Question 1

Given a 25 percent reserve ratio,assume the commercial banking system is loaned up.Now assume the reserve ratio is reduced to 20 percent.As a result of this reduction:

Accepted Answer

With a 20 percent reserve ratio, each dollar of reserves can support $5 of checkable deposits (1/0.20 = 5).

Question 2

The basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that:

Accepted Answer

When one bank loses reserves, another bank gains them, allowing the banking system as a whole to expand checkable deposits by a multiple of the excess reserves.

Question 3

If the reserve ratio is 15 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits,then the relevant monetary multiplier for the banking system will be:

Accepted Answer

The answer of If the reserve ratio is 15 percent...

Question 4

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:

Accepted Answer

The multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is known as the money multiplier. The formula for the money multiplier is 1/rr, where rr is the required reserve ratio. This means that for every dollar of excess reserves held by banks, they can create a multiple of that amount in the money supply, based on the reserve ratio set by the central bank.

Question 5

Other things equal,if the required reserve ratio was lowered:

Accepted Answer

Lowering the required reserve ratio would increase the excess reserves of banks. With more excess reserves, banks would be able to lend out more and the size of the monetary multiplier would increase, leading to an expansion of the money supply. Option A is incorrect because banks would not have to reduce lending with more excess reserves. Option C is incorrect because while actual reserves may increase, the focus is on excess reserves. Option D is incorrect because the federal funds interest rate would likely decrease with an expansionary monetary policy.

Question 6

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 10 percent.All figures are in billions. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$30\
130 \
70\
200
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$300\
130\
\
\
\end{array}
\end{array}$  Refer to the data.After the deposit of $10 billion of new currency,the maximum amount by which this commercial banking system can expand the supply of money by lending is:

Accepted Answer

The answer of Answer the question on the basis of...

Question 7

If a portion of the loans extended by commercial banks is taken as cash rather than as checkable deposits,the maximum money-creating potential of the commercial banking system will:

Accepted Answer

If a portion of the loans extended by commercial banks is taken as cash rather than as checkable deposits, the amount of checkable deposits in the system decreases. This decreases the overall money supply and limits the maximum money-creating potential of the commercial banking system. Therefore, the correct answer is D, decrease.

Question 8

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 30 percent.All figures are in billions. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$ 51 \
109 \
100\
10
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$140\
130\
\
\
\end{array}
\end{array}$

Refer to the data.The commercial banking system has excess reserves of:

Accepted Answer

The required reserves are 30% of checkable deposits, which is $42 billion (30% of $140 billion). The actual reserves are $51 billion, so the excess reserves are $51 billion - $42 billion = $9 billion.

Question 9

The federal funds market is the market in which:

Accepted Answer

The federal funds market is where banks borrow reserves from one another on an overnight basis to meet their reserve requirements. This market is important for the implementation of monetary policy by the Federal Reserve. The other choices are not accurate descriptions of the federal funds market.

Question 10

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 10 percent.All figures are in billions. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$30\
130 \
70\
200
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$300\
130\
\
\
\end{array}
\end{array}$
 Refer to the data.After a deposit of $10 billion of new currency into a checking account in the banking system,excess reserves will increase by:

Accepted Answer

With a required reserve ratio of 10%, the banking system must hold $160 billion in reserves based on the total checkable deposits of $1,600 billion. After the $10 billion deposit, checkable deposits increase to $1,610 billion. The required reserves will be $161 billion (10% of $1,610 billion). The banking system will have excess reserves of $1 billion ($162 billion - $161 billion). Therefore, excess reserves will increase by $9 billion ($10 billion - $1 billion).

Question 11

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 30 percent.All figures are in billions. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$ 51 \
109 \
100\
10
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$140\
130\
\
\
\end{array}
\end{array}$

Refer to the data.If the commercial banking system actually loans the maximum amount it is able to lend:

Accepted Answer

The maximum amount that the commercial banking system can lend is determined by (total deposits - required reserves), which is $50 - ($15 x 0.3) = $46.5 billion. The excess reserves would then be the difference between actual reserves held and the required reserves, which is $15 - $4.5 - $46.5 = $4 billion. Therefore, if the commercial banking system actually loans the maximum amount it is able to lend, excess reserves will be reduced to zero (option D).

Question 12

If m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio,then for the banking system:

Accepted Answer

The formula for the maximum amount of new money that can be created for a single dollar of excess reserves is m = 1/R, which means that as the required reserve ratio decreases, the maximum amount of new money creation increases. Therefore, D is the correct choice.

Question 13

The market for immediately available reserve balances at the Federal Reserve is known as the:

Accepted Answer

The market for immediately available reserve balances at the Federal Reserve is commonly known as the federal funds market. This market is where commercial banks borrow or lend their excess reserves to each other overnight to meet their reserve requirements set by the Federal Reserve.

Question 14

Suppose a commercial banking system has $100,000 of outstanding checkable deposits and actual reserves of $35,000.If the reserve ratio is 20 percent,the banking system can expand the supply of money by the maximum amount of:

Accepted Answer

The answer of Suppose a commercial banking system has $100,000...

Question 15

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 10 percent.All figures are in billions. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$30\
130 \
70\
200
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$300\
130\
\
\
\end{array}
\end{array}$

Refer to the data.The commercial banking system has excess reserves of:

Accepted Answer

The required reserves are 10% of checkable deposits, which is $30 billion. Since the actual reserves are also $30 billion, there are no excess reserves.

Question 16

Answer the question on the basis of the following information about a banking system: new currency deposited in the system = $40 billion;legal reserve ratio = 0.20;excess reserves prior to the currency deposit = $0. Refer to the information.The $40 billion deposit of currency into checking accounts will initially create:

Accepted Answer

The initial deposit of $40 billion will create $40 billion of new checkable deposits, as the deposit itself is the initial creation of checkable deposits before any further money creation through the banking system's lending process.

Question 17

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of:

Accepted Answer

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of the reserve ratio, which is the percentage of deposits that banks are required to keep as reserves. This means that as the reserve ratio decreases, the multiple by which the banking system can expand the money supply increases. Therefore, the best choice is D, the reserve ratio.

Question 18

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:

Accepted Answer

According to the formula for the money multiplier, D = E × m. This means that the maximum amount of new demand-deposit money that can be created by the banking system is equal to the amount of excess reserves multiplied by the monetary multiplier.

Question 19

The multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves:

Accepted Answer

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. This is because a smaller required reserve ratio means that banks have to hold a smaller amount of their deposits as reserves and therefore have more excess reserves that can be used for lending and creating money.

Question 20

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 30 percent.All figures are in billions. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$ 51 \
109 \
100\
10
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$140\
130\
\
\
\end{array}
\end{array}$

Refer to the data.The maximum amount by which the commercial banking system can expand the supply of money by lending is:

Accepted Answer