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Exam 15: Money Creation

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Question 101

True/False

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An individual bank can safely lend out a multiple of its excess reserves, but the banking system can safely lend out only an amount equal to the excess reserves in the banking system.

A) True
B) False

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Question 102

Multiple Choice

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In an unregulated environment, the commercial banking system would tend to vary the supply of money in a way that

A) increased the money supply to the maximum at all times.
B) decreased the money supply to the minimum at all times.
C) emphasized the use of currency over demand deposits.
D) reinforced cyclical variations in the economy.

E) A) and B)
F) A) and C)

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Question 103

Multiple Choice

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What percentage of the money that a typical modern bank invests comes from borrowing?

$\begin{array} { | l | c | } \hline \text { Reserves } & \$ 100 \\\hline \text { Checkable Deposits } & 1,000 \\\hline \text { Loans (to customers) } & 300 \\\hline \text { Property } & 400 \\\hline \text { Securities (owned) } & 300 \\\hline \text { Stock Shares } & 100 \\\hline\end{array}$ Refer to the accompanying table of information for the Moolah Bank. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This bank can safely expand its loans by a maximum of

Describe the basic features of a commercial bank's balance sheet.

Balance sheets always balance because reserves must always equal liabilities plus net worth.

A bank is in the position to make loans when required reserves

A bank's checkable deposits shrink from $40 million to $33 million. What happens to its required reserves if the required reserve ratio is 3 percent?

Which of the following transactions has the immediate effect of increasing the money supply M1?

When a bank accepts a checkable deposit from a customer, its deposits will increase and its excess reserves will

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

What is meant by the "federal funds market," and what is the federal funds rate?

When commercial banks retire outstanding loans, the supply of money is increased.

The monetary multiplier can also be called the spending multiplier.

If a bank has excess reserves of $100,000, then it can lend out only up to $100,000; but if the banking system has cess reserves of $100,000, then the system can make additional loans totaling more than $100,000.

$\begin{array} { | l | r | r | r | } \hline & & \text { Assets } & \text { Liabilities and Net Worth } \\\hline \text { Stock Shares } & \$ 400 & & \\\hline \text { Reserves } & 40 & & \\\hline \text { Property } & 300 & & \\\hline \text { Securities } & 160 & & \\\hline \text { Loans } & 80 & & \\\hline \text { Demand Deposits } & 180 & & \\\hline\end{array}$ The ?gures in the table are for a single commercial bank, Bank A. All ?gures are in thousands of dollars. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of Bank B, then the actual Reserves of Bank A will

Banks' borrowed funds come mostly from

Other things being equal, an expansion of commercial bank lending

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. If the commercial banking system actually loans the maximum Amount it is able to lend,