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Exam 34: Money Creation

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Question 21

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When a commercial bank has excess reserves:

A) it is in a position to make additional loans.
B) its actual reserves are less than its required reserves.
C) it is charging too high an interest rate on its loans.
D) its reserves exceed its assets.

E) A) and B)
F) A) and C)

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Question 22

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Answer the question on the basis of the following table for a commercial bank or thrift: Refer to row 4 in the table.The number appropriate for space Z is:

A) $10,000.
B) $70,000.
C) $48,000.
D) zero.

E) All of the above
F) B) and D)

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Question 23

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The claims of the owners of a firm against the firm's assets are called:

Answer the question on the basis of the following consolidated balance sheet for the commercial banking system.Assume the required reserve ratio is 30 percent.All figures are in billions. $\begin{array}{c}\begin{array}{lll}\quad\quad\quad\underline{\text { Assets}}\\\text { Reserves}\\\text { Securities}\\\text { Loans}\\\text { Property} \end{array}\begin{array}{l}\\\$ 51 \\109 \\100\\10\end{array}\begin{array}{lll}\quad\quad \underline{\text { Liabilities \& Net Worth }}\\\text { Checkable Deposits}\\\text { Stock Shares}\\\\\\\end{array}\begin{array}{lll}\\\$140\\130\\\\\\\end{array}\end{array}$ Refer to the data.The maximum amount by which the commercial banking system can expand the supply of money by lending is:

Answer the question on the basis of the following information for the Moolah Bank. $\begin{array} { l r } \text { Reserves } & \$ 100 \\\text { Checkable Deposits } & 1,000 \\\text { Loans (to customers) } & 300 \\\text { Property } & 400 \\\text { Securities (owned) } & 300 \\\text { Stock Shares } & 100\end{array}$ Assume that the listed amounts constitute this bank's complete set of accounts.Moolah's:

When a bank loan is repaid,the supply of money:

Answer the question on the basis of the following table for a commercial bank or thrift: Refer to row 2 in the table.The number appropriate for space X is:

The greater the leverage in the financial system,all else equal:

Assume the Standard Internet Company negotiates a loan for $5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU) .As a result of this transaction:

A bank that has assets of $85 billion and a net worth of $10 billion must have:

The monetary multiplier and the spending multiplier are two ways of referring to the same concept.

Loans made to customers are a liability on a bank's balance sheet.

The supply of money increases when the public buys government securities from commercial banks.

The primary purpose of the legal reserve requirement is to:

Answer the question on the basis of the following information for the Moolah Bank. $\begin{array} { l r } \text { Reserves } & \$ 100 \\\text { Checkable Deposits } & 1,000 \\\text { Loans (to customers) } & 300 \\\text { Property } & 400 \\\text { Securities (owned) } & 300 \\\text { Stock Shares } & 100\end{array}$ Refer to the information and assume that Moolah Bank is "loaned up." If it receives a $100 deposit of currency,the banking system of which Moolah is a part could expand loans by:

The federal funds market is the market in which:

Suppose a credit union has checkable deposits of $500,000 and the legal reserve ratio is 10 percent.If the institution has excess reserves of $4,000,then its actual reserves are:

Suppose that a bank's actual reserves are $5 million,its checkable deposits are $5 million,and its excess reserves are $3 million.The reserve requirement must be:

The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of reserves to the banking system as a whole.

A bank that has liabilities of $150 billion and a net worth of $20 billion must have: