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1
Suppose the required reserve ratio is 10% and the banking system initially has no excess reserves. If $20 billion in new currency is deposited into the system, these new deposits will initially create excess reserves of:
A)$2 billion.
B)$18 billion.
C)$20 billion.
D)$200 billion.
2
Sam draws a $100 check on his account at Bank A which is then deposited in Bank B. When this check is cleared:
A)neither Bank A's nor Bank B's deposits or reserves are affected.
B)Bank A gains reserves equal to $100 and Bank B gains deposits equal to $100.
C)Bank A loses reserves and deposits equal to $100.
D)Bank B loses reserves and deposits equal to $100.
3
Suppose a bank has checkable deposits of $1,000,000 and the legal reserve ratio is 5 percent. If the institution has excess reserves of $5,000, then its actual reserves are:
A)$45,000.
B)$50,000.
C)$55,000.
D)$5,000.
4
Assume that SIC, Inc. writes a $50,000 check on its account at Metro National Bank to repay the balance on a loan issued by this bank. The initial result of this transaction is that:
A)the money supply declines by $50,000.
B)the money supply increases by $50,000.
C)the bank's excess reserves will decrease by $50,000.
D)the bank's required reserves will increase by $50,000.
5
A single bank can safely increase its total loans by an amount equal to its:
A)required reserves.
B)total reserves.
C)excess reserves.
D)total deposits.
6
Money is created when:
A)loans are repaid.
B)the net worth of the banking system is increased.
C)banks exchange some of the state and local bonds in their portfolio for federal government bonds.
D)banks make additional loans.
7
Assume the banking system has no excess reserves with a reserve requirement of 20%. The reserve requirement is then dropped to 10%. As a result of this reduction:
A)the money multiplier will decrease.
B)bank profitability will likely decrease.
C)banks will be forced to accumulate reserves by reducing their lending activity.
D)the money supply will likely increase.
8
A bank temporarily short of required reserves may remedy the situation by borrowing reserves:
A)in the bond market.
B)in the Federal deposit market.
C)from its own depositors.
D)in the Federal funds market.
9
The monetary multiplier is equal to:
A)one.
B)the inverse of actual reserves minus required reserves.
C)the inverse of one minus the required reserve ratio.
D)the inverse of the required reserve ratio.
10
Hassan deposits $50,000 in a commercial bank that is required to retain 20% in reserve. The deposit increases the lending capacity of the bank by:
A)$5,000.
B)$10,000.
C)$40,000.
D)$50,000.







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