1) A bank has $100 million of checking deposits, a 6 percent required reserve ra

Question

1)

A bank has $100 million of checking deposits, a 6 percent required reserve ratio and $2 million of excess reserves. What is the banks actual total reserves?

Select one:

a. $2 million .

b. $3 million.

c. $6 million.

d. $8 million.

2)

Which of the following is an asset of commercial banks?

Select one:

a. Reserves.

b. Securities.

c. Loans.

d. All of the above are assets of commercial banks.

3)

Assume we have a simplified banking system with no excess reserves and with a 20 percent required reserve ratio. A commercial bank receiving a new checking deposit by the deposit of cash equal to $100 would be able to extend new loans in the amount of:

Select one:

a. $20.

b. $80.

c. $100.

d. $1,000.

4)

An economy starts with $10,000 in currency. All of this currency is deposited in a single commercial bank. The required reserve ratio is 20 percent. This bank has the potential to increase the money supply by

Select one:

a. $2000.

b. $8000.

c. $40,000.

d. $0.

5)

What kind of good possesses the characteristics of nonrivalrous and nonexcludibility?

Select one:

a. negative externality good

b. positive externality good

c. public good

d. private good

6)

An economy starts with $10,000 in currency. All of this currency is deposited in a single commercial bank. The required reserve ratio is 20 percent.If all banks in the economy have the same reserve ratio as this bank, then the banking system has the potential to increase the money supply by

Select one:

a. $2000.

b. $8000.

c. $40,000.

d. $0.

Explanation / Answer

1. The right answer option d. $8 million.

Explanation: Checking deposit = $100 million. Reserve requirement = 6%. So, the required reserves = 6% of 100 million = $6 million.

The firm has $2 million excess reserves.

So, the total reserves of the bank = required reserve + excess reserve = $6 million + $2 million = $8 million.

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