Question 1

The following balance sheet is for the First National Bank.Assume the reserve ratio is 15 percent. 
Refer to the above data.This bank can make new loans of up to:

Accepted Answer

To calculate the maximum new loans that the bank can make, we need to first calculate the excess reserves, which is the actual reserves minus the required reserves. Required reserves can be found by multiplying the total deposits by the reserve ratio (15% in this case).

Required reserves = 0.15 x $220,000 = $33,000

Actual reserves = $55,000
Excess reserves = $55,000 - $33,000 = $22,000

The maximum new loans that the bank can make is equal to the excess reserves multiplied by the money multiplier. The money multiplier is equal to 1/reserve ratio.

Money multiplier = 1/0.15 = 6.67

Maximum new loans = $22,000 x 6.67 = $146,140

However, we must also take into account any existing loans already made by the bank. From the balance sheet, we can see that existing loans are $114,000.

Therefore, the maximum new loans the bank can make is:

$146,140 - $114,000 = $32,140

Which is closest to answer choice D of $32,000.

Question 2

The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent.
 
-Refer to the above information.After the transaction described in the previous question is completed,the bank will now have excess reserves of:

Accepted Answer

Excess reserves are calculated by subtracting required reserves from total reserves. If the bank has no excess reserves after the transaction, it means all reserves are required.

Question 3

Banks create money when they:

Accepted Answer

Banks create money when they buy government bonds from households. When banks buy government bonds from households, they do not pay for them with cash. Instead, they simply increase the deposit balance of the household seller. This creates new money in the economy, as the bank has effectively created a new deposit that didn't exist before. The other choices (A, B, and C) do not create new money in the same way that buying government bonds does.

Question 4

The following is a consolidated balance sheet for the chartered banking system.All figures are in billions.Assume that the desired reserve ratio is 20 percent.
 
-Refer to the above information.The maximum amount by which this chartered banking system can expand the supply of money by lending is:

Accepted Answer

The answer of The following is a consolidated balance sheet...

Question 5

When chartered banks use excess reserves to buy government securities from the public:

Accepted Answer

When chartered banks use excess reserves to buy government securities from the public, new money is created because the banks are essentially "printing" money to purchase the securities. This increases the money supply and leads to a corresponding increase in chartered bank reserves. It does not cause demand deposits to decline, as the new money created can be deposited into banks, increasing demand deposits.

Question 6

Banks create money when they:

Accepted Answer

Banks create money by exchanging demand deposits for the IOUs of businesses and individuals. When a bank receives a deposit from a customer, it credits the customer's account with the deposit amount. The bank can then use those funds to extend loans or purchase assets. The creation of a deposit increases the money supply in the economy.

Question 7

When a chartered bank has "excess reserves":

Accepted Answer

Excess reserves refer to the amount of actual reserves that a bank holds in excess of its required reserves. This means that the bank has the ability to make additional loans, as it has more funds available than it is required to hold in reserve.

Question 8

The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent.
 
-Refer to the above information.This chartered bank has excess reserves of:

Accepted Answer

The answer of The following balance sheet shows the assets...

Question 9

A single chartered bank has a desired reserve ratio of 25 percent.If the bank has no excess reserves initially and $5,000 cash is deposited in the bank,it can increase its loans by a maximum of:

Accepted Answer

The maximum increase in loans is equal to the excess reserves that the bank can create, which is calculated as follows:
Initial reserves = $0
Deposits = $5,000
Desired reserve ratio = 25%
Required reserves = Desired reserve ratio x Deposits = 0.25 x $5,000 = $1,250
Excess reserves = Deposits - Required reserves = $5,000 - $1,250 = $3,750
Therefore, the bank can increase its loans by a maximum of $3,750.

Question 10

The relative importance of various asset items on a chartered bank's balance sheet reflects a bank's pursuit of which two conflicting goals?

Accepted Answer

The relative importance of various asset items on a chartered bank's balance sheet reflects a bank's pursuit of liquidity and profits. Liquidity is important because banks need to have enough cash on hand to meet withdrawals and other demands from customers. At the same time, they also want to make money by earning interest on loans and investments. Therefore, banks need to strike a balance between holding enough liquid assets and investing in higher-yielding, but less liquid, assets. This creates a conflict between the pursuit of liquidity and profits.

Question 11

A chartered bank sells a $10,000 government securities to a securities dealer.The dealer pays for the bond in cash,which the bank adds to its vault cash.As the result of this single transaction the money supply has:

Accepted Answer

When the chartered bank sells the government securities to the securities dealer, it receives cash in return. This cash is added to the bank's vault cash, but it is not considered a part of the money supply since it is not available for use by individuals or businesses. Therefore, the money supply decreases by the amount of the government securities sold, which in this case is $10,000.

Question 12

The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent.
 
-Refer to the above information.This bank can safely expand its loans by a maximum of:

Accepted Answer

The answer of The following balance sheet shows the assets...

Question 13

Refer to the information below.When the desired reserve ratio is 10 percent,the money creating potential of this single bank is:

Accepted Answer

The answer of Refer to the information below.When the desired...

Question 14

The following is a consolidated balance sheet for the chartered banking system.All figures are in billions.Assume that the desired reserve ratio is 20 percent.
 
-Refer to the above information.The amount of excess reserves is:

Accepted Answer

The answer of The following is a consolidated balance sheet...

Question 15

Chartered banks create money when they:

Accepted Answer

Chartered banks create money by creating demand deposits in exchange for IOUs, such as loans or mortgages. This is also known as fractional reserve banking, where banks keep only a fraction of deposits on hand and lend out the rest, effectively creating new money in the economy. Accepting cash deposits or purchasing government securities do not directly create new money. Raising interest rates may influence the amount of money in circulation but does not directly create money.

Question 16

The amount that a chartered bank can lend is determined by its:

Accepted Answer

The amount that a chartered bank can lend is determined by its excess reserves, which are the reserves held by a bank in excess of the required reserve ratio set by the central bank. These excess reserves can be used to make loans and generate interest income. Desired reserves, outstanding loans, and outstanding demand deposits are important for determining a bank's liquidity and solvency, but they do not directly determine the amount that a bank can lend.

Question 17

A chartered bank that is temporarily short in the level of reserves it wishes to hold will borrow from another chartered bank:

Accepted Answer

Banks typically borrow from one another overnight to meet their reserve requirements. This allows them to quickly adjust their reserve levels without committing to a longer-term borrowing arrangement. Borrowing for longer periods, such as over a week, a month, or six months, would require more planning and a clear need for the funds.

Question 18

Assume that Johnson deposits $350 of his currency in his account in the XYZ bank.Later the same day Swanson negotiates a loan for $2,000 at the same bank.In what direction and by what amount has this single transaction changed the supply of money?

Accepted Answer

The supply of money has increased by $2,000 due to Swanson's loan, as this creates new money in the form of credit extended to him by the bank. Johnson's deposit does not affect the supply of money as it merely moves existing currency from one account to another. Therefore, the correct answer is B.

Question 19

A bank is in the position to make loans when desired reserve:

Accepted Answer

The answer of A bank is in the position to...

Question 20

The following is a consolidated balance sheet for the chartered banking system.All figures are in billions.Assume that the desired reserve ratio is 20 percent.
 
-Refer to the above information.If there is a deposit of $10 billion of new currency into chequing accounts in the banking system,excess reserves will increase by:

Accepted Answer

The answer of The following is a consolidated balance sheet...

Quiz 14: Money, Banking, and Money Creation

The following balance sheet is for the First National Bank.Assume the reserve ratio is 15 percent. Refer to the above data.This bank can make new loans of up to:

The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent. -Refer to the above information.After the transaction described in the previous question is completed,the bank will now have excess reserves of:

Banks create money when they:

The following is a consolidated balance sheet for the chartered banking system.All figures are in billions.Assume that the desired reserve ratio is 20 percent. -Refer to the above information.The maximum amount by which this chartered banking system can expand the supply of money by lending is:

When chartered banks use excess reserves to buy government securities from the public:

Banks create money when they:

When a chartered bank has "excess reserves":

The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent. -Refer to the above information.This chartered bank has excess reserves of:

A single chartered bank has a desired reserve ratio of 25 percent.If the bank has no excess reserves initially and $5,000 cash is deposited in the bank,it can increase its loans by a maximum of:

The relative importance of various asset items on a chartered bank's balance sheet reflects a bank's pursuit of which two conflicting goals?

A chartered bank sells a $10,000 government securities to a securities dealer.The dealer pays for the bond in cash,which the bank adds to its vault cash.As the result of this single transaction the money supply has:

The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent. -Refer to the above information.This bank can safely expand its loans by a maximum of:

Refer to the information below.When the desired reserve ratio is 10 percent,the money creating potential of this single bank is:

The following is a consolidated balance sheet for the chartered banking system.All figures are in billions.Assume that the desired reserve ratio is 20 percent. -Refer to the above information.The amount of excess reserves is:

Chartered banks create money when they:

The amount that a chartered bank can lend is determined by its:

A chartered bank that is temporarily short in the level of reserves it wishes to hold will borrow from another chartered bank:

Assume that Johnson deposits $350 of his currency in his account in the XYZ bank.Later the same day Swanson negotiates a loan for $2,000 at the same bank.In what direction and by what amount has this single transaction changed the supply of money?

A bank is in the position to make loans when desired reserve: