1. A bank\'s capital is: a. the value of all its assets, including loans. b. the

Question

1. A bank's capital is:
a. the value of all its assets, including loans.
b. the value of all its assets, excluding loans.
c. the value of its physical plant, including buildings, computers,and automatic teller
machines.
d. the difference between its assets and liabilities.

2. Loans are:
a. assets of banks, liabilities of borrowers.
b. liabilities of banks, assets of borrowers.
c. assets of banks and their borrowers.
d. liabilities of banks and their borrowers.

3. M2 equals M1 plus:
a. federal reserve.
b. fixed assets.
c. near moneys.
d. currency in circulation.

4. If a bank had demand deposits of $80 million and it faced a 25percent required reserve ratio, it would be able to have a maximumamount of how many dollars worth of loans?
a. $20 million
b. $40 million
c. $60 million
d. $80 million

5. In defining the M1 money supply, economists exclude savingsdeposits on the grounds that:
a. the purchasing power of savings deposits is much less stablethan that of checkable
deposits and currency.
b. savings deposits are a form of investment and thus a betterstore of value than M1 money.
c. savings deposits are liabilities of commercial banks, whereascheckable deposits are assets
of the banks.
d. savings deposits are not generally used as a means ofpayment.

6. Suppose all banks are subject to a uniform reserve requirementof 20 percent and that the Gamblers Last Chance Bank of Las Vegashas zero excess reserves. If a new customer deposits $10,000, thebank can now extend new loans up to a maximum of:
a. $2,000.
b. $8,000.
c. $10,000.
d. $50,000.
e. $200,000.

Explanation / Answer

1. A - Loans will be paid back, thus are assets. 2. A - They will be paid from borrowers to banks3. B -Everything else is just M3 or already in M1 4. C - (1-.25)(80,000,000) = 60,000,000 5. B - Because it is 6. D - $10,000 is 20% of $50,000

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