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:
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:
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:
T OR F: The higher the reserve requirement, the lower is the monetary multiplier.
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:
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.
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:
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.
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:
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:
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?
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:
T OR F: If the reserve requirement is 20 percent, the monetary multiplier will be 4.
T OR F: Excess reserves are the amount by which required reserves exceed actual reserves.
Which one of the following is presently a major deterrent to bank panics in the United States?
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:
The amount that a commercial bank can lend is determined by its:
Money is destroyed when:
loans are repaid.
T OR F: Actual reserves equal required reserves plus excess reserves.
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.
A single bank can safely increase its total loans by an amount equal to its:
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.