QUESTION 22 Banks create money by O printing money up to their required reserve
ID: 2429042 • Letter: Q
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QUESTION 22 Banks create money by O printing money up to their required reserve limit O printing dollar bills without limit. creating deposits without limit. O making loans and creating deposits, a process that is limited by the size of banks excess reserves QUESTION 23 If the required reserve ratio is 7 percent and a bank has $10,000 of deposits, then its reserves are $930 O$7,000. $7 $700. QUESTION 24 f the bank of Waterloo receives a $10,000 deposit and the reserve requirement is 10 percent, how before the deposit this bank is just meeting its legal reserve requirement) much can the bank loan out? (Assume that $1,000 $9,000 $10,000 $11,000 QUESTION 25 lf the required reserve ratio is 10 percent, an increase in bank reserves of $1.000 can nupport an increase in checking account deposits (including the original deposit) in the banking system as a whole of up to $100 $1,000 $10,000 100,000.Explanation / Answer
22. Banks create money by making loans and creating deposits, a process that is limited by the size of bank's excess reserves. There are two main functions of bank that is to accept deposits from the public and to grant them loans. Granting loan depends on the excess reserves of the banks that is the reserves left after subtraction of banks required reserves that is based on the required reserve ratio from the total reserves of banks.
Hence, the option d is correct.
23. Bank deposits is $10,000 and the required reserve ratio that percentage of banks have to kept with the central banks is 7%, then the reserves of the banks is $700 (7% of $10,000). Hence, ther required reserves of bank is $700 and option d is correct.
24. Banks make loan of the excess reserves, so total deposits of bank is $10,000 and reserve ratio is 10% thus the required reserves are $1,000 and hence the excess reserves are $9,000.
Therefore, banks make loans of the excess reserves of $9,000 and option b is correct.
25.Increase in bank reserves is of $1,000 and the required reserves ratio is 10%, so total deposits in banking system is up to $10,000 and option c is correct. This total deposit or money supply of banks is the muliplication of bank reserves and the money multiplier. Money multiplier is the reciprocal of required reserves ratio of the banks.
In this case, money multiplier is 10 and bank reserves are $1,000 and thus the total deposits of banks is $10,000 ($1,000 mulitply by 10) and option c is correct.
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