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# ECON STUDY GUIDE

Test Bank: I Topic: A Single Commercial Bank

Assume that a bank initially has no excess reserves. If it receives \$5,000 in cash from a depositor and the bank finds that it can safely lend out \$4,500, the reserve requirement must be

zero.

B. 10 percent.

20 percent.

25 percent.

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

Suppose the reserve requirement is 20 percent. If a bank has checkable deposits of \$4 million and actual reserves of \$1 million, it can safely lend out

\$1 million.

\$1.2 million. C. \$200,000. D. \$800,000.

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

Suppose that a bank's actual reserves are \$5 million, its checkable deposits are \$5 million, and its excess reserves are \$3 million. The reserve requirement must be

40 percent.

20 percent.

10 percent.

5 percent.

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

31.

Assume the Continental National Bank's balance statement is as shown in the accompanying table. Assuming a legal reserve ratio of 20 percent, how much in excess reserves would this bank have after a check for \$10,000 was drawn and cleared against it?

A. \$3,000 B. \$24,000 C. \$6,000 D. \$16,000

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

The reserve ratio refers to the ratio of a bank's

reserves to its liabilities and net worth.

capital stock to its total assets.

checkable deposits to its total liabilities.

D. required reserves to its checkable-deposit 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: I Topic: A Single Commercial Bank

The amount that a commercial bank can lend is determined by its

required reserves.

B. excess reserves.

outstanding loans.

outstanding checkable 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.

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

Test Bank: I Topic: A Single Commercial Bank

Topic: Money-Creating Transactions of a Commercial Bank

A commercial bank can expand its excess reserves by

demanding and receiving payment on an overdue loan.

buying bonds from a Federal Reserve Bank.

paying back money borrowed from a Federal Reserve 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: I Topic: A Single Commercial Bank

Commercial banks monetize claims when they

collect checks through the Federal Reserve System.

B. make loans to the public.

accept repayment of outstanding loans.

borrow from the Federal Reserve Banks.

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 create money when they

accept cash deposits from the public.

purchase government securities from the central banks.

C. create checkable deposits in exchange for IOUs.

D. raise their interest rates.

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

Assume Company X deposits \$100,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the reserve ratio is 20 percent, Bank A can increase the money supply by a maximum of

A. \$50,000. B. \$180,000. C. \$80,000. D. \$500,000.

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

Assume that Smith deposits \$600 in currency into her checking account in the XYZ Bank. Later that same day, Jones negotiates a loan for \$1,200 at the same bank. In what direction and by what amount has the supply of money changed?

decreased by \$600

increased by \$1,800

increased by \$600

D. increased by \$1,200

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

Assume the Standard Internet Company negotiates a loan for \$5,000 from the Metro National Bank and receives a checkable deposit for that amount in exchange for its promissory note (IOU). As a result of this transaction,

the supply of money is increased by \$5,000.

the supply of money declines by the amount of the loan.

a claim has been "demonetized."

the Metro Bank acquires reserves from other banks.

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

40.

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This commercial bank has excess reserves of A. \$0.

B. \$3,000. C. \$12,000. D. \$5,000.

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

41.

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. This bank can safely expand its loans by a maximum of A. \$7,000.

B. \$25,000. C. \$12,000. D. \$5,000.

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.

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

Test Bank: I Topic: A Single Commercial Bank

Topic: Money-Creating Transactions of a Commercial Bank

Type: Table

42.

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. Assuming the bank loans out all of its remaining excess reserves as a checkable deposit and has a check cleared against it for that amount, its reserves and checkable deposits will now be

A. \$25,000 and \$122,000, respectively.

B. \$22,000 and \$110,000, respectively.

\$32,000 and \$115,000, respectively.

\$22,000 and \$105,000, respectively.

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

43.

Refer to the accompanying balance sheet for the ABC National Bank. Assume the required reserve ratio is 20 percent. If the original balance sheet was for the commercial banking system, rather than a single bank, loans and checkable deposits could have been expanded by a maximum of

A. \$8,000. B. \$15,000. C. \$48,000. D. \$25,000.

AACSB: Knowledge Application

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

Type: Table

A single commercial bank must meet a 25 percent reserve requirement. If the bank has no excess reserves initially and \$5,000 of cash is deposited in the bank, it can increase its loans by a maximum of

A. \$1,250. B. \$120,000. C. \$5,000.

D. \$3,750.

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.

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

Test Bank: I Topic: A Single Commercial Bank

Topic: Money-Creating Transactions of a Commercial Bank

If you deposit a \$50 bill in a commercial bank that has a 10 percent legal reserve requirement, the bank will

have \$45 of additional excess reserves.

be capable of lending an additional \$500.

be capable of lending no more than an additional \$50.

have \$50 of 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: I Topic: A Single Commercial Bank

When a commercial bank has excess reserves,

it is in a position to make additional loans.

its actual reserves are less than its required reserves.

it is charging too high an interest rate on its loans.

its reserves exceed 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.

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

Test Bank: I Topic: A Single Commercial Bank

Topic: Money-Creating Transactions of a Commercial Bank

If we both have checking accounts in the same commercial bank and I write a check in your favor for \$200, the bank's

balance sheet will be unchanged.

reserves and checkable deposits will both decline by \$200.

liabilities will decline by \$200, but its net worth will increase by \$200.

assets and liabilities will both decline by \$200.

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

Which of the following is correct?

Both the granting and repaying of bank loans expand the aggregate money supply.

Granting and repaying bank loans do not affect the money supply.

Granting a bank loan destroys money; repaying a bank loan creates money.

D. Granting a bank loan creates money; repaying a bank loan destroys money.

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

If the reserve requirement is 10 percent, what amount of excess reserves does a bank acquire when a business deposits a \$500 check drawn on another bank?

A. \$450 B. \$400 C. \$5,000 D. \$550

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 amount of reserves that a commercial bank is required to hold is equal to

the amount of its checkable deposits.

the sum of its checkable deposits and time deposits.

C. its checkable deposits multiplied by the reserve requirement.

D. its checkable deposits divided by its total 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: I Topic: A Single Commercial Bank

Banks create money when they

allow loans to mature.

accept deposits of cash.

C. buy government bonds from households.

D. sell government bonds to households.

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

In prosperous times, commercial banks are likely to hold very small amounts of excess reserves because

the Fed forces commercial banks to increase the money supply during economic expansions.

it is very costly to transfer funds between commercial banks and the central banks.

C. Federal Reserve Banks pay lower rates of interest on bank reserves than could be earned by the commercial banks loaning out the reserves.

D. Federal Reserve Banks want to minimize their interest payments on such 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.

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

Test Bank: I Topic: A Single Commercial Bank

Topic: Money-Creating Transactions of a Commercial Bank

Which of the following is correct?

Required reserves minus actual reserves equal excess reserves.

Required reserves equal excess reserves minus actual reserves.

Required reserves equal actual reserves plus excess reserves.

D. Actual reserves minus required reserves equal 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: I Topic: A Single Commercial Bank

54.

Refer to the accompanying balance sheet for the First National Bank of Bunco. All figures are in millions. If this bank has excess reserves of \$6 million, the legal reserve ratio must be

10 percent.

12 percent.

C. 14 percent.

D. 20 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

55.

Refer to the accompanying balance sheet for the First National Bank of Bunco. All figures are in millions. Suppose that this bank currently has \$6 million in excess reserves and that customers of this bank collectively write checks for cash at the bank in the amount of \$6 million. As a result, the bank's excess reserves diminish to

A. \$0.

\$6 million.

\$0.72 million.

D. \$0.84 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: I Topic: A Single Commercial Bank

Type: Table

When a bank has a check drawn and cleared against it,

excess reserves in the banking system decline.

the nation's total money supply falls.

the bank's balance sheet does not change.

D. the amount of required reserves the bank must have will fall.

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

Suppose a credit union has checkable deposits of \$500,000 and the legal reserve ratio is 10 percent. If the institution has excess reserves of \$4,000, then its actual reserves are A. \$46,000.

B. \$50,000.

C. \$54,000. D. \$4,000.

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

When commercial banks use excess reserves to buy government securities from the public,

new money is created.

commercial bank reserves increase.

the money supply falls.

checkable deposits decline.

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

Which of the following would reduce the money supply?

Commercial banks use excess reserves to buy government bonds from the public.

Commercial banks loan out excess reserves.

C. Commercial banks sell government bonds to the public.

D. A check clears from Bank A to Bank B.

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

Overnight loans from one bank to another for reserve purposes entail an interest rate called the

prime rate.

discount rate.

C. federal funds rate.

D. treasury bill rate.

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.

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

Test Bank: I Topic: A Single Commercial Bank

Topic: Money-Creating Transactions of a Commercial Bank

A bank temporarily short of required reserves may be able to remedy this situation by

borrowing funds in the federal funds market.

granting new loans.

shifting some of its vault cash to its reserve account at the Federal Reserve.

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.

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

Test Bank: I Topic: A Single Commercial Bank

Topic: Money-Creating Transactions of a Commercial Bank

The market for immediately available reserve balances at the Federal Reserve is known as the

money market.

long-term bond market.

short-term bond market.

D. federal funds market.

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.

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

Test Bank: I Topic: A Single Commercial Bank

Topic: Money-Creating Transactions of a Commercial Bank

The federal funds market is the market in which

banks borrow from the Federal Reserve Banks.

U.S. securities are bought and sold.

C. banks borrow reserves from one another on an overnight basis.

D. Federal Reserve Banks borrow from one another.

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.

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

Test Bank: I Topic: A Single Commercial Bank

Topic: Money-Creating Transactions of a Commercial Bank

Since 2009, how much has been borrowed through the federal funds market?

\$0

\$43 billion

\$1,148 billion

\$787 million

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.

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

Test Bank: I Topic: A Single Commercial Bank

Topic: Money-Creating Transactions of a Commercial Bank

The last transaction in the federal funds market occurred in 2008 because

the Federal Reserve closed down the federal funds market.

in response to the financial crisis, the Federal Reserve raised the reserve ratio to 100 percent.

the federal funds rate has been set too high.

D. since the financial crisis, nearly every bank has significant 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.

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

Test Bank: I Topic: A Single Commercial Bank

Topic: Money-Creating Transactions of a Commercial Bank

The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of

the MPS.

its actual reserves.

its excess reserves.

D. the reserve ratio.

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 multiple by which the commercial banking system can expand the supply of money on the basis of excess reserves

is larger, the smaller the required reserve ratio.

is the reciprocal of the bank's actual reserves.

is directly or positively related to the size of the required reserve ratio.

will be zero when the required reserve ratio is 100 percent.

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 multiple by which the commercial banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to

the reciprocal of the required reserve ratio.

1 minus the required reserve ratio.

the reciprocal of the income velocity of money.

1/MPS.

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 m equals the maximum number of new dollars that can be created for a single dollar of excess reserves and R equals the required reserve ratio, then for the banking system,

m = R − 1.

R = m/1.

R = m − 1.

D. m = 1/R.

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 D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves; E equals the amount of excess reserves; and m is the monetary multiplier, then

m = E/D.

B. D = E ×m.

D = E − 1/m.

D = m/E.

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 15 percent and commercial bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired checkable deposits, then the relevant monetary multiplier for the banking system will be

A. 3½.

B. 4.

C. 5.

D. 6.67.

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

Other things equal, if the required reserve ratio was lowered,

banks would have to reduce their lending.

B. the size of the monetary multiplier would increase.

the actual reserves of banks would increase.

the federal funds interest rate would rise.

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

Suppose a commercial banking system has \$100,000 of outstanding checkable deposits and actual reserves of \$35,000. If the reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of

A. \$122,000. B. \$175,000. C. \$300,000. D. \$75,000.

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 a portion of the loans extended by commercial banks is taken as cash rather than as checkable deposits, the maximum money-creating potential of the commercial banking system will

be equal to twice the reciprocal of the reserve ratio.

be unaffected.

increase.

D. decrease.

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 basic reason why the commercial banking system can increase its checkable deposits by a multiple of its excess reserves is that

reserves lost by any particular bank will be gained by some other bank.

the central banks follow policies that prevent reserves from falling below the level required by law.

the MPC of borrowers is greater than zero but less than 1.

the banking system must keep reserves equal to 100 percent of its checkable-deposit liabilities.

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

76.

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. The commercial banking system has excess reserves of

A. \$9 billion.

\$7 billion.

\$6.1 billion.

\$5 billion.

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

Test Bank: I Topic: A Single Commercial Bank

Topic: The Banking System: Multiple-Deposit Expansion

Type: Table

77.

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in billions. The maximum amount by which the commercial banking system can expand the supply of money by lending is

A. \$30 billion.