Rev Q’s [MS = Currrency+DD of Public]
RR+ER=TR; TR-RR=ER; TR-ER=RR; MXER=PMC; PMC(Public)+DD=TMS; PMC(Fed)=TMS
Excess Reserves prior to new currency deposit (DD) = $0
Britney Spears deposits in the banking system = $40 billion
Legal Reserve Requirement [RR] = 20%
31. The $40 billion deposit of Currency into DD
will result in MS staying at ($8/$40/$160) billion.
32. The $40 billion deposit of currency into
checking accounts will create ER of ($20/$32/$40) billion.
33. The Potential Money Creation of the banking system
through loans is ($40/$160/$$200) bil. The Potential TMS
[all DD of the public] could be as much as ($40/$160/$200)
34. The RR applies to checkable deposits at (banks/S&Ls/
credit unions/ all depository institutions).
35. If the Duck National Bank has ER of $6,000 & DD of $100,000
what is the size of the bank’s TR if the RR is 25%?
25,000
6,000
31,000
($25,000/$75,000/$31,000) [RR($____)+ER($___)+TR($____)
Rev Q’s
[MS = Currrency+DD of Public]
RR+ER=TR; TR-RR=ER; TR-ER=RR; MXER=PMC; PMC(Public)+DD=TMS; PMC(Fed)=TMS
36. A stranger deposits $1,000 in a bank that has a RR of 10%. The
maximum possible change in the dollar value of the local bank’s loans would
900
be $______.
PMC[M X ER] in the banking system is $_____.
9,000 Potential TMS
10,000
could become as high as $_______.
37. Suppose a commercial bank has DD of $100,000 and the RR is 10%.
If the bank’s RR & ER are equal, then its TR are ($10,000/$20,000/$30,000).
38. Total Reserves (minus/plus) RR = ER.
39. Suppose the Thunderduck Bank has DD of $500,000 & the RR is 10%.
If the institution has ER of $4,000 then its TR are ($46,000/$54,000/$4,000).
40. If ER in a bank are $4,000, DD are $40,000, & the RR is 10%, then
TR are ($4,000/$8,000).
41. The main purpose of the RR is to (have funds for emergency withdrawals/
influence the lending ability of commercial banks).
42. If I write you a check for $1 & we both have our checking accts at the
Poorman Bank, the bank’s balance sheet will (increase/decrease/be unchanged).
43. Banks (create/destroy) money when they make loans and repaying bank
loans (create/destroy) money.
44. When a bank loan is repaid the MS is (increased/decreased).
45. The Fed Funds rate is a loan by one bank (to another bank/from the Fed).
Rev. Q’s
[MS = Currrency+DD of Public]
RR+ER=TR; TR-RR=ER; TR-ER=RR; MXER=PMC; PMC(Public)+DD=TMS; PMC(Fed)=TMS
46. If the RR was lowered [say, from 50% to 10%], the size of the
monetary multiplier [MM] would (increase/decrease).
Leakages(limitations) of the Money Creating Process
1. Cash leakages [taking part of loan in cash]
2. ER (banks don’t loan it or we don’t borrow]
47. If borrowers take a portion of their loans as cash, the maximum amount by
which the banking system increases the MS by lending will (increase/decrease).