MONEY CREATION Chapter 15. Taylor Economics – Chapter 15 Copyright © Houghton Mifflin Company. All rights reserved. 1. Bank panics: a) occur frequently

Money Creation

Chapter 15

Taylor Economics – Chapter 15

Copyright © Houghton Mifflin Company. All rights reserved.

1. Bank panics:a)occur frequently in fractional reserve banking systems.b)are a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently.c)cannot occur in a fractional reserve banking system.d)occur more frequently when the monetary system is backed by gold.



1. Bank panics:a)occur frequently in fractional reserve banking systems.b)are a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently.c)cannot occur in a fractional reserve banking system.d)occur more frequently when the monetary system is backed by gold.



2. Other things equal, if the required reserve ratio was lowered:a)banks would have to reduce their lending.b)the size of the monetary multiplier would increase.c)the actual reserves of banks would increase.d)the Federal funds interest rate would rise.



2. Other things equal, if the required reserve ratio was lowered:a)banks would have to reduce their lending.b)the size of the monetary multiplier would increase.c)the actual reserves of banks would increase.d)the Federal funds interest rate would rise.



3. A bank owns a 10-story office building. In the bank's balance sheet, this would be an example of:a)An assetb)A liabilityc)Capital stockd)A checkable deposit



3. A bank owns a 10-story office building. In the bank's balance sheet, this would be an example of:a)An assetb)A liabilityc)Capital stockd)A checkable deposit



4. What is one significant characteristic of fractional reserve banking?a)Banks are not subject to "panics" or "runs."b)Banks use deposit insurance for loans to customersc)Bank loans will be equal to the amount of gold on depositd)Banks can create money through lending their reserves



4. What is one significant characteristic of fractional reserve banking?a)Banks are not subject to "panics" or "runs."b)Banks use deposit insurance for loans to customersc)Bank loans will be equal to the amount of gold on depositd)Banks can create money through lending their reserves



5. A commercial bank has actual reserves of $50,000 and checkable deposits of $200,000, and the required reserve ratio is 20%. The excess reserves of the bank are:a)$10,000b)$20,000c)$40,000d)$50,000



5. A commercial bank has actual reserves of $50,000 and checkable deposits of $200,000, and the required reserve ratio is 20%. The excess reserves of the bank are:a)$10,000b)$20,000c)$40,000d)$50,000



6. When a check is cleared against a bank, it will lose:a)Cash and securitiesb)Checkable deposits and reservesc)Reserves and capital stockd)Loans and demand deposits



6. When a check is cleared against a bank, it will lose:a)Cash and securitiesb)Checkable deposits and reservesc)Reserves and capital stockd)Loans and demand deposits



7. Assume that Johnson deposits $350 of 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 amounts has the supply of money changed?a)Increased by $2,350b)Increased by $2,000c)Decreased by $350d)Decreased by $1,650



7. Assume that Johnson deposits $350 of 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 amounts has the supply of money changed?a)Increased by $2,350b)Increased by $2,000c)Decreased by $350d)Decreased by $1,650



8. Maximum checkable-deposit expansion is equal to:a)Actual reserves minus excess reservesb)Assets plus net worth and liabilitiesc)Excess reserves times the monetary multiplierd)Excess reserves divided by the monetary multiplier



8. Maximum checkable-deposit expansion is equal to:a)Actual reserves minus excess reservesb)Assets plus net worth and liabilitiesc)Excess reserves times the monetary multiplierd)Excess reserves divided by the monetary multiplier



9. Assume that the legally required reserve is 15 percent and commercial banks choose to hold additional excess reserves equal to 5 percent of any newly acquired deposits. Under these circumstances the monetary multiplier for the commercial banking system is:a)6.67b)5c)4d)3



9. Assume that the legally required reserve is 15 percent and commercial banks choose to hold additional excess reserves equal to 5 percent of any newly acquired deposits. Under these circumstances the monetary multiplier for the commercial banking system is:a)6.67b)5c)4d)3



10. A commercial bank has checkable deposit liabilities of $400,000, reserves of $150,000, and a required reserve ratio of 25%. The amount by which a single commercial bank and the amount by which the banking system can increase loans are, respectively:a)$50,000 and $100,000b)$50,000 and $150,000c)$50,000 and $200,000d)$150,000 and $200,000



10. A commercial bank has checkable deposit liabilities of $400,000, reserves of $150,000, and a required reserve ratio of 25%. The amount by which a single commercial bank and the amount by which the banking system can increase loans are, respectively:a)$50,000 and $100,000b)$50,000 and $150,000c)$50,000 and $200,000d)$150,000 and $200,000

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MONEY CREATION Chapter 15. Taylor Economics – Chapter 15 Copyright © Houghton Mifflin Company. All rights reserved. 1. Bank panics: a) occur frequently