the bank's actual reserves?

answer

$24,000

question

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

answer

Federal funds rate.

question

Most modern banking systems are based on:

answer

fractional reserves.

question

T OR F: If the reserve requirement is 20 percent, the monetary multiplier will be 4.

answer

FALSE

question

T OR F: Excess reserves are the amount by which required reserves exceed actual reserves.

answer

FALSE

question

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

answer

deposit insurance

question

Other things equal, if the required reserve ratio was lowered:

answer

the size of the monetary multiplier would increase.

question

Refer to row 1 in the above table. The number appropriate for space W is:

answer

10

question

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

answer

excess reserves.

question

Money is destroyed when:

answer

loans are repaid.

question

T OR F: Actual reserves equal required reserves plus excess reserves.

answer

TRUE

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

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

answer

borrowing funds in the Federal funds market.

question

T OR F: When commercial banks retire outstanding loans, the supply of money is increased.

answer

FALSE

question

A single bank can safely increase its total loans by an amount equal to its:

answer

excess reserves.

question

Which of the following is correct?

answer

Actual reserves minus required reserves equal excess reserves.

question

The greater the required reserve ratio, the:

answer

lower is the monetary multiplier.

question

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

answer

new money is created.

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

If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves; E equals the amount of excess reserves; and m is the monetary multiplier, then:

answer

D = E ×m.

Econ FINAL Ch.32 – Flashcards

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