Question 1

Assume we have a simplified banking system in balance-sheet equilibrium.Also assume that all banks are subject to a uniform 10 percent reserve requirement and checkable deposits are the only form of money.A commercial bank receiving a new checkable deposit of $100 would be able to extend new loans in the amount of:

Accepted Answer

The bank is required to hold 10% of the new deposit ($10) in reserves and can lend out the rest ($90). This is because of the 10% reserve requirement. The bank cannot lend out the entire new deposit of $100 because it must hold the required amount of reserves. Therefore, the correct answer is B.

Question 2

Imagine that Odyssey National is a brand new bank,and that its required reserve ratio is 10 percent.If it accepts a $1,000 deposit,then its loan balance can increase by a maximum of:

Accepted Answer

The answer of Imagine that Odyssey National is a brand...

Question 3

A bank creates money when it:

Accepted Answer

When a bank makes a loan from its excess reserves, it is creating new money because it is increasing the amount of money in circulation without taking money away from other deposits or reserves. This is also known as the money multiplier effect. Option A is incorrect because when a bank receives new checkable deposits, it is not creating new money but rather transferring existing cash into deposits. Option B is incorrect because when a loan is paid off, it decreases the bank's reserves and does not create new money. Options D and E are incorrect because changes in the required reserve ratio do not directly create new money, but rather affect the amount of reserves banks must hold.

Question 4

If a single banks faces a required reserve ratio of 20 percent,has total reserves of $500,000,and checkable deposit liabilities of $400,000,what is the maximum amount of money this bank could create (add to the money supply)?

Accepted Answer

The answer of If a single banks faces a required...

Question 5

Jeff Kaufman decides to bank with Paris First National Bank (PFN).He opens a checking account by depositing $1,000.According to the PFN balance sheet,after this initial $1,000 checkable deposit,there are $1,000 in:

Accepted Answer

When Jeff Kaufman deposited $1,000 in his checking account at PFN, the bank's reserves increased by $1,000 because they now hold more money in their vault. At the same time, Jeff Kaufman's account now has a balance of $1,000, which counts as checkable deposits on the bank's balance sheet. Therefore, the correct option is A) reserves and $1,000 in checkable deposits.

Question 6

If banks are fully loaned up,have no excess reserves,and the required reserve ratio is raised,the amount that banks can lend is:

Accepted Answer

If banks are fully loaned up and have no excess reserves, an increase in the required reserve ratio would reduce the amount that they can loan out. This would lead to a contraction in the money supply since there would be less money available for lending and spending. Therefore, option A is the correct response.

Question 7

Best National Bank operates with a 20 percent required reserve ratio.One day a depositor withdraws $500 from his or her checking account at this bank.As a result,the bank's excess reserves:

Accepted Answer

With a 20 percent required reserve ratio, the bank must keep $100 of the $500 as required reserves (20% of $500). The remaining $400 would have been part of the bank's excess reserves. When the depositor withdraws $500, the bank loses that amount in reserves entirely, impacting its excess reserves directly. Therefore, the bank's excess reserves fall by the full amount withdrawn, $500, not just the portion beyond the required reserves.

Question 8

If Matt Taylor gets his $800 loan from the Paris First National Bank in cash rather than in the form of a new checkable deposit,the:

Accepted Answer

When Matt Taylor gets his loan in cash, there is no creation of a new deposit account. Therefore, the bank will not receive any new reserves.

Question 9

If your bank faces a 20 percent required reserve ratio and receives a cash deposit of $4,000 into a checkable deposit account,the maximum total amount of money possible after the banking system makes all loans is:

Accepted Answer

The answer of If your bank faces a 20 percent...

Question 10

If a bank receives a new checkable deposit of $10,000,and the required reserve ratio is 20 percent,then the bank can lend out:

Accepted Answer

The required reserve ratio is 20%, which means the bank is required to hold onto 20% of the deposit, or $2,000. The remaining $8,000 can be lent out.

Question 11

If your bank receives a checkable deposit of $20,000 cash,and the banking system makes loans totaling $60,000,the maximum possible,then the money multiplier must be:

Accepted Answer

The answer of If your bank receives a checkable deposit...

Question 12

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement,then the maximum amount of checkable deposits the bank can have if excess reserves are zero is:

Accepted Answer

The answer of If a bank has actual reserves of...

Question 13

Imagine that Odyssey National is a brand new bank,and that its required reserve ratio is 10 percent.If it accepts a $1,000 cash deposit,then,excluding the $1,000 initial deposit,the banking system can increase the money supply by:

Accepted Answer

The answer of Imagine that Odyssey National is a brand...

Question 14

Suppose a bank has checkable deposits of $100,000 and the required reserve ratio is 20 percent.If the bank currently has $100,000 in reserves,it could expand the money supply by as much as:

Accepted Answer

The answer of Suppose a bank has checkable deposits of...

Question 15

Suppose the required reserve ratio is 3 percent,and currency and reserves total $10 million.The maximum money supply that can be supported is:

Accepted Answer

The answer of Suppose the required reserve ratio is 3...

Question 16

When new checkable deposits are created through loans,

Accepted Answer

When new loans are made, new checkable deposits are created which directly increase the money supply. Therefore, the correct choice is D, the money supply expands.

Question 17

If a bank that is subject to a 10 percent required reserve ratio has $20,000 in excess reserves,it can make new loans of:

Accepted Answer

The answer of If a bank that is subject to...

Question 18

A bank currently has checkable deposits of $100,000,total reserves of $30,000,and loans of $70,000.If the required reserve ratio is lowered from 20 percent to 15 percent,this bank can increase its loans by:

Accepted Answer

First, we need to calculate the bank's required reserves under both the old and new reserve ratio:

Old required reserves: 20% of $100,000 = $20,000
New required reserves: 15% of $100,000 = $15,000

Next, we need to calculate the bank's excess reserves under the new reserve ratio:

Excess reserves = Total reserves - Required reserves
Excess reserves = $30,000 - $15,000 = $15,000

Finally, we can calculate how much the bank can increase its loans by using the excess reserves:

Increase in loans = Excess reserves / (1 - Reserve ratio)
Increase in loans = $15,000 / (1 - 0.15) = $15,000 / 0.85 = $17,647 (rounded to nearest thousand)

Therefore, the bank can increase its loans by $15,000 (choice B).

Question 19

Imagine that Odyssey National is a brand new bank,and that its required reserve ratio is 10 percent.If it accepts a $1,000 deposit,then Odyssey National can increase the money supply by:

Accepted Answer

The answer of Imagine that Odyssey National is a brand...

Question 20

Assume a simplified banking system in which all banks are subject to a uniform reserve requirement of 20 percent and checkable deposits are the only from of money.A bank that received a new checkable deposit of $10,000 would be able to extend new loans up to a maximum of:

Accepted Answer

The bank is subject to a reserve requirement of 20 percent, which means it must hold 20 percent of the new deposit ($10,000 x 0.2 = $2,000) in reserve and can lend out the remaining 80 percent ($10,000 - $2,000 = $8,000). Therefore, the bank can extend new loans up to a maximum of $8,000.

Quiz 19: Money Creation

Imagine that Odyssey National is a brand new bank,and that its required reserve ratio is 10 percent.If it accepts a $1,000 deposit,then its loan balance can increase by a maximum of:

A bank creates money when it:

If a single banks faces a required reserve ratio of 20 percent,has total reserves of $500,000,and checkable deposit liabilities of $400,000,what is the maximum amount of money this bank could create (add to the money supply) ?

Jeff Kaufman decides to bank with Paris First National Bank (PFN) .He opens a checking account by depositing $1,000.According to the PFN balance sheet,after this initial $1,000 checkable deposit,there are $1,000 in:

If banks are fully loaned up,have no excess reserves,and the required reserve ratio is raised,the amount that banks can lend is:

Best National Bank operates with a 20 percent required reserve ratio.One day a depositor withdraws $500 from his or her checking account at this bank.As a result,the bank's excess reserves:

If Matt Taylor gets his $800 loan from the Paris First National Bank in cash rather than in the form of a new checkable deposit,the:

If your bank faces a 20 percent required reserve ratio and receives a cash deposit of $4,000 into a checkable deposit account,the maximum total amount of money possible after the banking system makes all loans is:

If a bank receives a new checkable deposit of $10,000,and the required reserve ratio is 20 percent,then the bank can lend out:

If your bank receives a checkable deposit of $20,000 cash,and the banking system makes loans totaling $60,000,the maximum possible,then the money multiplier must be:

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement,then the maximum amount of checkable deposits the bank can have if excess reserves are zero is:

Imagine that Odyssey National is a brand new bank,and that its required reserve ratio is 10 percent.If it accepts a $1,000 cash deposit,then,excluding the $1,000 initial deposit,the banking system can increase the money supply by:

Suppose a bank has checkable deposits of $100,000 and the required reserve ratio is 20 percent.If the bank currently has $100,000 in reserves,it could expand the money supply by as much as:

Suppose the required reserve ratio is 3 percent,and currency and reserves total $10 million.The maximum money supply that can be supported is:

When new checkable deposits are created through loans,

If a bank that is subject to a 10 percent required reserve ratio has $20,000 in excess reserves,it can make new loans of:

A bank currently has checkable deposits of $100,000,total reserves of $30,000,and loans of $70,000.If the required reserve ratio is lowered from 20 percent to 15 percent,this bank can increase its loans by:

Imagine that Odyssey National is a brand new bank,and that its required reserve ratio is 10 percent.If it accepts a $1,000 deposit,then Odyssey National can increase the money supply by:

Assume a simplified banking system in which all banks are subject to a uniform reserve requirement of 20 percent and checkable deposits are the only from of money.A bank that received a new checkable deposit of $10,000 would be able to extend new loans up to a maximum of: