NAME SECTION # Print Last Name, First Name BANKING AND MONEY CREATION I. Which o
ID: 1109692 • Letter: N
Question
NAME SECTION # Print Last Name, First Name BANKING AND MONEY CREATION I. Which of the following is correen? Total bank reserves excess reserves/required reserves Total bank reserves excess reserves + required reserves c. Excess reserves total bank reserves + required reserves d. Required reserves (excess reserves) x (total bank reserves) 2. Mr. Jones deposited $10,000 cash into his account at Bank A. If the required reserve has to keepin the form of required reserves and can make a loan equal to a. $500; $9,500 b. $1,000; $10,000 c. $1000: $9,000 d. $10,000: $0 3. Legally, banks must hold required reserves equal to: total checkable deposits. vault cash. total checkable deposits multiplied by the required reserve ratio. total checkable deposits divided by the required reserve ratio. a. b. If the required reserve ratio is 20%, the banking system has total reserves in the amount of $40 billion, there are no currency leakages, and each bank makes loans until excess reserves equal zero, then total checkable deposits for the banking system will equal: a. $20 billion b. $40 billion. c. $200 billion. d. $400 billion. 5. If the required reserve ratio decreases from 12.5 percent to 10 percent: potential deposit expansion decreases. potential deposit expansion increases. C. d. the simple deposit multiplier increases from 10 to 12.5.Explanation / Answer
2. Required reserve = 10% of deposits = 10% of 10,000 = $ 1000
Loans = 10,000 - 1000 = $ 9000
Answer is c) $ 1000; $ 9,000
4. Total reserves of bank is $ 40 billion which is also equal to reserve requirement of the bank.
It implies 20% of total deposits = $ 40 billion
so, total deposits i.e. 100% will be = {40 billion /20%} x 100% = $ 200 billion
Answer is c) $ 200 billion
6. Required reserves = 20% of total checkable deposits = 20% of 500,000 = $ 100,000
Answer is d) $ 100,000
7. Excess reserves = Total Bank reserves - Required reserves = 100,000 - 100,000 = $ 0
Answer is a) $ 0
8. a) $ 0
this is because bank already lend the amount which it can lend.
9. Bank's loan amount = Total deposits - Required reserve = 500,000 - 100,000= $ 400,000
Answer is b) $ 400,000
10. Multiplier = 1/RR = 1/0.20 = 5
Answer is b) 5
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