Question 1

A bank with $200 million in deposits has $15 million of cash in the bank and $10 million in deposits with the Fed. Its total reserves equal

Accepted Answer

Total reserves include both the cash in the bank ($15 million) and the deposits with the Fed ($10 million), adding up to $25 million.

Question 2

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 are required to hold only a fraction of total deposits in reserve, while the rest can be lent out or invested.

Question 3

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 4

Total reserves are

Accepted Answer

The answer of Total reserves are
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Question 5

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

Accepted Answer

The concept of holding reserves, such as gold, that are less than the value of the total deposits is known as fractional reserve banking. It is a common practice in modern banking systems. Option B is incorrect as holding reserves less than the total deposits is not illegal. Option C is not a recognized term in the banking industry.

Question 6

Fractional reserve banking is a system in which

Accepted Answer

Fractional reserve banking is a system in which depository institutions (such as banks) hold only a fraction of total deposits in reserve and use the rest to make loans or investments. This allows them to earn interest on the money they lend out, but also creates the potential for runs on the bank if too many depositors demand their money back at once.

Question 7

In a fractional reserve banking system

Accepted Answer

In a fractional reserve banking system, banks are not required to keep all deposits on hand. Instead, they are only required to keep a fraction of deposits on hand (i.e., reserve ratio), while the rest can be loaned out or invested. This means that banks do not hold sufficient reserves to cover 100 percent of their depositors' accounts, hence option D is correct.

Question 8

Total reserves of private banks are

Accepted Answer

Total reserves of private banks are the sum of deposits held at the Federal Reserve and vault cash. This is the amount of money that banks have available to meet withdrawal requests and other obligations. The other options listed do not reflect the total reserves held by private banks.

Question 9

Fractional reserve banking began

Accepted Answer

The answer of Fractional reserve banking began
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Question 10

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

Accepted Answer

Depository institutions in the United States hold their reserves either as vault cash or on reserve with Federal Reserve district banks. This is done to ensure that these institutions maintain a certain level of liquidity to meet customer demands and to facilitate the proper functioning of the monetary system. While some institutions may hold precious metals such as gold and silver as assets, this is not a form of reserves used to meet regulatory requirements. Similarly, while the U.S. Department of the Treasury may hold some funds deposited by depository institutions, this is not the primary mechanism through which reserves are maintained. Finally, while reserves must be held at a Federal Reserve district bank, they can also be held as vault cash.

Question 11

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 $10 million in government securities in the bank vault. Its total reserves equal

Accepted Answer

The total reserves of the bank includes the cash held in the vault ($20 million), the deposits at the Fed ($10 million), and the government securities held in the vault ($10 million). Therefore, the total reserves of the bank is $20 million + $10 million + $10 million = $30 million. Option A is not correct because total deposits ($200 million) does not equal to reserves. Option B is not correct because it only includes the cash held in the vault. Option D is too high as it includes deposits also.

Question 12

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 banks are required to hold only a fraction of their customers' deposits as reserves, and they can lend out the remainder. This system allows banks to create new money through the process of lending and has been adopted by most countries around the world. A, B, and C are not related to this system.

Question 13

Under a fractional reserve banking system

Accepted Answer

Under a fractional reserve banking system, banks are required to keep a fraction of their deposits as reserves. This fraction is determined by the central bank or the regulatory authority and is usually a percentage of the total deposits. The remainder of the deposits can then be used to make loans or invest in securities. This system allows banks to create more money than they actually have in reserves, which can increase the money supply and stimulate economic growth. However, it also creates the potential for bank runs and financial instability if too many depositors try to withdraw their money at once.

Question 14

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

Accepted Answer

Reserves refer to the deposits held by Federal Reserve district banks and the vault cash of depository institutions. This amount is important as it determines the amount of money a bank can lend out through the money multiplier effect.

Question 15

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

Accepted Answer

Banks only need to keep a fraction of deposits on hand as reserves because only a small percentage of depositors will withdraw their funds at any given time, allowing the bank to lend out the remaining funds and earn interest. This is known as fractional reserve banking. The FDIC protects depositors in case the bank fails, but it does not affect the need for banks to hold reserves. Bank robberies are a risk for banks, but they do not affect the need for reserves. While banks can generate new reserves through the money creation process, this is not the reason why they do not need to keep all their deposits on hand as reserves.

Question 16

Fractional reserve banking can be thought of as a bank

Accepted Answer

Fractional reserve banking refers to the practice of banks keeping only a fraction of their total deposits in reserve, while loaning out the rest to borrowers. This means that a portion of the bank's total deposits are not loaned out and are instead held as reserves.

Question 17

With fractional reserve banking

Accepted Answer

Fractional reserve banking allows banks to retain only a portion of their deposits in their vaults or at Federal Reserve banks, while lending out the remaining funds to borrowers. This enables banks to earn interest on the loans they make, which generates profits for the bank. This system also allows for the creation of new money through the lending process, which can impact monetary policy. Additionally, banks can act as securities brokers regardless of their reserve requirements.

Question 18

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 on hand as reserves, while the rest can be loaned out to borrowers. This allows for the creation of money through the process of lending and can lead to economic expansion, but also carries the risk of bank runs and financial instability.

Question 19

The reserve ratio is 10% and a bank has $500,000 in transaction deposits. The amount of reserves equals

Accepted Answer

The reserve ratio is 10%, which means that the bank is required to hold 10% of its transaction deposits in reserve. Therefore, the amount of reserves would be 10% of $500,000 which equals $50,000.

Question 20

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 is the practice where banks keep only a fraction of their deposits as reserves and lend out the rest. In this scenario, Jane's bank will keep a portion of her deposit as reserves and lend out the remainder. The Federal Reserve System and sweep accounts are not relevant in this context. Excess reserves refer to any reserves held by banks above the required reserve ratio.

Quiz 15: Money, Banking, and Central Banking

A bank with $200 million in deposits has $15 million of cash in the bank and $10 million in deposits with the Fed. Its total reserves equal

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

Total reserves are

Total reserves are

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

Fractional reserve banking is a system in which

In a fractional reserve banking system

Total reserves of private banks are

Fractional reserve banking began

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

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 $10 million in government securities in the bank vault. Its total reserves equal

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

Under a fractional reserve banking system

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

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

Fractional reserve banking can be thought of as a bank

With fractional reserve banking

A fractional reserve banking system is a system whereby

The reserve ratio is 10% and a bank has $500,000 in transaction deposits. The amount of reserves equals

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