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1
All of the following statements, except one, are correct. Which is the exception?
A)A bank’s total reserves are equal to its excess reserves plus its target reserves.
B)A bank’s assets plus its net worth equals its liabilities.
C)When a bank makes a loan, it creates demand deposits.
D)A single bank can safely lend out only an amount up to the value of its excess reserves.
E)If a bank transaction decreases the value of one of its assets, then either some other asset must increase in value or one of its liabilities must decrease in value.
2
What is true about deposits in near-banks, such as credit unions?
A)They are part of M1 but not M2.
B)They are part of M1 and M2 but not M3.
C)They are part of M3 only.
D)They are not part of the money supply at all.
3
What is true if a bank’s balance sheet has $1.2 million in assets and $1 million in liabilities?
A)The bank must have been profitable this year.
B)The bank has shareholders’ equity of $0.2 million.
C)Demand deposits must be $0.2 million.
D)Cash reserves must be $0.2 million.
4
Suppose that Bank Apollo has a target reserve ratio of 5 percent, $10 000 in demand deposits, and $1000 in reserves. Assume that the bank makes a loan equal to its excess reserves and the borrower spends this amount at a business that does not use Bank Apollo. What is the net effect on Bank Apollo?
A)It will be neither under- nor over-reserved.
B)It will be over-reserved by $500.
C)It will be under-reserved by $500.
D)It will be under-reserved by $25.
E)Its reserve status will be unaffected.





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