Question 1

Banks create money by

Accepted Answer

Banks create money by making loans and creating new deposits, which ultimately increases the money supply in the economy. This process is limited by the bank's excess reserves, and not by the amount of cash or government securities they have on hand. Option A is incorrect because banks cannot print physical dollars, only the Federal Reserve has that authority. Option B is incorrect because there are regulatory limits on the amount of deposits banks can create. Option C is also incorrect because a bank's required reserve limit does not determine the amount of money it can create. Option E is incorrect because buying government securities with cash does not directly create new deposits or increase the money supply.

Question 2

Riley deposits $4,000 cash in her checkable deposit at Fershur Bank.If the desired reserve ratio is 5 percent,Fershur Bank's

Accepted Answer

The desired reserve ratio is the percentage of deposits that a bank must hold as reserves. In this case, the desired reserve ratio is 5 percent, so Fershur Bank must hold 5 percent of Riley's $4,000 deposit as reserves. This means that Fershur Bank's desired reserves increase by $200 (5% of $4,000).

However, the bank already has $3,800 in excess reserves (the amount of reserves held above the required reserve ratio), so the excess reserves increase by $4,000 (the full amount of Riley's deposit). Therefore, the bank's assets increase by $4,000 (the additional cash on deposit) and its liabilities (in the form of checkable deposits) also increase by $4,000.

Question 3

If the desired reserve ratio is 7 percent and a bank has $10,000 of deposits,then its desired reserves are

Accepted Answer

The desired reserves are calculated by multiplying the deposit amount by the reserve ratio: $10,000 * 0.07 = $700.

Question 4

If the Federal Reserve ________ the required reserve ratio,the interest rate ________.

Accepted Answer

When the Federal Reserve lowers the required reserve ratio, banks can lend more of their deposits, increasing the money supply and typically leading to a decrease in interest rates.

Question 5

The amount of loans that a bank can create is limited by

Accepted Answer

The amount of loans that a bank can create is limited by its excess reserves. Banks can only lend out a certain portion of the deposits they hold, and the amount they can lend is dependent on the amount of reserves they have on hand. Reserves are typically held in the form of deposits at the Federal Reserve, and the amount a bank can lend is limited by the level of excess reserves it has available.

Question 6

When Zane deposits $20,000 cash in his checkable deposit at the Citicorp and the Citicorp's desired reserves increase by $5,000,the desired reserve ratio is

Accepted Answer

The desired reserve ratio is the ratio of the bank's required reserves to its checkable deposits. We can use the formula:

Desired reserves = Required reserves / Desired reserve ratio

Let x be the desired reserve ratio.

Then, we know that:

$5,000 = $20,000 * x

Solving for x:

x = 0.25

So the desired reserve ratio is 25 percent.

Question 7

The monetary base is the

Accepted Answer

The monetary base is the sum of coins, Federal Reserve notes, and banks' reserves at the Fed. This represents the amount of money in circulation in the economy and is a key measure of the money supply.

Question 8

New money is created in the U.S.economy by

Accepted Answer

Banks create checkable deposits through the process of lending, which in turn increases the money supply in the economy. Increased federal government expenditures and the U.S. Treasury issuing or selling securities can also affect the money supply, but they do not directly create new money. The U.S. Department of Mint is responsible for producing coins, but not creating new money. The U.S. Congress has the power to authorize government spending and taxation, but they do not directly create new money.

Question 9

Assume the First Bank of Townsville makes a loan of $2,500.This loan will

Accepted Answer

When the First Bank of Townsville makes a loan of $2,500, it increases the quantity of money in circulation initially by $2,500. As a result, the money supply increases which leads to more spending and economic growth.

Question 10

If the Federal Reserve lowers the required reserve ratio,people will end up taking out ________ because the interest rates ________.

Accepted Answer

Lowering the required reserve ratio increases the amount of money banks can lend, leading to lower interest rates, which encourages people to take out more loans.

Question 11

Banks create money by

Accepted Answer

Banks create money by making loans. When banks make loans, they create new deposits for the borrower, effectively creating new money in the economy. The other choices are not accurate: banks do not print currency themselves (choice A), they cannot ask the Fed to print more currency (choice B), they do not lend to the Fed (choice C), and buying government securities does not directly create new money (choice E).

Question 12

Banks create money by

Accepted Answer

Banks create money through the process of making loans. When a bank approves a loan, it creates a new deposit in the borrower's account, which increases the total amount of deposits and therefore the money supply in the economy. This is known as the money multiplier effect. While the Federal Reserve also plays a role in money creation through its control of the money supply, banks are able to create money through their lending practices.

Question 13

When the First Bank of Townsville makes a loan,it

Accepted Answer

When the First Bank of Townsville makes a loan, it creates a checkable deposit. This means that it increases the overall supply of money in the economy, rather than decreasing it. Option A is incorrect because banks do not have the authority to print money. Option B is incorrect because the bank does not necessarily need to borrow from the Federal Reserve to make loans. Option D is incorrect because making a loan would not decrease the quantity of money. Option E is also incorrect, since making a loan would decrease the bank's reserves.

Question 14

A bank has $200 of reserves and $4,000 of deposits.It is just meeting its desired reserves and has no excess reserves.Thus the desired reserve ratio is

Accepted Answer

The answer of A bank has $200 of reserves and...

Question 15

If Federal Reserve notes and coins are $765 billion,and banks' reserves at the Fed are $8 billion,the gold stock is $11 billion,and the Fed owns $725 billion of government securities,what does the monetary base equal?

Accepted Answer

The monetary base equals the sum of Federal Reserve notes and coins in circulation ($765 billion) plus banks' reserves at the Fed ($8 billion) plus the gold stock ($11 billion) plus the Fed's holdings of government securities ($725 billion), which equals $773 billion.

Question 16

A bank reports reserves of $500,000,physical capital of $200,000,loans of $1,000,000,deposits of $1,000,000,and owners' equity of $500,000.If the desired reserve ratio is 5 percent,the bank's desired reserves are

Accepted Answer

The desired reserves can be calculated by multiplying the bank's deposits by the desired reserve ratio:
$1,000,000 x 0.05 = $50,000. Therefore, the bank's desired reserves are $50,000, which is option C.

Question 17

When a bank receives deposits,

Accepted Answer

The Federal Reserve requires banks to hold only a small percentage of deposits as reserves, known as the reserve requirement. This means that banks can use a portion of the deposits to make loans or invest in other assets. Therefore, when a bank receives deposits, its liabilities increase, but its assets also increase by the amount of the deposits.

Question 18

The process of money creation by the banking system is limited,in part,by the

Accepted Answer

The desired reserve ratio, set by the Federal Reserve, determines how much money banks must hold in reserve and how much they can lend out, thereby limiting the amount of money that can be created by the banking system. The other options listed do not have a direct impact on the process of money creation by the banking system.

Question 19

If the desired reserve ratio is 15 percent,then for every dollar that is deposited in the bank,the bank will

Accepted Answer

If the desired reserve ratio is 15 percent, then the bank will keep 15 cents as reserves for every dollar deposited. This means that they will have 85 cents left to loan out. So, option A is correct.

Question 20

Suppose the desired reserve ratio is 10 percent.If Urban Bank has total deposits of $1,000 and total assets of $10,000,the amount of desired reserves is

Accepted Answer

The desired reserve ratio is 10%, which means that the bank must hold 10% of its deposits as reserves. Therefore, the amount of desired reserves is $100 (10% of $1,000).

Quiz 18: Money and the Monetary System

Banks create money by

Riley deposits $4,000 cash in her checkable deposit at Fershur Bank.If the desired reserve ratio is 5 percent,Fershur Bank's

If the desired reserve ratio is 7 percent and a bank has $10,000 of deposits,then its desired reserves are

If the Federal Reserve the required reserve ratio,the interest rate .

The amount of loans that a bank can create is limited by

When Zane deposits $20,000 cash in his checkable deposit at the Citicorp and the Citicorp's desired reserves increase by $5,000,the desired reserve ratio is

The monetary base is the

New money is created in the U.S.economy by

Assume the First Bank of Townsville makes a loan of $2,500.This loan will

If the Federal Reserve lowers the required reserve ratio,people will end up taking out because the interest rates .

Banks create money by

Banks create money by

When the First Bank of Townsville makes a loan,it

A bank has $200 of reserves and $4,000 of deposits.It is just meeting its desired reserves and has no excess reserves.Thus the desired reserve ratio is

If Federal Reserve notes and coins are $765 billion,and banks' reserves at the Fed are $8 billion,the gold stock is $11 billion,and the Fed owns $725 billion of government securities,what does the monetary base equal?

A bank reports reserves of $500,000,physical capital of $200,000,loans of $1,000,000,deposits of $1,000,000,and owners' equity of $500,000.If the desired reserve ratio is 5 percent,the bank's desired reserves are

When a bank receives deposits,

The process of money creation by the banking system is limited,in part,by the

If the desired reserve ratio is 15 percent,then for every dollar that is deposited in the bank,the bank will

Suppose the desired reserve ratio is 10 percent.If Urban Bank has total deposits of $1,000 and total assets of $10,000,the amount of desired reserves is