When people withdraw money from their deposits in the banking system, the: A) Ex

Question

When people withdraw money from their deposits in the banking system, the: A) Excess reserves of the banking system will decrease
B) Excess reserves of the banking system will increase
C) Excess reserves of the banking system will not be affected
D) Money supply will immediately decrease
2. The federal funds rate is the interest rate that the Fed charges banks for its loans to them. A) TRUE
B) FALSE
3. Henry Trudeau deposits $2,000 in currency in the First Street Bank. Later that same day Jane Harris negotiates a loan for $5,400 at the same bank. After these transactions, the supply of money has: A) Increased by $2,100
B) Increased by $3,300
C) Increased by $5,400
D) Decreased by $3,300
4. Cash held by a bank in its vault is a part of the bank's: A) Reserves
B) Liabilities
C) Money supply
D) Net worth
5. When required reserves exceed actual reserves, commercial banks will be forced to have borrowers: A) Use credit cards
B) Withdraw some of their deposits
C) Repay loans
D) Take out more loans
6. The establishment of a Federal deposit insurance program resulted from the: A) Establishment of the Federal Reserve System in 1913
B) Speculation during World War I
C) Stock market crash of 1987
D) Bank panics of 1930-1933
7. The monetary multiplier can also be called the spending multiplier. A) TRUE
B) FALSE
8. A bank's required reserves can be calculated by: A) Dividing its excess reserves by its required reserves
B) Dividing its required reserves by its excess reserves
C) Multiplying its checkable-deposit liabilities by the reserve ratio
D) Multiplying its checkable-deposit liabilities by its excess reserves
9. A bank can get additional excess reserves by doing any of the following, except: A) Borrowing from other banks
B) Buying Treasury securities from the Fed
C) Receiving additional deposits
D) Borrowing from the Fed
10. If the monetary multiplier is 6, then the reserve ratio must be: A) 1.67
B) 0.6
C) 0.167
D) 0.06
11. The commercial banking system has excess reserves of $200,000. Then new loans of $800,000 are subsequently made, and the system ends up just meeting its reserve requirements. The required reserve ratio must be: A) 10 percent
B) 20 percent
C) 25 percent
D) 30 percent
12. Maximum checkable-deposit expansion in the banking system is equal to: A) Actual reserves minus required reserves
B) Assets plus net worth and liabilities
C) Excess reserves times the monetary multiplier
D) Excess reserves divided by the monetary multiplier
13. The multiple by which the commercial banking system can expand the supply of money is equal to: A) The ratio of actual reserves to required reserves
B) The reciprocal of the federal funds rate
C) The reciprocal of the reserve ratio
D) The ratio of required reserves to actual reserves
14. In an unregulated environment, the commercial banking system would tend to vary the supply of money in a way that: A) Increased the money supply to the maximum at all times
B) Decreased the money supply to the minimum at all times
C) Emphasized the use of currency over demand deposits
D) Reinforced cyclical variations in the economy
15. Money supply M1 includes a component that is part of a bank's: A) Assets
B) Reserves
C) Liabilities
D) Net worth
16. While the withdrawal of deposits from banks does not affect money supply immediately, it will affect the banks' lending capacity which will eventually lead to a contraction in money supply. A) TRUE
B) FALSE
17. A check for $10,000 drawn on Bank A and deposited at Bank B will increase the excess reserves in Bank B by $10,000. A) TRUE
B) FALSE
18. When a bank sells capital stock (equity shares) in return for cash: A) The capital stock is an asset and the cash is a liability
B) The capital stock is a liability and the cash is an asset
C) The capital stock represents the net worth of the bank and the cash is a liability
D) The capital stock represents the net worth of the bank and the cash is an asset
19. A commercial bank sells a $10,000 government bond to a securities dealer. The dealer pays for the bond in cash, which the bank adds to its vault cash. The money supply has: A) Decreased by $10,000 multiplied by the reciprocal of the required reserve ratio
B) Decreased by $10,000
C) Increased by $10,000
D) Not been affected
20. An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by: A) $11,000
B) $10,800
C) $9,600
D) $6,000
21. A bank has reserves of $30,000 and deposits of $120,000. If the reserve ratio is 10%, then this bank can lend out a maximum of $12,000 in new loans. A) TRUE
B) FALSE
22. Suppose that the reserve ratio is 6%, and applies only to checkable deposits. A bank has non-checkable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million. What are the excess reserves of this bank? A) $5.6 million
B) $6 million
C) $2 million
D) $2.4 million
23. If banks borrow from the Fed, the banking system's reserves will increase, but if banks borrow from one another, the system's reserves will not change. A) TRUE
B) FALSE
24. A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank. The reserve ratio is 10%. The bank then lends $1,500 to a borrower. As a consequence of these transactions the bank's excess reserves are: A) Not affected
B) Increased by $200
C) Increased by $300
D) Increased by $500
25. If the required reserve ratio is 20 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the effective monetary multiplier for the banking system will be: A) 3
B) 4
C) 5
D) 6
26. If a bank has excess reserves of $100,000, then it can lend out only up to $100,000; but if the banking system has excess reserves of $100,000, then the system can make additional loans totaling more than $100,000. A) TRUE
B) FALSE
27. The fact that reserves lost by any particular bank will be gained by some other bank explains why the commercial banking system: A) Has been able to reduce the vulnerability of banks to "runs" or "panics."
B) Can increase its demand deposits by a multiple of its excess reserves.
C) Cannot increase its demand deposits by a multiple of its excess reserves.
D) Has been based on the fractional reserve system of banking.
28. Which of the following factors contributed to a further reduction in the money supply in addition to the withdrawal of currency from banks during the 1930-1933 bank panic? A) Bank purchases of government bonds to meet liquidity demands
B) Bank sales of government bonds to meet liquidity demands
C) An increase in the required reserve ratio
D) A decrease in the required reserve ratio
29. If one bank borrows reserves overnight from another bank, the interest on the loan is called the federal funds rate. A) TRUE
B) FALSE
30. A depositor places $5,000 in cash in a commercial bank, and the reserve ratio is 20 percent; the bank sends the $5,000 to the Federal Reserve Bank. As a result, the reserves andexcess reserves of the bank have been increased, respectively, by: A) $5,000 and $1,000
B) $5,000 and $4,000
C) $5,000 and $5,000
D) $4,000 and $4,000

Explanation / Answer

4. Cash held by a bank in its vault is a part of the bank's: A) Reserves

4. Cash held by a bank in its vault is a part of the bank's: A) Reserves

Cash held by a bank in its vault is a part of the bank's: 5. When required reserves exceed actual reserves, commercial banks will be forced to have borrowers:
C) Repay loans

5. When required reserves exceed actual reserves, commercial banks will be forced to have borrowers:
C) Repay loans

When required reserves exceed actual reserves, commercial banks will be forced to have borrowers: 6. The establishment of a Federal deposit insurance program resulted from the: A) Establishment of the Federal Reserve System in 1913

6. The establishment of a Federal deposit insurance program resulted from the: A) Establishment of the Federal Reserve System in 1913

The establishment of a Federal deposit insurance program resulted from the: 7. The monetary multiplier can also be called the spending multiplier.
B) FALSE
7. The monetary multiplier can also be called the spending multiplier.
B) FALSE
The monetary multiplier can also be called the spending multiplier. 8. A bank's required reserves can be calculated by:

Multiplying its checkable-deposit liabilities by the reserve ratio
8. A bank's required reserves can be calculated by:

Multiplying its checkable-deposit liabilities by the reserve ratio
A bank's required reserves can be calculated by:
its

its

10. If the monetary multiplier is 6, then the reserve ratio must be: 0.167 10. If the monetary multiplier is 6, then the reserve ratio must be: 0.167 If the monetary multiplier is 6, then the reserve ratio must be:

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