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Exam 15: Money Creation

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Question 1

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$\begin{array} { | l | r | l | l | } \hline & & \text { Assets } & \text { Liabilities and Net Worth } \\\hline \text { Stock Shares } & \$ 400 & & \\\hline \text { Reserves } & 40 & & \\\hline \text { Property } & 300 & & \\\hline \text { Securities } & 160 & & \\\hline \text { Loans } & 80 & & \\\hline \text { Demand Deposits } & 180 & & \\\hline\end{array}$ The ?gures in the table are for a single commercial bank, Bank A. All ?gures are in thousands of dollars. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of Bank B, then Bank A will end Up with excess reserves of

A) $8,000.
B) $12,000.
C) $13,000.
D) $18,000.

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

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Question 2

Multiple Choice

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Which of the following are all assets to a commercial bank?

A) demand deposits, stock shares, and reserves
B) vault cash, property, and reserves
C) vault cash, property, and stock shares
D) vault cash, stock shares, and demand deposits

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

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B

Question 3

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Suppose that the reserve ratio is 6 percent, and applies only to checkable deposits. A bank has noncheckable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million. What are the excess Reserves of this bank?

A single commercial bank must meet a 25 percent reserve requirement. If the bank has no excess reserves initially and $5,000 of cash is deposited in the bank, it can increase its loans by a maximum of

A checkable deposit at a commercial bank is a(n)

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

Assume that the reserve ratio is 20 percent and banks in the system are loaning out all their excess reserve. If people collectively cash out $10 billion from their checking accounts, then the lending ability of the banking System will be

Requiring banks to use less leveraging is equivalent to

$\begin{array} { | c | c | c | c | c | } \hline & \text { Reserve Requirement (\%) } & \text { Checkable Deposits } & \text { Actual Reserves } & \text { Excess Reserves } \\\hline ( 1 ) & \underline { W } & \$ 100,000 & \$ 10,000 & \$ 0 \\\hline ( 2 ) & 8 & \underline { X } & 20,000 & 12,000 \\\hline ( 3 ) & 12 & 200,000 & \underline { Y } & 8,000 \\\hline ( 4 ) & 20 & 300,000 & 70,000 & \underline { Z } \\\hline\end{array}$ The accompanying table gives data for a commercial bank or thrift. In row 1, the number appropriate for space W is

A bank temporarily short of required reserves may be able to remedy this situation by

In essence, which of the following groups "creates" money?

One major component of money supply M1 is part of a bank's

$\begin{array} { | c | c | c | } \hline \text { (1) } & \text { (2) } & ( 3 ) \\\hline \text { Legal Reserve Ratio (\%) } & \text { Checkable Deposits } & \text { Actual Reserves } \\\hline 10 & \$ 40,000 & \$ 10,000 \\\hline 20 & 40,000 & 10,000 \\\hline 25 & 40,000 & 10,000 \\\hline 30 & 40,000 & 10,000 \\\hline\end{array}$ The accompanying table gives data for a commercial bank or thrift. When the legal reserve ratio is 25 percent, thecess reserves of this single bank are A) $0. B) $1,000. C) $5,000. D) $30,000.

The primary reason commercial banks must keep required reserves on deposit at the Fed is to

When a bank buys government securities from the Fed, then the bank's ability to "create money" will be reduced.

Which of the following statements is correct?

A bank can get additional excess reserves by doing any of the following except

Is the purpose of required bank reserves to enhance liquidity and protect commercial bank depositors from losses? Explain.

$\begin{array} { | c | c | c | c | c | } \hline & \text { Reserve Requirement (\%) } & \text { Checkable Deposits } & \text { Actual Reserves } & \text { Excess Reserves } \\\hline ( 1 ) & \underline { W } & \$ 100,000 & \$ 10,000 & \$ 0 \\\hline ( 2 ) & 8 & \underline { X }&20,000 & 12,000 \\\hline ( 3 ) & 12 & 200,000 & \underline { Y } & 8,000 \\\hline ( 4 ) & 20 & 300,000 & 70,000 & \underline { Z } \\\hline\end{array}$ The accompanying table gives data for a commercial bank or thrift. In row 2, the number appropriate for space X is

When a check is cleared against a bank, the bank will lose