Question 1

If banks engage in fractional reserve banking,it means that

Accepted Answer

Fractional reserve banking allows banks to hold reserves that are less than the total amount of deposits they hold. This means they can lend out a portion of the deposits they have received, while still keeping enough in reserve to meet the demands of their customers. Therefore, banks are not required to hold 100 percent of their deposits as reserves.

Question 2

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

Accepted Answer

Banks keep a portion of deposits as reserves to meet withdrawal demands but they do not need to keep all of it because only a fraction of deposits are typically withdrawn at any given time. This allows banks to lend out the remaining funds and earn interest on loans, thus making a profit.

Question 3

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 (percentage) of their total deposits as reserves. The remaining funds can be used for making loans and other investments.

Question 4

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 5

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

Accepted Answer

Fractional reserve banking is a system in which banks keep a portion of deposits or reserves and lend the rest. This practice allows banks to create money by loaning out more than they actually have in reserves. It is a common practice among modern banks and is regulated by central banks. It is not illegal and was not affected by the Financial Services Modernization Act of 1999. Non-credit banking is not a recognized term in the finance industry.

Question 6

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%, which means the bank is required to hold 10% of its transaction deposits as reserves. Therefore, the amount of reserves would be 10% of $600,000, which is $60,000.

Question 7

Total reserves of private banks are

Accepted Answer

Total reserves of private banks refer to the deposits held at the Fed and vault cash. This includes both required reserves, which are the minimum amount banks need to hold against certain deposits like checking accounts, and excess reserves, which are funds held above the required amount. Other options like customer deposits and federal reserve notes do not necessarily comprise all of a bank's total reserves.

Question 8

Under a fractional reserve banking system,

Accepted Answer

Under a fractional reserve banking system, banks are required to keep only a fraction of their deposits on hand as reserves. The rest of the deposits can be used for lending and investment activities. This allows banks to earn interest on their loans and investments, which is a major source of profit for them. However, it also exposes the banking system to the risk of bank runs if too many depositors try to withdraw their funds at the same time.

Question 9

With fractional reserve banking,

Accepted Answer

Fractional reserve banking is a system in which banks retain only a portion of their deposits in their vaults or at Federal Reserve banks. This allows them to lend out the remaining money to borrowers and generate profits through interest on those loans. However, it also means that the amount of money in circulation can increase beyond the amount in the bank's reserves, potentially leading to inflation or financial instability.

Question 10

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 11

Fractional reserve banking can be thought of as a bank

Accepted Answer

Fractional reserve banking means that banks hold only a fraction of their deposits as reserves and loan out the rest. Therefore, option A is the correct choice. The other options do not accurately describe fractional reserve banking.

Question 12

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 the bank + deposits with the Fed + government securities in the vault 
= $15 million + $10 million + $15 million 
= $40 million 
Therefore, the bank's total reserves are $40 million.

Question 13

In a fractional reserve banking system,

Accepted Answer

In a fractional reserve banking system, banks do not keep sufficient reserves on hand to cover 100 percent of their depositors' accounts. Instead, they are only required to keep a fraction of all deposits on hand and can loan out the remaining funds. This system allows banks to earn profits from interest on loans, but also creates the risk of bank runs if too many depositors try to withdraw their funds 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 deposits held by Federal Reserve district banks for depository institutions and depository institutions' vault cash. This is an important component of the U.S. banking system and serves to ensure that banks have enough funds on hand to meet withdrawal demands from their customers.

Question 15

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 known as the dual banking system, in which banks can choose to hold their reserves as cash in their own vaults or as deposits with Federal Reserve district banks. This system allows for flexibility and competitiveness among banks.

Question 16

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

Accepted Answer

A system in which depository institutions hold reserves that are less than the amount of total deposits is known as fractional reserve banking. This practice allows banks to lend out a portion of the deposits they hold, creating money and stimulating economic growth. However, it also increases the risk of bank runs and financial instability. The Federal Reserve System is the central bank of the United States, which regulates and oversees the banking system. The federal funds market is a market for overnight loans between banks. Sweep accounts are a service offered by banks that automatically transfer excess funds from one account to another to maximize interest income.

Question 17

Fractional reserve banking began

Accepted Answer

The answer of Fractional reserve banking began
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Question 18

Total reserves are

Accepted Answer

The answer of Total reserves are
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Question 19

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. This allows them to use the remaining funds to make loans and earn interest, which is how they make profits. However, it also means that if too many people try to withdraw their deposits at the same time, the bank may not have enough cash on hand to meet all of the demands.

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 system in which banks keep only a fraction of their deposits on hand and loan out the rest. In this scenario, the bank will keep a portion of Jane's deposit as reserves and loan out the rest to other customers, earning interest on those loans.

Quiz 15: Money, banking, and Central Banking

If banks engage in fractional reserve banking,it means that

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

Total reserves are

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

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

Total reserves of private banks are

Under a fractional reserve banking system,

With fractional reserve banking,

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 can be thought of as a bank

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

In a fractional reserve banking system,

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

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

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

Fractional reserve banking began

Total reserves are

A fractional reserve banking system is a system whereby

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