Question 1

Assume we have a simplified banking system in balance-sheet equilibrium. Also assume that all banks are subject to a uniform 10 percent reserve requirement and checkable deposits are the only form of money. A commercial bank receiving a new checkable deposit of $100 would be able to extend new loans in the amount of:

Accepted Answer

The bank is required to hold 10% of the new deposit ($10) in reserves and can lend out the rest ($90). This is because of the 10% reserve requirement. The bank cannot lend out the entire new deposit of $100 because it must hold the required amount of reserves. Therefore, the correct answer is B.

Question 2

Exhibit 15-4 Balance sheet of Tucker National Bank

The required reserve ratio in Exhibit 15-4 is:

Accepted Answer

The answer of Exhibit 15-4 Balance sheet of Tucker National...

Question 3

Exhibit 15-4 Balance sheet of Tucker National Bank

In Exhibit 15-4, the bank could make:

Accepted Answer

The bank has $16,000 in excess reserves, which means it has the potential to make $16,000 in new loans. The excess reserves are calculated by subtracting required reserves ($4,000) from total reserves ($20,000) which gives $16,000. This is the maximum amount of new loans the bank can make without acquiring additional funds. Therefore, the correct answer is C.

Question 4

A bank that has $10,000 in excess reserves can extend new loans up to a maximum of:

Accepted Answer

Excess reserves are the funds that a bank has beyond the required reserves. These are available for lending. Therefore, if a bank has $10,000 in excess reserves, it can extend new loans up to a maximum of $10,000.

Question 5

Suppose a bank has checkable deposits of $100,000 and the required reserve ratio is 20 percent. If the bank currently has $100,000 in reserves, it could lend out as much as:

Accepted Answer

The bank is required to keep 20% of $100,000 in reserves, which is $20,000. Since the bank has $100,000 in reserves, it can lend out the excess reserves, which is $100,000 - $20,000 = $80,000.

Question 6

Best National Bank operates with a 20 percent required reserve ratio. One day a depositor withdraws $500 from his or her checking account at this bank. As a result, the bank's excess reserves:

Accepted Answer

With a 20 percent required reserve ratio, the bank must keep $100 of the $500 as required reserves (20% of $500). The remaining $400 would have been part of the bank's excess reserves. When the depositor withdraws $500, the bank loses that amount in reserves entirely, impacting its excess reserves directly. Therefore, the bank's excess reserves fall by the full amount withdrawn, $500, not just the portion beyond the required reserves.

Question 7

Jeff Kaufman decides to bank with Paris First National Bank (PFN). He opens a checking account by depositing $1,000. According to the PFN balance sheet, after this initial $1,000 checkable deposit, there are $1,000 in:

Accepted Answer

When Jeff deposits $1,000 into his checking account at Paris First National Bank, the bank records this as $1,000 in reserves (an asset for the bank) and $1,000 in checkable deposits (a liability for the bank), reflecting the bank's obligation to Jeff.

Question 8

Exhibit 15-4 Balance sheet of Tucker National Bank

Suppose Connie Rich deposits $500 in the bank in Exhibit 15-4. The result would be that the bank must increase its required reserves to:

Accepted Answer

The answer of Exhibit 15-4 Balance sheet of Tucker National...

Question 9

If a single bank faces a required reserve ratio of 20 percent, has total reserves of $500,000, and checkable deposits of $400,000, the maximum amount of money this bankcould increase the money supply is

Accepted Answer

The answer of If a single bank faces a required...

Question 10

A bank creates money when it:

Accepted Answer

When a bank makes a loan from its excess reserves, it effectively creates new money. This is because the loan increases the money supply by adding to the total amount of deposits in the banking system, without immediately reducing the cash holdings of any other economic entity.

Question 11

Assume a simplified banking system in which all banks are subject to a uniform reserve requirement of 20 percent and checkable deposits are the only from of money. A bank that received a new checkable deposit of $10,000 would be able to extend new loans up to a maximum of:

Accepted Answer

With a reserve requirement of 20%, the bank must keep 20% of the deposit ($2,000) in reserve and can loan out the remaining 80%, which is $8,000.

Question 12

If Matt Taylor gets his $800 loan from the Paris First National Bank in cash rather than in the form of a new checkable deposit, the:

Accepted Answer

When Matt Taylor gets his loan in cash, there is no change in the bank's reserves. Reserves only increase when banks receive deposits, not when they give out cash. Therefore, option B is correct. Option A is incorrect because there is no increase in reserves. Option C is incorrect because the bank's assets do not increase when they give out cash. Option D is incorrect because there is no reason for the bank's assets to decrease.

Question 13

Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is 10 percent. If it accepts a $1,000 cash deposit, then, excluding the $1,000 initial deposit, the banking system can increase the money supply by:

Accepted Answer

With a required reserve ratio of 10 percent, Odyssey National must keep $100 of the $1,000 deposit in reserve but can lend out $900. The $900 can then be deposited in another bank, which can lend out 90% of that, and so on. This process continues, creating a multiplier effect. The total increase in the money supply, excluding the initial $1,000 deposit, is calculated using the money multiplier formula (1/reserve ratio), which in this case is 1/0.1 = 10. Thus, the banking system can increase the money supply by $1,000 * 9 = $9,000, excluding the initial deposit.

Question 14

A bank currently has checkable deposits of $100,000, total reserves of $30,000, and loans of $70,000. If the required reserve ratio is lowered from 20 percent to 15 percent, this bank can increase its loans by:

Accepted Answer

Currently, the bank is holding $20,000 (20% of $100,000) in required reserves, leaving them with $10,000 in excess reserves.
If the reserve ratio is lowered to 15%, the new required reserves would be $15,000 (15% of $100,000). The bank already has $30,000 in reserves, so they can decrease their reserves by $5,000 to meet the new requirement.
This leaves them with $15,000 in required reserves and $15,000 in excess reserves ($30,000 total reserves - $15,000 required reserves = $15,000 excess reserves).
Since the bank can now hold more excess reserves, they can increase their loans by the amount of the excess reserves, which is $15,000.
Therefore, the correct answer is B) $15,000.

Question 15

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is:

Accepted Answer

The maximum amount of checkable deposits a bank can have is determined by dividing its actual reserves by the reserve requirement ratio. With actual reserves of $40,000 and a 20 percent reserve requirement, the calculation is $40,000 / 0.20 = $200,000.

Question 16

Which of the following is the money multiplier?

Accepted Answer

The money multiplier is calculated as 1/(required reserve ratio), which indicates how much the money supply can increase based on the initial deposit and the reserve ratio.

Question 17

If banks have no excess reserves, and the required reserve ratio is raised, the amount that banks can lend is:

Accepted Answer

If banks have no excess reserves and the required reserve ratio is raised, banks will need to hold a larger proportion of their deposits as reserves, leaving them with less to lend out. This will lead to a reduction in the amount that banks can lend out, and ultimately a contraction of the money supply.

Question 18

If your bank faces a 20 percent required reserve ratio and receives a cash deposit of $4,000 into a checkable deposit account, the maximum total amount of money possible after the banking system makes all loans is:

Accepted Answer

The maximum total amount of money created is determined by the money multiplier, which is 1 divided by the reserve ratio (1/0.20 = 5). The initial deposit of $4,000 can lead to a total money creation of $4,000 * 5 = $20,000.

Question 19

Suppose the required reserve ratio is 3 percent, and currency and reserves total $10 million. The maximum change in the money supply that can be supported is:

Accepted Answer

The maximum change in the money supply is determined by the money multiplier formula, which is 1/required reserve ratio. With a 3 percent reserve ratio, the multiplier is 1/0.03 = 33.33. Therefore, the maximum change in the money supply is $10 million * 33.33 = $333.3 million.

Question 20

Exhibit 15-2 Balance Sheet of Springfield National Bank

In Exhibit 15-2, if Springfield National's customers write checks for $200 and the required reserve ratio is 20 percent, then its required reserves fall to:

Accepted Answer

The required reserve ratio is 20 percent, so for every $100 of deposits, the bank is required to hold $20 in reserve. If customers write checks for $200, the bank's deposits decrease by $200, and the required reserves decrease by 20 percent of $200, or $40. Therefore, the new required reserves would be $160.

Quiz 25: Money Creation

Exhibit 15-4 Balance sheet of Tucker National Bank The required reserve ratio in Exhibit 15-4 is:

Exhibit 15-4 Balance sheet of Tucker National Bank In Exhibit 15-4, the bank could make:

A bank that has $10,000 in excess reserves can extend new loans up to a maximum of:

Suppose a bank has checkable deposits of $100,000 and the required reserve ratio is 20 percent. If the bank currently has $100,000 in reserves, it could lend out as much as:

Best National Bank operates with a 20 percent required reserve ratio. One day a depositor withdraws $500 from his or her checking account at this bank. As a result, the bank's excess reserves:

Jeff Kaufman decides to bank with Paris First National Bank (PFN) . He opens a checking account by depositing $1,000. According to the PFN balance sheet, after this initial $1,000 checkable deposit, there are $1,000 in:

Exhibit 15-4 Balance sheet of Tucker National Bank Suppose Connie Rich deposits $500 in the bank in Exhibit 15-4. The result would be that the bank must increase its required reserves to:

If a single bank faces a required reserve ratio of 20 percent, has total reserves of $500,000, and checkable deposits of $400,000, the maximum amount of money this bankcould increase the money supply is

A bank creates money when it:

Assume a simplified banking system in which all banks are subject to a uniform reserve requirement of 20 percent and checkable deposits are the only from of money. A bank that received a new checkable deposit of $10,000 would be able to extend new loans up to a maximum of:

If Matt Taylor gets his $800 loan from the Paris First National Bank in cash rather than in the form of a new checkable deposit, the:

Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is 10 percent. If it accepts a $1,000 cash deposit, then, excluding the $1,000 initial deposit, the banking system can increase the money supply by:

A bank currently has checkable deposits of $100,000, total reserves of $30,000, and loans of $70,000. If the required reserve ratio is lowered from 20 percent to 15 percent, this bank can increase its loans by:

If a bank has actual reserves of $40,000 and a 20 percent reserve requirement, then the maximum amount of checkable deposits the bank can have if excess reserves are zero is:

Which of the following is the money multiplier?

If banks have no excess reserves, and the required reserve ratio is raised, the amount that banks can lend is:

If your bank faces a 20 percent required reserve ratio and receives a cash deposit of $4,000 into a checkable deposit account, the maximum total amount of money possible after the banking system makes all loans is:

Suppose the required reserve ratio is 3 percent, and currency and reserves total $10 million. The maximum change in the money supply that can be supported is:

Exhibit 15-2 Balance Sheet of Springfield National Bank In Exhibit 15-2, if Springfield National's customers write checks for $200 and the required reserve ratio is 20 percent, then its required reserves fall to: