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| 1 | |
Suppose the required reserve ratio is 10% and the banking system initially has no excess reserves. If $20 billion in new currency is deposited into the system, these new deposits will initially create excess reserves of: |
| | A) | $2 billion |
| | B) | $18 billion |
| | C) | $20 billion |
| | D) | $200 billion |
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| 2 | |
Sam draws a $100 check on his account at Bank A which is then deposited in Bank B. When this check is cleared: |
| | A) | neither Bank A's nor Bank B's deposits or reserves are affected |
| | B) | Bank A gains reserves equal to $100 and Bank B gains deposits equal to $100 |
| | C) | Bank A loses reserves and deposits equal to $100 |
| | D) | Bank B loses reserves and deposits equal to $100 |
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| 3 | |
Suppose a bank has checkable deposits of $1,000,000 and the legal reserve ratio is 5 percent. If the institution has excess reserves of $5,000, then its actual reserves are: |
| | A) | $45,000 |
| | B) | $50,000 |
| | C) | $55,000 |
| | D) | $5,000 |
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| 4 | |
Assume that SIC, Inc. writes a $50,000 check on its account at Metro National Bank to repay the balance on a loan issued by this bank. As a result of this transaction: |
| | A) | the money supply declines by $50,000 |
| | B) | the money supply increases by $50,000 |
| | C) | the bank's excess reserves will decrease by $50,000 |
| | D) | the bank's required reserves will increase by $50,000 |
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| 5 | |
A single bank can safely increase its total loans by an amount equal to its: |
| | A) | required reserves |
| | B) | total reserves |
| | C) | excess reserves |
| | D) | total deposits |
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| 6 | |
Money is created when: |
| | A) | loans are repaid |
| | B) | the net worth of the banking system is increased |
| | C) | banks exchange some of the state and local bonds in their portfolio for federal government bonds |
| | D) | banks make additional loans |
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| 7 | |
Assume the banking system has no excess reserves with a reserve requirement of 20%. The reserve requirement is then dropped to 10%. As a result of this reduction: |
| | A) | the money multiplier will decrease |
| | B) | bank profitability will likely decrease |
| | C) | banks will be forced to accumulate reserves by reducing their lending activity |
| | D) | the money supply will likely increase |
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| 8 | |
A bank temporarily short of required reserves may remedy the situation by borrowing reserves: |
| | A) | in the bond market |
| | B) | in the Federal deposit market |
| | C) | from its own depositors |
| | D) | in the Federal funds market |
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| 9 | |
The monetary multiplier is equal to: |
| | A) | one |
| | B) | the inverse of actual reserves minus required reserves |
| | C) | the inverse of one minus the required reserve ratio |
| | D) | the inverse of the required reserve ratio |
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| 10 | |
Hassan deposits $50,000 in a commercial bank that is required to retain 20% in reserve. The deposit increases the lending capacity of the bank by: |
| | A) | $5,000 |
| | B) | $10,000 |
| | C) | $40,000 |
| | D) | $50,000 |
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