Mod 25 Quiz

The reserve ratio is the:

• bank's holdings of gold.

• government's holdings of gold at Fort Knox.

• fraction of deposits the banks hold in their vaults.

• ratio of gold to the paper money in the economy.

• fraction of deposits that are lent to borrowers.

Banks create money when they:

• make loans.

• take deposits.

• hold excess reserves.

• pay withdrawals to depositors.

• collect interest on loans.

Suppose the reserve ratio is 20%. If Sam deposits $500 into his checking account, his bank can increase loans by:

• $500.

• $2,500.

• $100.

• $400.

• $300.

Which of the following is a component of BOTH the monetary base and the money supply?

• bank reserves at the Fed

• currency in bank vaults

• demand deposits

• Treasury securities.

• currency in circulation

If a bank has deposits of $100,000, cash on hand of $10,000 and $15,000 on deposit at the Federal Reserve, and the required reserve ratio is 0.20, then the bank:

• has no excess reserves.

• has excess reserves of $5,000.

• has insufficient reserves to meet requirements.

• has an insufficient deposit to loan ratio.

• has excess reserves of $10,000.