Question 1

Under a fractional-reserve banking system,banks

Accepted Answer

Under a fractional-reserve banking system, banks generally lend out a majority of the funds deposited. This means that they do not hold more reserves than deposits, and lending out reserves does not cause the money supply to fall (in fact, it increases the money supply). Option D is incorrect because the statement "hold more reserves than deposits" is not true under a fractional-reserve banking system.

Question 2

In a 100-percent-reserve banking system,if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits,then

Accepted Answer

In a 100-percent-reserve banking system, all deposits are fully backed by reserves. Therefore, shifting currency to checkable deposits does not change the total money supply (M1), as both currency and checkable deposits are components of M1.

Question 3

In a system of 100-percent-reserve banking,

Accepted Answer

In a system of 100-percent-reserve banking, banks do not make loans. This means that deposits are matched with an equal amount of reserves, and thus no excess reserves are available to be lent out. As a result, banks cannot create new money by making loans. Currency may or may not be the only form of money, and deposits may or may not be banks' only assets, depending on the specifics of the system.

Question 4

A bank's reserve ratio is 10 percent and the bank has $5,000 in deposits.Its reserves amount to

Accepted Answer

The bank's reserve ratio is 10%, so we can find its reserves by multiplying its deposits by the reserve ratio:

0.10 x $5,000 = $500

So the correct answer is B, $500.

Question 5

In a system of 100-percent-reserve banking,

Accepted Answer

In a system of 100-percent-reserve banking, banks do not influence the supply of money because they do not create money through the lending process. They only act as intermediaries between savers and borrowers by lending out the funds deposited with them by savers. This means that the supply of money is determined by the amount of reserves held by the central bank, and not by the loans made by banks. However, banks still accept deposits and can have asset items other than loans such as securities and cash reserves.

Question 6

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits.Its reserves amount to

Accepted Answer

The bank's reserves amount to 8% of its deposits, so we can calculate reserves as 0.08 x $1,000 = $80. Therefore, the correct choice is B.

Question 7

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store.On their respective balance sheets,this loan is

Accepted Answer

The loan is an asset for the bank because it is expected to be repaid with interest, and a liability for Kellie's Print Shop because it is an obligation to repay. The loan increases the money supply as it creates new money in the economy when the bank credits Kellie's account.

Question 8

Which of the following is a liability of a bank and an asset of its customers?

Accepted Answer

Deposits of customers are considered liability because the bank owes the customers the deposited amount, while for the customers, the deposits are assets as they can withdraw the amount or use it for payments. Loans, on the other hand, are liabilities for customers as they owe the bank the borrowed amount plus interest, while for the bank, they are assets as they expect to receive the amount back with interest. In this case, only option B mentions deposits of customers as a liability of the bank and not loans, which makes it the correct answer.

Question 9

In a system of 100-percent-reserve banking,the purpose of a bank is to

Accepted Answer

In a system of 100-percent-reserve banking, the bank's role is to provide a secure place for depositors to store their money. The bank cannot make loans using the depositor's funds, nor can they influence the money supply. The bank's only function is to safeguard the funds entrusted to it by the depositors. The option D is also not viable as banks in this system won't deal with gold.

Question 10

Suppose the banking system currently has $400 billion in reserves,the reserve requirement is 8 percent,and excess reserves amount to $5 billion.What is the level of deposits?

Accepted Answer

The answer of Suppose the banking system currently has $400...

Question 11

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600,it has a

Accepted Answer

The required reserve ratio is 15%, so the bank must hold $90 (15% * $600) in required reserves. Since the bank desires to hold no excess reserves, it will use the remaining $510 ($600 - $90) to increase its excess reserves. Therefore, there is a $510 increase in excess reserves and a $90 increase in required reserves. Option A is incorrect because it suggests that the bank desires to hold excess reserves, which is not the case. Option B is incorrect because there is no reason for the deposit to lead to an increase in required reserves. Option D is incorrect because it switches the amounts for excess and required reserves.

Question 12

If a bank has a reserve ratio of 8 percent,then

Accepted Answer

The reserve ratio of 8 percent means that the bank keeps 8 percent of its deposits as reserves and loans out the rest. This is required by government regulation to ensure the stability of the banking system. Option A is incorrect because the government regulation requires the bank to keep a minimum reserve ratio, not use a certain percentage for loans. Option B is incorrect because it implies that the bank can only lend out 8 percent of its deposits, which is not true. Option D is incorrect because the reserve ratio applies to deposits, not assets.

Question 13

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150.If customers deposit $50 into the bank,what is the value of the money supply?

Accepted Answer

Since the bank must hold 100 percent reserves, it cannot loan out any of the deposited money. Therefore, the money supply remains at $150, the original currency in circulation. The $50 deposited simply transfers from the individual's cash holdings to their account at the bank, without any net change in the total money supply.

Question 14

A bank's reserve ratio is 5 percent and the bank has $2,280 in reserve.Its deposits amount to

Accepted Answer

The reserve ratio is the percentage of deposits that a bank must hold in reserve. If the reserve ratio is 5%, and the bank has $2,280 in reserve, then the total deposits are $2,280 / 0.05 = $45,600.

Question 15

In a fractional-reserve banking system,a bank

Accepted Answer

In a fractional-reserve banking system, banks keep only a fraction of its deposits in reserve and use the rest to make loans and investments. So, option C is the correct choice as it reflects the nature of fractional reserve banking. Options A and B are incorrect as banks make loans and accept deposits in a fractional reserve banking system. Option D is also incorrect as there is at least one correct statement provided in the other options.

Question 16

On a bank's T-account,which are part of the banks liabilities?

Accepted Answer

Deposits made by customers are liabilities for the bank because the bank owes this money to the depositors. Reserves, on the other hand, are assets for the bank.

Question 17

A bank's assets equal its liabilities under

Accepted Answer

Under 100-percent-reserve banking, banks are required to hold reserves equal to 100% of their deposits. This means that they cannot lend out any of the money that they deposit. As a result, their assets (which consist of reserves) are equal to their liabilities (which consist of deposits). Under fractional-reserve banking, banks are only required to hold a fraction of their deposits as reserves. This means that they can lend out the rest of the money that they deposit. As a result, their assets (which consist of reserves and loans) are greater than their liabilities (which consist of deposits).

Question 18

Which of the following is an asset of a bank and a liability for its customers?

Accepted Answer

Loans to its customers are assets for the bank because they are expected to generate future income, while they are liabilities for customers as they have to repay them.

Question 19

On a bank's T-account,which are part of the bank's assets?

Accepted Answer

Reserves are part of a bank's assets because they represent the cash that the bank holds, either in its vaults or on deposit with the central bank. Deposits made by customers are liabilities, not assets, because they represent money the bank owes to its customers.

Question 20

Banks are able to create money only when

Accepted Answer

Banks are able to create money when only a fraction of deposits are held in reserve. This is known as fractional reserve banking. When banks receive deposits from customers, they are required to keep only a fraction of those deposits as reserves to meet withdrawal demands. The rest of the money can be used to make loans or purchases, effectively creating new money.

Quiz 16: The Monetary System: Banks and the Money Supply

Under a fractional-reserve banking system,banks

In a 100-percent-reserve banking system,if people decided to decrease the amount of currency they held by increasing the amount they held in checkable deposits,then

In a system of 100-percent-reserve banking,

A bank's reserve ratio is 10 percent and the bank has $5,000 in deposits.Its reserves amount to

In a system of 100-percent-reserve banking,

A bank's reserve ratio is 8 percent and the bank has $1,000 in deposits.Its reserves amount to

A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new store.On their respective balance sheets,this loan is

Which of the following is a liability of a bank and an asset of its customers?

In a system of 100-percent-reserve banking,the purpose of a bank is to

Suppose the banking system currently has $400 billion in reserves,the reserve requirement is 8 percent,and excess reserves amount to $5 billion.What is the level of deposits?

If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600,it has a

If a bank has a reserve ratio of 8 percent,then

A bank which must hold 100 percent reserves opens in an economy that had no banks and a currency of $150.If customers deposit $50 into the bank,what is the value of the money supply?

A bank's reserve ratio is 5 percent and the bank has $2,280 in reserve.Its deposits amount to

In a fractional-reserve banking system,a bank

On a bank's T-account,which are part of the banks liabilities?

A bank's assets equal its liabilities under

Which of the following is an asset of a bank and a liability for its customers?

On a bank's T-account,which are part of the bank's assets?

Banks are able to create money only when