Question 1

Suppose that the reserve ratio is 6%, and applies only to checkable deposits. A bank has non-checkable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million. What are the excess reserves of this bank?

Accepted Answer

The answer of Suppose that the reserve ratio is 6%,...

Question 2

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars.  Refer to the data given above. This bank has liabilities and net worth totaling:

Accepted Answer

The answer of The figures in the table below are...

Question 3

A depositor places $10,000 in cash in a commercial bank, where the required reserve ratio is 10 percent. The bank sends the $10,000 to its Federal Reserve Bank. As a result, the actual reserves, required reserves, and excess reserves of the bank have been increased by:

Accepted Answer

The required reserve ratio is 10%, so the bank is required to hold $1000 (10% of $10,000). When the depositor places $10,000 in cash, the bank's actual reserves increase by $10,000. This means that the excess reserves also increased by $9,000 ($10,000 actual reserves - $1,000 required reserves = $9,000 excess reserves). So the correct answer is C.

Question 4

Refer to the table above. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are:

Accepted Answer

Excess reserves are the reserves held by a bank in excess of the required reserve ratio. The required reserve ratio is the percentage of checkable deposits that banks are required to keep on reserve by the Federal Reserve. Using the formula, excess reserves = reserves - required reserves, we can find that the required reserves for this bank are $1.8 million, since the required reserve ratio is 4%. Therefore, excess reserves = $2 million - $1.8 million = $0.2 million.

Question 5

Suppose the Northwestern Bank has excess reserves of $12,000 and checkable deposits of $125,000. If the reserve requirement is 20 percent, what are the bank's actual reserves?

Accepted Answer

The required reserves for the Northwestern Bank is 20% of its checkable deposits which is $25,000. Since the bank has excess reserves of $12,000, we can add that to the required reserves to get the actual reserves: $25,000 + $12,000 = $37,000. Therefore, (B) is the correct answer.

Question 6

An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by:

Accepted Answer

The bank is required to hold 10% of the deposit ($12,000) on reserve, which is $1,200. This means that the bank can use the remaining $10,800 to increase its loan capacity. Therefore, the deposit increases the loan capacity of the bank by $10,800.

Question 7

A bank has excess reserves of $5,000 and demand deposits of $50,000; the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, then this bank can lend a maximum of:

Accepted Answer

Required reserves = demand deposits x required reserve ratio
At a 20% required reserve ratio, the required reserves would be:
$50,000 x 0.20 = $10,000
Excess reserves = actual reserves - required reserves
$5,000 = actual reserves - $10,000
Actual reserves = $15,000

If the reserve ratio is increased to 25%, then the new required reserves would be:
$50,000 x 0.25 = $12,500

Excess reserves = actual reserves - required reserves
$5,000 = actual reserves - $12,500
Actual reserves = $17,500

The maximum amount the bank can lend is equal to the excess reserves:
$17,500 - $10,000 = $7,500
However, the question asks for the maximum amount the bank can lend after the reserve ratio is increased, so we need to subtract the amount the bank can no longer lend due to the increase in required reserves:
$7,500 - ($12,500 - $10,000) = $2,500.

Therefore, the correct answer is D.

Question 8

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars.  Refer to the data given above. If the required reserve ratio is 10 percent, the bank has excess reserves of:

Accepted Answer

Excess reserves are calculated as total reserves minus required reserves. The required reserves can be calculated as 10% of the bank's total deposits, which is $200,000 x 0.10 = $20,000. The total reserves of the bank are deposits of $200,000 plus excess reserves, which we need to find. We can set this up as an equation: $200,000 = $20,000 + excess reserves. Solving for excess reserves, we get $180,000. Subtracting the required reserves of $20,000, we get excess reserves of $160,000. Therefore, the correct answer is B, or $22,000.

Question 9

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars.  Refer to the data given above. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of another bank, then the bank above will end up with excess reserves of:

Accepted Answer

The reserve requirement for this bank is 10%, meaning they must hold 10% of their deposits as reserves.

The initial level of reserves is $20,000 * 0.10 = $2,000.

When the $10,000 check is cleared, the bank's deposits decrease by $10,000, so reserves must decrease by $1,000 (10% of $10,000).

Therefore, the new level of reserves is $2,000 - $1,000 = $1,000.

Excess reserves are then calculated as actual reserves - required reserves:

Excess reserves = $1,000 - $200 = $8000

So the bank will end up with excess reserves of $8,000.

Question 10

A bank's checkable deposits shrinks from $40 million to $33 million. What happens to its required reserves if the required reserve ratio is 3%?

Accepted Answer

The required reserves are calculated as a percentage of checkable deposits. A 3% reserve ratio on $40 million is $1.2 million, and on $33 million is $0.99 million. The difference is $0.21 million, approximately $0.2 million.

Question 11

A bank is in the position to make loans when required reserves:

Accepted Answer

A bank can make loans when its actual reserves exceed the required reserves, meaning it has excess reserves available to lend out.

Question 12

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent. How much are the commercial bank's checkable-deposit liabilities?

Accepted Answer

The equation for determining the checkable-deposit liabilities is: checkable-deposit liabilities = required reserves/reserve ratio. Plugging in the given values, we get checkable-deposit liabilities = $60 million/0.20 = $300 million. Therefore, the correct answer is (C) $300 million.

Question 13

A commercial bank has checkable-deposit liabilities of $50,000 and a required-reserve ratio of 20 percent. What is the amount of required reserves?

Accepted Answer

The required-reserve ratio is 20 percent, which means that the bank is required to hold 20% of its checkable-deposit liabilities in reserves. Therefore, the amount of required reserves would be 20% of $50,000, which is $10,000.

Question 14

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are:

Accepted Answer

Required reserve = checkable-deposit liabilities × required reserve ratio
Required reserve = $9 million × 0.1
Required reserve = $900,000

Actual reserves – required reserve = excess reserves
$1 million – $900,000 = $100,000

Therefore, the excess reserves of the bank are $100,000.

Question 15

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars.  Refer to the data given above. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of another bank, then the actual reserves of the bank above will:

Accepted Answer

The answer of The figures in the table below are...

Question 16

Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess reserves equal:

Accepted Answer

The answer of Assume that the required reserve ratio is...

Question 17

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars.  Refer to the data given above. This bank has total assets of:

Accepted Answer

The answer of The figures in the table below are...

Question 18

Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City. She then deposits the funds in her checking account at First Commerce Bank. Her checking account had a $150,000 balance before this deposit. The reserves of First Commerce Bank would:

Accepted Answer

When Sharon sells the government security to the Federal Reserve Bank of Kansas City, she receives $4,600,000. When she deposits this amount in her checking account at First Commerce Bank, the bank's reserves increase by the same amount, which is $4,600,000. Therefore, the answer is B, Increase by $4,600,000.

Question 19

A depositor places $5,000 in cash in a commercial bank, and the reserve ratio is 20 percent; the bank sends the $5,000 to the Federal Reserve Bank. As a result, the reserves and excess reserves of the bank have been increased, respectively, by:

Accepted Answer

The reserves increase by the full $5,000 deposit. With a 20% reserve ratio, the required reserves are $1,000, leaving $4,000 as excess reserves.

Question 20

A commercial bank's checkable-deposit liabilities can be estimated by:

Accepted Answer

The checkable-deposit liabilities can be estimated by dividing the required reserves by the reserve ratio, as the reserve ratio is the fraction of deposits that a bank must hold as reserves.

Quiz 15: Money Creation

Suppose that the reserve ratio is 6%, and applies only to checkable deposits. A bank has non-checkable time deposits of $300 million, checkable deposits of $100 million, and reserves of $8 million. What are the excess reserves of this bank?

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. This bank has liabilities and net worth totaling:

A depositor places $10,000 in cash in a commercial bank, where the required reserve ratio is 10 percent. The bank sends the $10,000 to its Federal Reserve Bank. As a result, the actual reserves, required reserves, and excess reserves of the bank have been increased by:

Refer to the table above. If a bank has checkable deposits of $45 million and reserves of $2 million, then its excess reserves are:

Suppose the Northwestern Bank has excess reserves of $12,000 and checkable deposits of $125,000. If the reserve requirement is 20 percent, what are the bank's actual reserves?

An individual deposits $12,000 in a commercial bank. The bank is required to hold 10 percent of all deposits on reserve at the regional Federal Reserve Bank. The deposit increases the loan capacity of the bank by:

A bank has excess reserves of $5,000 and demand deposits of $50,000; the required reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, then this bank can lend a maximum of:

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. If the required reserve ratio is 10 percent, the bank has excess reserves of:

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of another bank, then the bank above will end up with excess reserves of:

A bank's checkable deposits shrinks from $40 million to $33 million. What happens to its required reserves if the required reserve ratio is 3%?

A bank is in the position to make loans when required reserves:

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent. How much are the commercial bank's checkable-deposit liabilities?

A commercial bank has checkable-deposit liabilities of $50,000 and a required-reserve ratio of 20 percent. What is the amount of required reserves?

A commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are:

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. If the reserve ratio is 10 percent and a check for $10,000 is drawn and cleared in favor of another bank, then the actual reserves of the bank above will:

Assume that the required reserve ratio is 5 percent. If a commercial bank has $2 million cash in its vault, $1 million in government securities, $3 million on deposit at the Fed, and $60 million in checkable deposits, then its excess reserves equal:

The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. This bank has total assets of:

Sharon sells a government security worth $4,600,000 to the Federal Reserve Bank of Kansas City. She then deposits the funds in her checking account at First Commerce Bank. Her checking account had a $150,000 balance before this deposit. The reserves of First Commerce Bank would:

A depositor places $5,000 in cash in a commercial bank, and the reserve ratio is 20 percent; the bank sends the $5,000 to the Federal Reserve Bank. As a result, the reserves and excess reserves of the bank have been increased, respectively, by:

A commercial bank's checkable-deposit liabilities can be estimated by: