Question 1

Commercial banks create money when they

Accepted Answer

A)  accept cash deposits from the public.
B)  purchase government securities from the central banks.
C)  create checkable deposits in exchange for IOUs.
D)  raise their interest rates.E) C) and D)
F) B) and D)

Question 2

In an unregulated environment, the commercial banking system would tend to vary the supply of money in a way that

Accepted Answer

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

Question 3

The reserves of a commercial bank consist of

Accepted Answer

A)  the amount of money market funds it holds.
B)  deposits at the Federal Reserve Bank and vault cash.
C)  government securities that the bank holds.
D)  the bank's net worth.E) None of the above
F) A) and B)

Question 4

The market for immediately available reserve balances at the Federal Reserve is known as the

Accepted Answer

A)  money market.
B)  long-term bond market.
C)  short-term bond market.
D)  federal funds market.Topic: Money-Creating Transactions of a Commercial BankE) A) and B)
F) A) and D)

Question 5

A commercial bank's checkable-deposit liabilities can be estimated by

Accepted Answer

A)  dividing its required reserves by its excess reserves.
B)  dividing its required reserves by the reserve ratio.
C)  multiplying its required reserves by its excess reserves.
D)  multiplying its required reserves by the reserve ratio.E) B) and D)
F) None of the above

Question 6

Excess reserves refer to the

Accepted Answer

A)  difference between a bank's vault cash and its reserves deposited at the Federal Reserve Bank.
B)  minimum amount of actual reserves a bank must keep on hand to back up its customers deposits.
C)  difference between actual reserves and loans.
D)  difference between actual reserves and required reserves.E) A) and B)
F) A) and C)

Question 7

A bank's net worth is equal to its

Accepted Answer

A)  assets plus its liabilities.
B)  assets minus its liabilities.
C)  liabilities minus its assets.
D)  profits plus its assets.E) None of the above
F) A) and B)

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Commercial banks monetize claims when they

Accepted Answer

A)  collect checks through the Federal Reserve System.
B)  make loans to the public.
C)  accept repayment of outstanding loans.
D)  borrow from the Federal Reserve Banks.E) A) and B)
F) None of the above

Question 10

When a bank accepts additional deposits, its required reserves and excess reserves will both increase.

Accepted Answer

A) True 
 B)False

Question 11

The amount of required reserves that a bank must hold is computed as a certain fraction of the bank's assets.

Accepted Answer

A) True 
 B)False

Question 12

If the reserve requirement is 10 percent, what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

Accepted Answer

A)  $450
B)  $400
C)  $5,000
D)  $550E) B) and D)
F) A) and D)

Question 13

The basic purpose of imposing legal reserve requirements on commercial banks is to

Accepted Answer

A)  assure the liquidity of commercial banks.
B)  provide a device through which the credit-creating activities of banks can be controlled.
C)  provide a proper ratio between earning and no-earning bank assets.
D)  provide the central banks with necessary working capital.E) All of the above
F) A) and B)

Question 14

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

Accepted Answer

A)  liability to the depositor and an asset to the bank.
B)  liability to both the depositor and the bank.
C)  asset to the depositor and a liability to the bank.
D)  asset to both the depositor and the bank.E) All of the above
F) A) and B)

Question 15

A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank.The reserve ratio is 10 percent.The bank then lends $1,500 to a borrower.As a consequence of these transactions, the bank's excess reserves are

Accepted Answer

A)  not affected.
B)  increased by $200.
C)  increased by $300.
D)  increased by $500.E) All of the above
F) A) and B)

Question 16

If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would

Accepted Answer

A)  increase by $5 billion
B)  decrease by $5 billion.
C)  be added to net worth.
D)  remain the same.E) A) and B)
F) A) and C)

Question 17

When a bank sells capital stock (equity shares)  in return for cash,

Accepted Answer

A)  the capital stock increases the assets side and the cash increases the liabilities side.
B)  the capital stock decreases the liabilities and the cash increases the assets side.
C)  the capital stock increases the net worth and the cash increases the liabilities.
D)  the capital stock increases the net worth and the cash increases the assets side.E) B) and C)
F) All of the above

Exam 35: Money Creation

If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would

Correct Answer
verified

When a bank sells capital stock (equity shares) in return for cash,

Correct Answer
verified

A commercial bank's checkable-deposit liabilities can be estimated by

Correct Answer
verified

Commercial banks create money when they

Correct Answer
verified

If the reserve requirement is 10 percent, what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

Correct Answer
verified

The market for immediately available reserve balances at the Federal Reserve is known as the

Correct Answer
verified

The basic purpose of imposing legal reserve requirements on commercial banks is to

Correct Answer
verified

When a bank accepts additional deposits, its required reserves and excess reserves will both increase.

Correct Answer
verified

In an unregulated environment, the commercial banking system would tend to vary the supply of money in a way that

Correct Answer
verified

A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank.The reserve ratio is 10 percent.The bank then lends $1,500 to a borrower.As a consequence of these transactions, the bank's excess reserves are

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

Excess reserves refer to the

Correct Answer
verified

The amount of required reserves that a bank must hold is computed as a certain fraction of the bank's assets.

Correct Answer
verified

A bank's net worth is equal to its

Correct Answer
verified

The reserves of a commercial bank consist of

Correct Answer
verified

Commercial banks monetize claims when they

Correct Answer
verified

Exam 35: Money Creation

If the Federal Reserve System sells $5 billion of government securities to commercial banks, the banks' reserves would

Correct AnswerverifiedShow Answer

When a bank sells capital stock (equity shares) in return for cash,

Correct AnswerverifiedShow Answer

A commercial bank's checkable-deposit liabilities can be estimated by

Correct AnswerverifiedShow Answer

Commercial banks create money when they

Correct AnswerverifiedShow Answer

If the reserve requirement is 10 percent, what amount of excess reserves does a bank acquire when a business deposits a $500 check drawn on another bank?

Correct AnswerverifiedShow Answer

The market for immediately available reserve balances at the Federal Reserve is known as the

Correct AnswerverifiedShow Answer

The basic purpose of imposing legal reserve requirements on commercial banks is to

Correct AnswerverifiedShow Answer

When a bank accepts additional deposits, its required reserves and excess reserves will both increase.

Correct AnswerverifiedShow Answer

In an unregulated environment, the commercial banking system would tend to vary the supply of money in a way that

Correct AnswerverifiedShow Answer

A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank.The reserve ratio is 10 percent.The bank then lends $1,500 to a borrower.As a consequence of these transactions, the bank's excess reserves are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Excess reserves refer to the

Correct AnswerverifiedShow Answer

The amount of required reserves that a bank must hold is computed as a certain fraction of the bank's assets.

Correct AnswerverifiedShow Answer

A bank's net worth is equal to its

Correct AnswerverifiedShow Answer

The reserves of a commercial bank consist of

Correct AnswerverifiedShow Answer

Commercial banks monetize claims when they

Correct AnswerverifiedShow Answer

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