Lesson 30_Mod 25, Problem Set 1_a1_ExamView, Banking and Money Creation
Multiple Choice
Identify the choice that best completes the statement or answers the question.
Assets
Reserves
$20,000
Loans
_______
Liabilities
Deposits
_________
Table 25-1: Balance Sheet
____
1. Use Table 25-1. If the reserve ratio is 25%, loans are:
A. $5,000.
B. $15,000.
C. $60,000.
D. $80,000.
E. $20,000.
Scenario 25-1 First National Bank First National Bank has $80 million in checkable deposits, $15 million in
deposits with the Federal Reserve, $5 million cash in the bank vault and $5 million in government bonds.
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2. Use Scenario 25-1. Consider the information for First National Bank. If the minimum reserve ratio is 20%,
what are the excess reserves available for the bank to lend?
A. $76 million
B. $8 million
C. $6 million
D. $4 million
E. $20 million.
____
3. A bank run occurs when:
A. too many people are trying to borrow more at one time.
B. the assets of the bank are greater than the liabilities of the bank.
C. interest rates start to increase.
D. interest rates are higher than inflation rates.
E. many bank depositors are trying to withdraw their funds from the bank.
____
4. Suppose the reserve ratio is 20%. If Sam deposits $500 into his checking account, his bank can increase loans
by:
A. $500.
B. $2,500.
C. $100.
D. $400.
E. $300.
____
5. Suppose the reserve ratio is 20%. If Holly deposits $1,000 of cash into her checking account and her bank
lends $600 to Freda, the money supply:
A. remains the same.
B. decreases by $1,000.
C. decreases by $600.
D. increases by $600.
E. increases by $1,600
____
6. Suppose a bank does NOT hold excess reserves and the reserve ratio is 20%. If Melanie deposits $1,000 of
cash into her checking account and the bank lends $600 to Freda, the bank can lend an additional:
A. $400.
B. $200.
C. $1,000.
D. $5,000.
E. $600.
____
7. Suppose a bank already has excess reserves of $800 and the reserve ratio is 20%. If Andy deposits $1,000 of
cash into his checking account and the bank lends $600 to Melanie, that bank can lend an additional:
A. $200.
B. $1,000.
C. $800.
D. $2,400.
E. $400.
____
8. Suppose a bank already has excess reserves of $800 and the reserve ratio is 30%. If Andy deposits $1,000 of
cash into his checking account and the bank lends $600 to Melanie, that bank can lend an additional:
A. $100.
B. $800.
C. $900.
D. $300.
E. $600.
____
9. Suppose your grandma sends you $100 for your birthday and you deposit $100 into your checking account at
the local bank. The reserve ratio is 10%. Based upon this deposit, the bank's reserves have increased by _____
and the bank's checkable deposits have increased by _____.
A. $100; $100
B. $100; $90
C. $90; $100
D. $10; $100
E. $110; $100
____ 10. If a bank gets a new deposit of $100 cash and it has a 20% required reserve ratio, then the total amount by
which deposits can increase is:
A. $20.
B. $100.
C. $500.
D. $1,000.
E. $800
____ 11. Suppose the banking system does NOT hold excess reserves and the reserve ratio is 20%. If Sam deposits
$500 of cash into his checking account, the banking system can increase the money supply by:
A. $5,000.
B. $2,000.
C. $2,500.
D. $400.
E. $1,000.
____ 12. Suppose a bank receives a $5,000 deposit, and the reserve ratio is 25%. The bank is required to keep in
reserve an amount equal to:
A. $1,250.
B. $1,000.
C. $200.
D. $500.
E. $1,500.
____ 13. For a bank, when a person deposits money into the bank, this:
A. creates only an asset for the bank.
B. creates only a liability for the bank.
C. creates a liability and an asset for the bank.
D. is most likely to result in a decrease in the money supply.
E. creates a liability for the depositor.
____ 14. Suppose a bank faces a 10% required reserve ratio, and it currently has $100 in required reserves. If it is fully
loaned out, what is the amount of deposits this bank is holding?
A. $900
B. $10
C. $1000
D. $10,000
E. $9,900
____ 15. If the required reserve ratio rises:
A. the money multiplier will also rise.
B. the banking system will experience a contraction in its level of bank deposits.
C. the amount of reserves in the banking system will decrease.
D. excess reserves will also rise.
E. the money supply will expand.