CH 13 EC 202

A goldsmith’s ability to create money was based on the fact that:

• Withdrawals of gold tended to exceed deposits of gold in any given time period

• Consumers and merchants preferred to use gold for transactions, rather than paper money.

• The goldsmith was required to keep 100% of gold reserves

• Paper money in the form of gold receipts was rarely redeemed for gold

In a fractional reserve system:

• Bank panics cannot occur

• The monetary system must be backed by gold

• Banks can create money through the lending process

• The Federal Reserve has no control over the amount of money in circulation

A bank that has liabilities of $150 billion and a net worth of $20 billion must have:

• Excess reserves of $130 billion

• Assets of $150 billion

• Excess reserves of $150 billion

• Assets of $170 billion

Which of the following describes the identity embodied in a balance sheet?

• Net worth plus assets equal liabilities

• Assets plus liabilities equal net worth

• Assets equal liabilities plus net worth

• Assets plus reserves equal net worth

Checkable deposits are also called:

• Checking accounts

• High-powered money

• Savings balances

• Federal Reserve Notes

Excess reserves refer to the:

• Difference between a bank’s vault cash and its reserves deposited at the Federal Reserve Bank

• Minimum amount of actual reserve a bank must keep on hand to back up its customers deposits

• Difference between actual reserves and loans

• Difference between actual reserves and required reserves

If you deposit a $50 bill in a commercial bank that has a 10% legal reserve requirement the bank will:

• Have $45 of additional excess reserves

• Be capable of lending an additional $500

• Be capable of lending an additional $50

• Have $50 of required reserves

Banks create money when they:

• Allow loans to mature

• Buy government bonds from households

• Accept deposits of cash

• Sell government bonds from households

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of:

• The MPS

• It's actual reserves

• It's excess reserves

• the reserve ratio

If the monetary authorities want to reduce the money multiplier, they should:

• Lower the legal reserve ratio

• Raise the legal reserve ratio

• Increase the bank reserves

• Lower interest rates