Study Guide ch 12, 13, 14

SP04/Econ 101 SWC

  1. A unit of account is

a.a bank account.

b.a savings account.

c.a common measurement in which values are expressed.

d.the same as a medium of exchange.

e.none of the above

  1. To an economist, money is a synonym for which of the following?

a.income

b.credit

c.wealth

d.salary

e.none of the above

  1. If a person uses money to buy a pair of shoes, money is functioning as

a.a unit of account.

b.a store of value.

c.a medium of exchange.

d.none of the above

  1. M1 is comprised of currency held outside banks + checkable deposits + ______.

a.credit cards

b.savings deposits

c.gold

d.traveler’s checks

  1. M2 is comprised of

a.small-denomination time deposits + savings deposits + money market accounts.

b.small-denomination time deposits + credit cards + money market accounts + gold deposits.

  1. M1 + small-denomination time deposits + savings deposits + money market mutual funds.

d.M1 + small denomination time deposits + credit cards + money market accounts.

  1. The first bankers were

a.sheriffs.

b.goldsmiths.

c.clergy.

d.innkeepers.

e.economists.

  1. Fractional reserve banking is a term used to describe a banking system whereby

a.individual banks share a fraction of the total funds deposited in the whole banking system.

b.banks are required to quote interest rates in fractions.

c.banks hold reserves equal to only a fraction of their deposit liabilities.

d.banks hold reserves equal to a multiple of their deposit liabilities; that is, fractional in this case really means multiple.

e.banks are required to maintain a certain fraction of their deposits in the form of checkable deposits, a certain fraction of their deposits in the form of savings deposits, etc.

  1. Reserves equal

a.checkable deposits + vault cash + traveler’s checks.

b.vault cash + currency in the hands of the nonbanking public.

c.bank deposits at the Federal Reserve.

d.bank deposits at the Federal Reserve + vault cash.

  1. Required reserves are the amount of

a.reserves a bank must hold against its deposits as mandated by the Federal Reserve.

b.cash a bank must hold against its deposits as mandated by the Federal Reserve.

c.checkable deposits a bank must hold against all other deposits as mandated by the U.S. Treasury.

d.reserves a bank must hold against all its assets as mandated by the Federal Reserve.

  1. If checkable deposits in Bank A total $12 million and the required reserve ratio is 15 percent, then required reserves at Bank A equal

a.$2.0 million.

b.$1.5 million.

c.$1.8 million.

d.$10.2 million.

  1. If checkable deposits in Bank A total $320 million and the required reserve ratio is 12 percent, then required reserves at Bank A equal

a.$12.0 million.

b.$120.0 million.

c.$38.4 million.

d.$281.6 million.

e.none of the above

  1. Ninth National Bank holds $148,000,000 in checkable deposits and $18,000,000 in reserves. With a required reserve ratio of 12 percent, how much in excess reserves is Ninth National holding?

a.$2,160,000

b.$240,000

c.$35,760,000

d.$15,840,000

  1. Ninth National Bank holds $176,500,000 in checkable deposits and $22,740,000 in reserves. With a required reserve ratio of 12 percent, how much in excess reserves is Ninth National holding?

a.$132,580,000

b.$20,011,200

c.–$10,044,000

d.$1,560,000

  1. A bank’s T-account records

a.the assets and liabilities of the bank.

b.how much tea the bank holds.

c.the changes in the bank’s assets and liabilities.

d.the changes in the bank’s assets only.

e.none of the above

ANS: c

  1. The amount of required reserves a bank holds depends on the

a.required reserve ratio.

b.demand-deposit ratio.

c.excess-reserve ratio.

d.currency ratio.

  1. The banking system increases the money supply by creating

a.checkable deposits.

b.currency.

c.checkable deposits and currency.

d.Federal Reserve Notes.

  1. Reserves held beyond the required amount are called ______reserves.

a.redundant

b.precautionary

c.excess

d.surplus

  1. Bank A has deposits of $5,000 and reserves of $1,800. If the required reserve ratio is 0.20, the bank has required reserves of

a.$1,000.

b.$2,000.

c.$3,000.

d.$4,000.

  1. A required reserve ratio of 12.5 percent, gives rise to a simple deposit multiplier of

a.2.

b.4.

c.6.

d.8.

  1. Suppose that the excess reserves in Bank A increase by $700. If the required reserve ratio is 25 percent, what is the maximum change in checkable deposits brought about by the banking system?

a.$175

b.$2,400

c.$2,600

d.$2,800

  1. Bank A receives $1,000 new reserves from the transfer of a checking account from another bank. The required reserve ratio is 20 percent. Based on the new reserves, Bank A can increase checkable deposits by a maximum of

a.$20,000.

b.$5,000.

c.$800.

d.$200.

  1. When a bank makes a loan to one of its customers, to the bank the loan is classified as

a.an asset.

b.a liability.

c.neither an asset nor a liability.

d.an asset in some cases and a liability in other cases, depending on the type of loan.

  1. National Bank holds $74,000,000 in checkable deposits, holds $8,880,000 in reserves, and has excess reserves of exactly zero. If $3,000,000 in checkable deposits is transferred to this bank, what is the maximum amount of new money National Bank can create?

a.$25,000,000

b.$3,409,000

c.$3,000,000

d.$2,640,000

e.There is not enough information to answer the question.

  1. National Bank holds $109,000,000 in checkable deposits and $1,125,000 in excess reserves under a required reserve ratio of 12 percent. Suppose customers of the bank bring in $5,000,000 in currency to add to their checkable deposits. How much money can this bank now create at maximum?

a.$4,400,000

b.$3,275,000

c.$5,525,000

d.$13,460,000

  1. The store-of-value function of money refers to the ability of money to

a.facilitate the exchange of goods and services.

b.maintain its value over time.

c.express relative scarcity.

d.earn interest over time.

e.increase its value over time.

  1. The most liquid type of bank account is the ______deposit.

a.time

b.automatic

c.checkable

d.certificate of

e.savings

  1. The U.S. money supply is backed by

a.gold or silver.

b.fractional reserves.

c.the commodity in which it is denominated.

d.nothing.

e.the U.S. Treasury.

\

Exhibit 12-1

BANK A

Assets /

Liabilities

Required Reserves$30,000 / Checkable Deposits$200,000
Excess Reserves$0
Loans$?

For questions 28-29, refer to Exhibit 12-1 above.

  1. Refer to Exhibit 12-1. The required reserve ratio is

a.0.10.

b.0.15.

c.0.20.

d.0.25.

e.0.30.

  1. Refer to Exhibit 12-1. The total amount of loans outstanding at Bank A

a.is $170,000.

b.is $200,000.

c.is $230,000.

d.is $30,000.