Econ FINAL Ch.32

Flashcard maker : Lily Taylor
The reserves of a commercial bank consist of:
deposits at the Federal Reserve Bank and vault cash.
Commercial banks create money when they:
create checkable deposits in exchange for IOUs.
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:
$54,000.
The goldsmith’s ability to create money was based on the fact that:
paper money in the form of gold receipts was rarely redeemed for gold.
A bank temporarily short of required reserves may remedy the situation by borrowing reserves:
in the Federal funds market.
(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:
1933, following the bank panics of 1930-1933.
Refer to row 4 in the above table. The number appropriate for space Z is:
$10,000.
The monetary multiplier is equal to:
the inverse (reciprocal) of the required reserve ratio.
In a fractional reserve banking system:
banks can create money through the lending process.
The reserve ratio refers to the ratio of a bank’s:
required reserves to its checkable-deposit liabilities.
When the receipts given by goldsmiths to depositors were used to make purchases:
the receipts became in effect paper money.
Refer to row 2 in the above table. The number appropriate for space X is:
$100,000.
T OR F: The higher the reserve requirement, the lower is the monetary multiplier.
TRUE
A fractional reserve banking system:
is susceptible to bank panics.
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:
$1,000.
The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves:
is larger the smaller the required reserve ratio.
T OR F: Loans made to customers are a liability on a bank’s balance sheet.
FALSE
The amount of reserves that a commercial bank is required to hold is equal to:
its checkable deposits multiplied by the reserve requirement.
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:
$55,000.
The primary purpose of the legal reserve requirement is to:
provide a means by which the monetary authorities can influence the lending ability of commercial banks.
A commercial bank can expand its excess reserves by:
demanding and receiving payment on an overdue loan.
T OR F: Checkable deposits are a liability on a bank’s balance sheet.
True
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:
the reciprocal of the required reserve ratio.
Money is created when:
banks make additional loans.
(Last Word) The bank panics of 1930-1933 and the resulting failures of many banks were caused by:
the widespread conversion of checkable deposits to cash by the public.
Refer to row 3 in the above table. The number appropriate for space Y is:
$32,000.
A commercial bank’s reserves are:
assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.
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:
$40,000.
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?
$24,000
Overnight loans from one bank to another for reserve purposes entail an interest rate called the:
Federal funds rate.
Most modern banking systems are based on:
fractional reserves.
T OR F: If the reserve requirement is 20 percent, the monetary multiplier will be 4.
FALSE
T OR F: Excess reserves are the amount by which required reserves exceed actual reserves.
FALSE
Which one of the following is presently a major deterrent to bank panics in the United States?
deposit insurance
Other things equal, if the required reserve ratio was lowered:
the size of the monetary multiplier would increase.
Refer to row 1 in the above table. The number appropriate for space W is:
10
The amount that a commercial bank can lend is determined by its:
excess reserves.
Money is destroyed when:
loans are repaid.
T OR F: Actual reserves equal required reserves plus excess reserves.
TRUE
The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of:
the reserve ratio.
A bank temporarily short of required reserves may be able to remedy this situation by:
borrowing funds in the Federal funds market.
T OR F: When commercial banks retire outstanding loans, the supply of money is increased.
FALSE
A single bank can safely increase its total loans by an amount equal to its:
excess reserves.
Which of the following is correct?
Actual reserves minus required reserves equal excess reserves.
The greater the required reserve ratio, the:
lower is the monetary multiplier.
When commercial banks use excess reserves to buy government securities from the public:
new money is created.
(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?
the FDIC insures bank deposits and therefore depositors do not panic and rush to withdraw money when individual banks have financial problems
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:
D = E ×m.

Get instant access to
all materials

Become a Member