Ch. 14 How Banks And Thrifts Create Money

23 Questions | Attempts: 551

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Money Quizzes & Trivia

Ch 14 McConnell and Brue.


Questions and Answers
  • 1. 
    The balance sheet of a commercial bank shows the transactions in which the bank has engaged during a given period of time.
    • A. 

      True

    • B. 

      False

  • 2. 
    Goldsmiths increased the money supply when they accepted deposits of gold and issued paper receipts to the depositors.
    • A. 

      True

    • B. 

      False

  • 3. 
    Modern banking systems use hold as the basis for the fractional reserve system.
    • A. 

      True

    • B. 

      False

  • 4. 
    Cash held by a bank is sometimes called vault cash.
    • A. 

      True

    • B. 

      False

  • 5. 
    Mary Lynn, a music star, deposits a $30,000 check in a commercial bank and receives a checkable deposit in return; one hour later the Manford Iron and Coal Company borrows $30,000 from the same bank.  The money supply has increased by $30,000 as a result of the two transactions.
    • A. 

      True

    • B. 

      False

  • 6. 
    A commercial bank may maintain its legal reserve either as a deposit in its Federal Reserve Bank or as government bonds in its own vault.
    • A. 

      True

    • B. 

      False

  • 7. 
    The legal reserve that a commercial bank maintains must equal its own deposit liabilities multiplied by the required reserve ration.
    • A. 

      True

    • B. 

      False

  • 8. 
    Legal reserves permit the Board of Governors of the Federal Reserve System to influence the lending ability of commercial banks.
    • A. 

      True

    • B. 

      False

  • 9. 
    The actual reserves of a commercial bank equal excess reserves plus required reserves.
    • A. 

      True

    • B. 

      False

  • 10. 
    The reserve of a commercial bank in the Federal Reserve Bank is an asset of the Federal Reserve Bank.
    • A. 

      True

    • B. 

      False

  • 11. 
    A check for $1000 drawn on Bank X by a depositor and deposited in Bank Y will increase the excess reserves in Bank Y by $1000.
    • A. 

      True

    • B. 

      False

  • 12. 
    A single commercial bank can safely lend an amount equal to its excess reserves multiplied by the monetary multiplier ration.
    • A. 

      True

    • B. 

      False

  • 13. 
    When a borrower repays a loan of $500, either in cash or by check, the supply of money is reduced by $500.
    • A. 

      True

    • B. 

      False

  • 14. 
    The granting of a $5000 loan and the purchase of a $5000 government bond from a securities dealer by a commercial bank have the same effect on the money supply.
    • A. 

      True

    • B. 

      False

  • 15. 
    The selling of a government bond by a commercial bank will increase the money supply.
    • A. 

      True

    • B. 

      False

  • 16. 
    A commercial bank seeks both profits and liquidity, but these are conflicting goals.
    • A. 

      True

    • B. 

      True

  • 17. 
    The Federal funds rate is the interest rate at which the Federal government lends funds to commercial banks.
    • A. 

      True

    • B. 

      False

  • 18. 
    The reason that the banking system can lend by a multiple of its excess reserves, but each individual bank can only lend "dollar for dollar" with its excess reserves, is that reserves lost by a single bank are not lost to the banking system as a whole.
    • A. 

      True

    • B. 

      False

  • 19. 
    The monetary multiplier is excess reserves divided by required reserves.
    • A. 

      True

    • B. 

      False

  • 20. 
    The maximum checkable deposit expansion is equal to excess reserves divided by the monetary multiplier.
    • A. 

      True

    • B. 

      False

  • 21. 
    When borrowers from a commercial bank wish to have cash rather than checkable deposits, the money creating potential of the banking system is increased.
    • A. 

      True

    • B. 

      False

  • 22. 
    A desire by banks to hold excess reserves may reduce the size of the monetary multiplier.
    • A. 

      True

    • B. 

      False

  • 23. 
    There is a need for the Federal Reserve System to control the money supply because profit-seeking banks tend to make changes in the money supply that are pro-cyclical.
    • A. 

      True

    • B. 

      False

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