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If actual reserves in the banking system are \$8,000, checkable deposits are \$70,000, and the legal reserve ratio is 10 percent, then excess reserves are

zero. B. \$1,000. C. \$2,000. D. \$500.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-04 Describe the multiple expansion of loans and money by the entire banking system.

Test Bank: I Topic: The Banking System: Multiple-Deposit Expansion

If actual reserves in the banking system are \$40,000, excess reserves are \$10,000, and checkable deposits are \$240,000, then the legal reserve requirement is

10 percent.

B. 12.5 percent.

20 percent.

5 percent.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-04 Describe the multiple expansion of loans and money by the entire banking system.

Test Bank: I Topic: The Banking System: Multiple-Deposit Expansion

If actual reserves in the banking system are \$50,000, excess reserves are \$5,000, and checkable deposits are \$225,000, then the monetary multiplier is A. 10.

B. 4.

C. 5.

D. 2.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 15-05 Define the monetary multiplier, explain how to calculate it, and demonstrate its relevance.

Test Bank: I Topic: The Monetary Multiplier

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

lower the required reserve ratio.

B. raise the required reserve ratio.

increase bank reserves.

lower interest rates.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 15-05 Define the monetary multiplier, explain how to calculate it, and demonstrate its relevance.

Test Bank: I Topic: The Monetary Multiplier

If the reserve ratio is 100 percent, the value of the monetary multiplier is

0.

B. 1. C. 10. D. 100.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 15-05 Define the monetary multiplier, explain how to calculate it, and demonstrate its relevance.

Test Bank: I Topic: The Monetary Multiplier

The greater the required reserve ratio, the

higher is the spending multiplier.

lower is the spending multiplier.

C. lower is the monetary multiplier.

D. higher is the monetary multiplier.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 15-05 Define the monetary multiplier, explain how to calculate it, and demonstrate its relevance.

Test Bank: I Topic: The Monetary Multiplier

Money is destroyed when

checks written on one bank are deposited in another bank.

C. loans are repaid.

D. the net worth of the banking system declines.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-03 Describe how a bank can create money. Learning Objective: 15-04 Describe the multiple expansion of loans and money by the entire banking system.

Test Bank: I Topic: Money-Creating Transactions of a Commercial Bank Topic: The Banking System: Multiple-Deposit Expansion

When a bank loan is repaid, the supply of money

is constant, but its composition will have changed.

B. is decreased.

is increased.

may either increase or decrease.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-03 Describe how a bank can create money.

Test Bank: I Topic: Money-Creating Transactions of a Commercial Bank

100.

Refer to the accompanying table of information for the Moolah Bank. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's

A. assets are \$1,000.

B. liabilities are \$1,000.

net worth is zero.

profit is \$1,000.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: I Topic: A Single Commercial Bank

Type: Table

101.

Refer to the accompanying table of information for the Moolah Bank. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's

A. assets are \$1,100.

liabilities are \$1,100.

net worth is \$300.

profit is \$1,000.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: I Topic: A Single Commercial Bank

Type: Table

102.

Refer to the accompanying table of information for the Moolah Bank. Assume that the listed amounts constitute this bank's complete set of accounts. Moolah's

assets are \$1,000.

liabilities are \$300.

C. net worth is \$100.

D. annual profit is \$200.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: I Topic: A Single Commercial Bank

Type: Table

103.

Refer to the accompanying table of information for the Moolah Bank. If Moolah Bank is legally "loaned up," the reserve requirement must be

A. 10 percent.

15 percent.

20 percent.

25 percent.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: I Topic: A Single Commercial Bank

Type: Table

104.

Refer to the accompanying table of information for the Moolah Bank. If Moolah Bank is legally "loaned up," the banking system's monetary multiplier must be

5.

8. C. 10. D. 20.

AACSB: Knowledge Application

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 15-05 Define the monetary multiplier, explain how to calculate it, and demonstrate its relevance.

Test Bank: I Topic: The Monetary Multiplier

Type: Table

105.

Refer to the accompanying table of information for the Moolah Bank, and assume that Moolah bank is "loaned up." If it receives a \$100 deposit of currency, it could safely expand its loans by

A. \$100. B. \$90. C. \$900.

D. \$1,000.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-03 Describe how a bank can create money.

Test Bank: I Topic: Money-Creating Transactions of a Commercial Bank

Type: Table

106.

Refer to the accompanying table of information for the Moolah Bank, and assume that Moolah Bank is "loaned up." If it receives a \$100 deposit of currency, the banking system of which Moolah is a part could expand loans by

A. \$100. B. \$90. C. \$900.

D. \$1,000.

AACSB: Knowledge Application

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 15-05 Define the monetary multiplier, explain how to calculate it, and demonstrate its relevance.

Test Bank: I Topic: The Monetary Multiplier

Type: Table

(Last Word) The term "leverage" refers to

A. using borrowed money in an attempt to increase profits.

the Fed's ability to control money creation through the reserve ratio.

investing in stocks from multiple companies in an effort to spread risk.

Fed sales and purchases of bonds to stabilize the money supply.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-04 Describe the multiple expansion of loans and money by the entire banking system.

Test Bank: I Topic: The Banking System: Multiple-Deposit Expansion

(Last Word) The greater the leverage in the financial system, all else equal,

the smaller the monetary multiplier.

the smaller the profit and loss margins of financial firms.

the greater the stability of the financial system.

D. the greater the instability of the financial system.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-04 Describe the multiple expansion of loans and money by the entire banking system.

Test Bank: I Topic: The Banking System: Multiple-Deposit Expansion

(Last Word) Suppose Balin has \$100 to invest in an opportunity that returns, for every \$100 invested, \$120 if it goes well but only \$80 if it goes poorly. If leverage allows Balin to borrow

\$90 for every \$10 he invests, what are his rates of profit and loss, respectively, if he borrows the full amount to invest in the opportunity?

20 percent profit; 20 percent loss

33.3 percent profit; 50 percent loss

C. 200 percent profit; 100 percent loss

D. 1,100 percent profit; 100 percent loss

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-04 Describe the multiple expansion of loans and money by the entire banking system.

Test Bank: I Topic: The Banking System: Multiple-Deposit Expansion

(Last Word) Leverage in the financial system

A. magnifies profits but reduces losses.

B. magnifies both profits and losses.

reduces profits but magnifies losses.

reduces both profits and losses.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-04 Describe the multiple expansion of loans and money by the entire banking system.

Test Bank: I Topic: The Banking System: Multiple-Deposit Expansion

True / False Questions

Excess reserves are the amount by which required reserves exceed actual reserves.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: I Topic: A Single Commercial Bank

Actual reserves equal required reserves plus excess reserves.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: I Topic: A Single Commercial Bank

Commercial bank reserves are an asset to commercial banks but a liability to the Federal Reserve Bank holding them.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: I Topic: A Single Commercial Bank

Balance sheets always balance because reserves must always equal liabilities plus net worth.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: I Topic: A Single Commercial Bank

Loans made to customers are a liability on a bank's balance sheet.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: I Topic: A Single Commercial Bank

Checkable deposits are a liability on a bank's balance sheet.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: I Topic: A Single Commercial Bank

The supply of money increases when the public buys government securities from commercial banks.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-03 Describe how a bank can create money.

Test Bank: I Topic: Money-Creating Transactions of a Commercial Bank

Commercial banks increase the supply of money when they purchase either personal IOUs or government bonds from businesses and households.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-03 Describe how a bank can create money.

Test Bank: I Topic: Money-Creating Transactions of a Commercial Bank

When commercial banks retire outstanding loans, the supply of money is increased.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-03 Describe how a bank can create money.

Test Bank: I Topic: Money-Creating Transactions of a Commercial Bank

Commercial banks monetize claims when they sell securities to Federal Reserve Banks.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-03 Describe how a bank can create money.

Test Bank: I Topic: Money-Creating Transactions of a Commercial Bank

The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of reserves to the banking system as a whole.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-04 Describe the multiple expansion of loans and money by the entire banking system.

Test Bank: I Topic: The Banking System: Multiple-Deposit Expansion

The monetary multiplier and the spending multiplier are two ways of referring to the same concept.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 15-05 Define the monetary multiplier, explain how to calculate it, and demonstrate its relevance.

Test Bank: I Topic: The Monetary Multiplier

In an uncontrolled or unregulated system, commercial bank lending will tend to intensify the business cycle.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-01 Discuss why the U.S. banking system is called a " fractional reserve" system. Learning Objective: 15-05 Define the monetary multiplier, explain how to calculate it, and demonstrate its relevance.

Test Bank: I Topic: The Fractional Reserve System Topic: The Monetary Multiplier

An individual bank can safely lend out a multiple of its excess reserves, but the banking system can safely lend out only an amount equal to the excess reserves in the banking system.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-04 Describe the multiple expansion of loans and money by the entire banking system.

Test Bank: I Topic: The Banking System: Multiple-Deposit Expansion

If the reserve requirement is 20 percent, the monetary multiplier will be 4.

FALSE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 15-05 Define the monetary multiplier, explain how to calculate it, and demonstrate its relevance.

Test Bank: I Topic: The Monetary Multiplier

The higher the reserve requirement, the lower is the monetary multiplier.

TRUE

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Remember Difficulty: 01 Easy

Learning Objective: 15-05 Define the monetary multiplier, explain how to calculate it, and demonstrate its relevance.

Test Bank: I Topic: The Monetary Multiplier

Multiple Choice Questions

Fractional reserve banking refers to a system where banks

grant loans to their borrowing customers.

deposit a fraction of their reserves at the central bank.

C. hold only a fraction of their deposits in their reserves.

D. accept a portion of their deposits in checkable accounts.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-01 Discuss why the U.S. banking system is called a " fractional reserve" system.

Test Bank: II Topic: The Fractional Reserve System

The fractional reserve system of banking started when goldsmiths began

accepting deposits of gold for safe storage.

charging people who deposited their gold.

using deposited gold to produce products for sale to others.

D. issuing paper receipts in excess of the amount of gold held.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-01 Discuss why the U.S. banking system is called a " fractional reserve" system.

Test Bank: II Topic: The Fractional Reserve System

What is one significant consequence of fractional reserve banking?

A. Banks are vulnerable to "panics" or "bank runs."

Banks can only lend an amount equal to their deposits.

Banks hold a portion of their deposits in gold.

Banks can serve the withdrawals of all their depositors.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-01 Discuss why the U.S. banking system is called a " fractional reserve" system.

Test Bank: II Topic: The Fractional Reserve System

What is one significant characteristic of fractional reserve banking?

Banks hold a fraction of their loans in reserve.

Banks use deposit insurance for loans to customers.

Bank loans will be equal to the amount of gold on deposit.

D. Banks can create money through lending their reserves.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-01 Discuss why the U.S. banking system is called a " fractional reserve" system.

Test Bank: II Topic: The Fractional Reserve System

A bank's net worth is equal to its

A. assets plus its liabilities.

B. assets minus its liabilities.

liabilities minus its assets.

profits plus its assets.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

A bank's net worth is the

measure of its profitability.

value of its vault cash and loan portfolio.

C. claims of its owners against the bank's assets.

D. claims of its creditors against the bank's assets.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

A bank owns a 10-story office building. In the bank's balance sheet, this would be listed as part of

A. assets.

liabilities.

capital stock.

net worth.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

A bank has \$2 million in checkable deposits. In the bank's balance sheet, this would be part of

A. assets.

B. liabilities.

capital stock.

net worth.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

The claims of creditors of a bank against the bank's assets are called

loans.

net worth.

C. liabilities.

D. required reserves.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

Which of the following are liabilities to a bank?

capital stock and reserves

property and capital stock

vault cash and demand deposits

D. demand and time deposits

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

One major component of money supply M1 is part of a bank's

assets.

reserves.

C. liabilities.

D. net worth.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

A checkable deposit at a commercial bank is a(n)

liability to the depositor and an asset to the bank.

liability to both the depositor and the bank.

C. asset to the depositor and a liability to the bank.

D. asset to both the depositor and the bank.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

Cash held by a bank in its vault is a part of the bank's

A. reserves.

liabilities.

money supply.

net worth.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

When a bank sells capital stock (equity shares) in return for cash,

the capital stock increases the assets side and the cash increases the liabilities side.

the capital stock decreases the liabilities and the cash increases the assets side.

the capital stock increases the net worth and the cash increases the liabilities.

D. the capital stock increases the net worth and the cash increases the assets side.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

When cash is deposited in a checkable-deposit account at a bank, there is

a decrease in the money supply M1.

an increase in the money supply M1.

an increase in the bank's net worth.

D. an increase in the bank's liabilities.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

When cash is withdrawn from a checkable-deposit account at a bank,

the money supply M1 increases.

the money supply M1 decreases.

C. the money supply M1 does not change, but its composition changes.

D. the composition of money supply M1 does not change.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

The required reserve ratio is equal to

A. a commercial bank's checkable-deposit liabilities divided by its required reserves.

B. a commercial bank's required reserves divided by its checkable-deposit liabilities.

a commercial bank's checkable-deposit liabilities multiplied by its excess reserves.

a commercial bank's excess reserves divided by its required reserves.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

A bank's required reserves can be calculated by

dividing its excess reserves by its required reserves.

dividing its required reserves by its excess reserves.

C. multiplying its checkable-deposit liabilities by the reserve ratio.

D. multiplying its checkable-deposit liabilities by its excess reserves.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

When a bank accepts a checkable deposit from a customer, its deposits will increase and its excess reserves will

A. increase by the same amount as deposits.

B. increase by less than the deposits.

increase by more than the deposits.

decrease.

AACSB: Knowledge Application Accessibility: Keyboard Navigation

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

146.

Refer to the accompanying table. If a bank has \$60 million in savings deposits and \$40 million in checkable deposits, then its required reserves are

\$30 million.

\$3 million.

\$1.8 million.

D. \$1.2 million.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

147.

Refer to the accompanying table. If a bank has checkable deposits of \$45 million and reserves of \$2 million, then its excess reserves are

A. \$0.35 million.

B. \$0.65 million.

\$1.35 million.

\$1.65 million.

AACSB: Knowledge Application

Blooms: Understand Difficulty: 02 Medium

Learning Objective: 15-02 Explain the basics of a banks balance sheet and the distinction between a banks actual reserves and its required reserves.

Test Bank: II Topic: A Single Commercial Bank

A commercial bank's checkable-deposit liabilities can be estimated by

A. dividing its required reserves by its excess reserves.