Question 1

Suppose you deposit $1,000 cash in your checking account at a bank. If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is
A) $100.
B) $900.
C) $1,000.
D) $10,000.

Accepted Answer

The required reserve ratio is 10%, which means that the bank must keep 10% of the deposit ($100) as reserves and can lend out the remaining 90% ($900). Therefore, the maximum amount the bank can lend after the deposit is $900.

Question 2

Suppose the required reserve ratio is 10%. Mr. Normal uses his ATM card to withdraw $1,000 from this checking account in California National Bank. This action has
A) increased the M1 measure of money supply by $1,000.
B) reduced the bank's required reserves by $1,000.
C) increased the M2 measure of money supply by $1,000.
D) not changed the M1 or M2 measures of money supply.

Accepted Answer

Withdrawing money from a bank account does not change the total money supply (M1 or M2); it merely shifts money from one form (deposits) to another (currency in circulation).

Question 3

Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All figures in $ million)
 
-Refer to Table 9-3. If the required reserve ratio is 10% and the market interest rate is 6%, then the opportunity cost of holding excess reserves is
A) zero since Alpha-Beta does not hold any excess reserves.
B) $0.9 million.
C) $2.4 million.
D) $4 million.

Accepted Answer

The answer of Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All...

Question 4

Any reserves that banks hold in excess of required reserves are called
A) excess reserves.
B) margin reserves.
C) federal reserves.
D) surplus reserves.

Accepted Answer

Any reserves that banks hold in excess of required reserves are called excess reserves.

Question 5

Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All figures in $ million)
 
-Refer to Table 9-3. What is the value of the bank's total reserves?
A) $25 million
B) $75 million
C) $100 million
D) $200 million

Accepted Answer

The answer of Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All...

Question 6

Table 9-4
Acme Bank: Partial Balance Sheet
(All figures in $ million)
 
-Refer to Table 9-4. Assume Acme Bank initially has no excess reserves. If Guevara withdraws $6,000 from her checking account at Acme Bank, which of the following will occur?
A) Acme's excess reserves are reduced by $6,000.
B) Acme will have excess reserves of $2,000.
C) Acme will have a required reserve deficiency of $3,000.
D) Acme will have a required reserve deficiency of $5, 400.

Accepted Answer

The answer of Table 9-4
Acme Bank: Partial Balance Sheet
(All figures...

Question 7

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create?
A) $0
B) $10,000
C) $20,000
D) $30,000

Accepted Answer

With a required reserve ratio of 20%, the bank must keep $20,000 (20% of $100,000) in reserves. Since it has $30,000 in reserves, it can lend out the excess $10,000.

Question 8

Table 9-4
Acme Bank: Partial Balance Sheet
(All figures in $ million)
 
-Refer to Table 9-4. If Acme Bank has no excess reserves, the required reserve ratio is
A) 26.67%
B) 16%
C) 10%
D) There is insufficient information to answer question.

Accepted Answer

The required reserve ratio can be calculated using the formula:
Required Reserve Ratio = Required Reserves / Total Deposits
Given that Acme Bank has no excess reserves, its required reserves will be equal to its deposits, which is $750 million. Therefore, the required reserve ratio will be:
Required Reserve Ratio = $750 million / $7,500 million = 0.1 or 10% (Option C).

Question 9

Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All figures in $ million)
 
-Refer to Table 9-3. If the required reserve ratio is 10%, what is the maximum amount of new loans that Alpha-Beta can create?
A) $25 million
B) $40 million
C) $60 million
D) $75 million

Accepted Answer

The answer of Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All...

Question 10

Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All figures in $ million)
 
-Refer to Table 9-3. What is the value of the bank's net worth?
A) $200 million
B) $2,000 million
C) $2,800 million
D) $3,000 million

Accepted Answer

The answer of Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All...

Question 11

Linda sells her Economics textbook to Ejere for $40. Ejere pays Linda with a check, which she deposits in her checking account in West Bank. Which statement below describes the check-clearing process?
A) Linda's bank gains $40 in checkable deposits and loses $40 in reserves. Ejere's bank gains $40 in reserves and loses $40 in deposits.
B) Linda's bank loses $40 in checkable deposits and gains $40 in reserves. Ejere's bank gains $40 in checkable deposits and loses $10,000 in reserves.
C) Ejere's bank loses $40 in both reserves and checkable deposits. Linda's bank gains $40 in both checkable deposits and reserves.
D) Ejere's bank loses $40 in reserves and gains $10,000 in checkable deposits. Linda's bank loses $40 in both reserves and checkable deposits.

Accepted Answer

Ejere's bank loses $40 in both reserves and checkable deposits because the check is drawn from Ejere's account, reducing his balance and the bank's reserves. Linda's bank gains $40 in both checkable deposits and reserves when the check is deposited and cleared, increasing her balance and the bank's reserves.

Question 12

A bank is "loaned up" when
A) legal reserves are zero.
B) excess reserves are zero.
C) primary reserves are zero.
D) required reserves are zero.

Accepted Answer

A bank is "loaned up" when it has lent out all of its excess reserves, meaning there are no more excess reserves left to lend out. This does not necessarily mean the legal, primary, or required reserves are zero.

Question 13

Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All figures in $ million)
 
-Refer to Table 9-3. If the required reserve ratio is 10%, what is the amount of excess reserves held by Alpha-Beta Bank?
A) $25 million
B) $40 million
C) $60 million
D) $75 million

Accepted Answer

The answer of Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All...

Question 14

The quantity of reserves that banks must hold against deposits is called
A) the reserve ratio.
B) excess reserves.
C) total reserves.
D) required reserves.

Accepted Answer

Required reserves are the reserves that banks are required to hold against deposits as per the regulations set by the central bank. The reserve ratio is the percentage of deposits that banks are required to hold as reserves, excess reserves are reserves held in excess of the required reserves, and total reserves are the sum of required and excess reserves. Therefore, the best choice is D, because it specifically refers to the reserves banks are required to hold.

Question 15

When banks hold more reserves than are required, such reserves are called
A) total reserves.
B) required reserves.
C) excess reserves.
D) loan reserves.

Accepted Answer

When banks hold more reserves than are required by law, these are referred to as excess reserves.

Question 16

A bank that has no excess reserves
A) cannot create loans.
B) is not in equilibrium.
C) is on the brink of bankruptcy.
D) has no required reserves.

Accepted Answer

A bank with no excess reserves cannot create loans because creating a loan requires reserves to be held against the loan. If a bank has no excess reserves, all of its reserves are required reserves that cannot be used to create loans.

Question 17

Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All figures in $ million)
 
-Refer to Table 9-3. If the required reserve ratio is 10%, what is the value of the bank's required reserves?
A) $25 million
B) $40 million
C) $60 million
D) $75 million

Accepted Answer

The answer of Table 9-3
Balance Sheet of the Alpha-Beta Bank
(All...

Question 18

Nita deposits a check for $750 drawn against Home Federal Bank into her account at Village Bank. Which pair of the T-accounts below shows this transaction on the respective bank's balance sheets?
A) 
B) 
C) 
D)

Accepted Answer

The answer of Nita deposits a check for $750 drawn...

Question 19

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of required reserves?
A) $0
B) $10,000
C) $20,000
D) $30,000

Accepted Answer

The amount of required reserves can be calculated by multiplying checkable deposits by the required reserve ratio. In this case, 10% of $100,000 is $10,000. Since the bank already has $30,000 in reserves, it has $20,000 in excess reserves ($30,000 - $10,000). Therefore, the correct answer is B.

Question 20

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of excess reserves?
A) $0
B) $10,000
C) $20,000
D) $30,000

Accepted Answer

The required reserve ratio is 10% which means that the bank is required to keep 10% of its checkable deposits in reserves. Therefore, the required reserves for the bank are $100,000 x 0.10 = $10,000. Since the bank has $30,000 in reserves, the excess reserves would be $30,000 - $10,000 = $20,000. Therefore, the correct answer is (C) $20,000 as this is the amount of excess reserves the bank has.

Quiz 24: The Aggregate Demandaggregate Supply Model

Suppose you deposit $1,000 cash in your checking account at a bank. If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is

Suppose the required reserve ratio is 10%. Mr. Normal uses his ATM card to withdraw $1,000 from this checking account in California National Bank. This action has

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. If the required reserve ratio is 10% and the market interest rate is 6%, then the opportunity cost of holding excess reserves is

Any reserves that banks hold in excess of required reserves are called

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. What is the value of the bank's total reserves?

Table 9-4 Acme Bank: Partial Balance Sheet (All figures in $ million) -Refer to Table 9-4. Assume Acme Bank initially has no excess reserves. If Guevara withdraws $6,000 from her checking account at Acme Bank, which of the following will occur?

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 20%, what is the maximum amount of loans this bank can create?

Table 9-4 Acme Bank: Partial Balance Sheet (All figures in $ million) -Refer to Table 9-4. If Acme Bank has no excess reserves, the required reserve ratio is

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. If the required reserve ratio is 10%, what is the maximum amount of new loans that Alpha-Beta can create?

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. What is the value of the bank's net worth?

Linda sells her Economics textbook to Ejere for $40. Ejere pays Linda with a check, which she deposits in her checking account in West Bank. Which statement below describes the check-clearing process?

A bank is "loaned up" when

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. If the required reserve ratio is 10%, what is the amount of excess reserves held by Alpha-Beta Bank?

The quantity of reserves that banks must hold against deposits is called

When banks hold more reserves than are required, such reserves are called

A bank that has no excess reserves

Table 9-3 Balance Sheet of the Alpha-Beta Bank (All figures in $ million) -Refer to Table 9-3. If the required reserve ratio is 10%, what is the value of the bank's required reserves?

Nita deposits a check for $750 drawn against Home Federal Bank into her account at Village Bank. Which pair of the T-accounts below shows this transaction on the respective bank's balance sheets?

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of required reserves?

A bank has $100,000 in checkable deposits and $30,000 in reserves. If the required reserve ratio is 10%, what is the amount of excess reserves?