Question 1

A fractional reserve banking system is a system whereby

Accepted Answer

In a fractional reserve banking system, banks are only required to keep a fraction of their deposits as reserves, typically a percentage set by the central bank. The rest of the deposits are loaned out to borrowers, which creates the money supply through the process of money creation.

Question 2

In a fractional reserve banking system

Accepted Answer

A fractional reserve banking system allows banks to hold only a fraction of deposits as reserves, while lending out the rest. This means that banks do not keep sufficient reserves on hand to cover 100 percent of their depositors' accounts. Instead, they rely on the expectation that not all depositors will withdraw their funds at the same time, allowing the bank to use the remaining funds for loans and investments to earn profit.

Question 3

Total reserves of private banks are

Accepted Answer

Total reserves of private banks are made up of deposits held at the Federal Reserve and vault cash. These reserves are a portion of the deposits that banks hold to ensure they have enough funds to meet customers' withdrawal demands and to enable the Fed to implement monetary policy. Customer deposits (A) and federal reserve notes (D) do not make up total reserves of private banks. The minimum amount banks need to hold against time deposits (C) is known as the reserve requirement, which is a percentage of time deposit liabilities, not total reserves.

Question 4

Deposits held by Federal Reserve district banks for depository institutions, plus depository institutions' vault cash are known as

Accepted Answer

Reserves include deposits held by Federal Reserve district banks and depository institutions' vault cash. This is the amount of money that banks are required to hold in reserve to meet withdrawal demands from their customers.

Question 5

Jane has just deposited $2,000 in her checking account. She knows that the bank will keep part of these funds on hand and loan out the rest. This is an example of

Accepted Answer

Fractional reserve banking refers to the practice of commercial banks keeping only a fraction of their deposits on hand as reserves and lending out the rest. This is how banks make money through interest on loans, but it also creates potential risks for the banking system.

Question 6

Total reserves are

Accepted Answer

Total reserves in a banking context consist of required reserves (the minimum amount of reserves a bank must hold as mandated by the central bank or regulatory authority) plus excess reserves (any reserves the bank holds above the required minimum).

Question 7

Fractional reserve banking began

Accepted Answer

The answer of Fractional reserve banking began
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Question 8

Under a fractional reserve banking system,

Accepted Answer

Under a fractional reserve banking system, banks are only required to keep a fraction (i.e. a certain percentage) of their deposits on hand as reserves. The rest of the deposits can be lent out to borrowers, which allows banks to earn interest on loans and generate revenue.

Question 9

Total reserves are

Accepted Answer

The answer of Total reserves are
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Question 10

A system in which depository institutions hold reserves that are less than the amount of total deposits is

Accepted Answer

A fractional reserve banking system is one in which depository institutions (such as banks) are legally allowed to hold reserves that are only a fraction of the amount of total deposits they hold. For example, if a bank has $100 million in deposits, they may only be required to hold $10 million in reserves, allowing them to lend out the remaining $90 million. This system allows for the creation of money through the lending process.

Question 11

With fractional reserve banking

Accepted Answer

Fractional reserve banking is a banking system in which commercial banks retain only a portion of their deposits in their vaults or at Federal Reserve banks, and lend out the remainder. This allows banks to create credit and expand the money supply, which can lead to economic growth. However, it also increases the risk of bank runs and financial instability. A and B are incorrect because banks can generate profits and monetary policy can still be effective under fractional reserve banking. D is not necessarily true as not all banks act as securities brokers.

Question 12

The concept of holding reserves, such as gold, that are less than the value of the total deposits

Accepted Answer

Fractional reserve banking is the concept of holding reserves that are less than the value of total deposits. It is a common practice in modern banking systems around the world, where banks only keep a fraction of the funds deposited by customers and lend out the remaining funds to earn interest. This system is based on the assumption that most depositors will not withdraw all their funds at the same time, allowing banks to maintain a reserve ratio that is less than 100%.

Question 13

A bank with $200 million in transaction deposits keeps $20 million in cash in the bank vault, $10 million in deposits at the Fed, and $5 million in government securities in the bank vault. Its total reserves equal

Accepted Answer

Total reserves include the required reserve and excess reserve. Required reserve is calculated as a percentage of transaction deposits that banks are required to keep on hand either in their vault or on deposit with the Fed. 
Assuming the required reserve ratio is 10%, the bank would be required to keep $20 million ($200 million * 10%) in its vault or on deposit with the Fed. 
In this case, the bank keeps $20 million in its vault and $10 million on deposit with the Fed, which adds up to required reserves of $30 million ($20 million + $10 million). 
The $5 million in government securities is not considered a part of required reserves. 
Therefore, the total reserves of the bank would be $30 million.

Question 14

Fractional reserve banking is a system in which

Accepted Answer

Fractional reserve banking is a system in which depository institutions (such as banks) are required to hold only a fraction of the total deposits they receive as reserves, while the rest can be loaned out to other customers. This allows for the creation of new money through the multiplication of loans and deposits.

Question 15

Banks do not need to keep all of their deposits on hand as reserves because

Accepted Answer

Banks do not need to keep all of their deposits on hand as reserves because only a fraction of deposits are withdrawn at any one time. This is known as the fractional reserve system, which allows banks to lend out the majority of the deposits they receive while still having enough cash on hand to meet withdrawal demands.

Question 16

A system in which depository institutions hold reserves that are less than the amount of total deposits is

Accepted Answer

Fractional reserve banking is a system in which depository institutions keep a portion of depositors' funds on reserve and lend out the remaining funds in order to earn interest income. The reserve requirement is less than the amount of total deposits, allowing for a greater amount of lending and economic activity.

Question 17

A bank with $100 million in deposits has $15 million of cash in the bank, $10 million in deposits with the Fed, and $15 million in government securities in its vault. Its total reserves equal

Accepted Answer

Total Reserves = Cash in Bank + Deposits with the Fed + Government Securities
Total Reserves = $15 million + $10 million + $15 million = $40 million
Therefore, the correct choice is C, which is $25 million.

Question 18

Fractional reserve banking can be thought of as a bank

Accepted Answer

Fractional reserve banking refers to a practice where a bank only keeps a fraction of its total deposits as reserves and loans out the rest. Option A correctly describes this practice. Option B and C do not accurately describe fractional reserve banking. Option D is incorrect as it suggests that the bank loans out all of its reserves, which is not sustainable or feasible for a bank to do.

Question 19

The reserve ratio is 10% and a bank has $600,000 in transaction deposits. The amount of reserves equals

Accepted Answer

The reserve ratio is 10%, so the bank is required to keep 10% of the $600,000 transaction deposits as reserves. So, the amount of reserves would be 0.10* $600,000 = $60,000.

Question 20

In the United States, where do depository institutions hold their reserves?

Accepted Answer

Depository institutions hold their reserves either as vault cash or on reserve with Federal Reserve district banks. This is because the Federal Reserve acts as the central bank of the United States and is responsible for regulating the nation's money supply. By requiring depository institutions to hold a certain amount of reserves, the Federal Reserve can control the amount of money in circulation and keep inflation in check.

Quiz 14: Money Banking and Central Banking

A fractional reserve banking system is a system whereby

In a fractional reserve banking system

Total reserves of private banks are

Deposits held by Federal Reserve district banks for depository institutions, plus depository institutions' vault cash are known as

Jane has just deposited $2,000 in her checking account. She knows that the bank will keep part of these funds on hand and loan out the rest. This is an example of

Total reserves are

Fractional reserve banking began

Under a fractional reserve banking system,

Total reserves are

A system in which depository institutions hold reserves that are less than the amount of total deposits is

With fractional reserve banking

The concept of holding reserves, such as gold, that are less than the value of the total deposits

A bank with $200 million in transaction deposits keeps $20 million in cash in the bank vault, $10 million in deposits at the Fed, and $5 million in government securities in the bank vault. Its total reserves equal

Fractional reserve banking is a system in which

Banks do not need to keep all of their deposits on hand as reserves because

A system in which depository institutions hold reserves that are less than the amount of total deposits is

A bank with $100 million in deposits has $15 million of cash in the bank, $10 million in deposits with the Fed, and $15 million in government securities in its vault. Its total reserves equal

Fractional reserve banking can be thought of as a bank

The reserve ratio is 10% and a bank has $600,000 in transaction deposits. The amount of reserves equals

In the United States, where do depository institutions hold their reserves?