1. The goldsmith’s ability to create money was based on the fact that:
A. withdrawals of gold tended to exceed deposits of gold in any given time period.
B. consumers and merchants preferred to use gold for transactions, rather than paper money.
C. the goldsmith was required to keep 100 percent gold reserves.
D. paper money in the form of gold receipts was rarely redeemed for gold.
2. Bank panics:
A. occur frequently in fractional reserve banking systems.
B. are a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently.
C. cannot occur in a fractional reserve banking system.
D. occur more frequently when the monetary system is backed by gold.
3. A bank that has assets of $85 billion and a net worth of $10 billion must have:
A. liabilities of $75 billion.
B. excess reserves of $10 billion.
C. liabilities of $10 billion.
D. excess reserves of $75 billion.
4. Which of the following are all assets to a commercial bank?
A. demand deposits, stock shares, and reserves
B. vault cash, property, and reserves
C. vault cash, property, and stock shares
D. vault cash, stock shares, and demand deposits
5. Banks create money when they:
A. add to their reserves in the Federal Reserve Bank.
B. accept deposits of cash.
C. sell government bonds.
D. exchange checkable deposits for the IOU’s of businesses and individuals.
6. When a check is drawn and cleared, the
A. reserves and deposits of both the bank against which the check is cleared and the bank receiving the check are unchanged by this transaction.
B. bank against which the check is cleared loses reserves and deposits equal to the amount of the check.
C. bank receiving the check loses reserves and deposits equal to the amount of the check.
D. bank against which the check is cleared acquires reserves and deposits equal to the amount of the check.
7. Excess reserves refer to the:
A. difference between a bank’s vault cash and its reserves deposited at the Federal Reserve Bank.
B. minimum amount of actual reserves a bank must keep on hand to back up its customers deposits.
C. difference between actual reserves and loans.
D. difference between actual reserves and required reserves.
8. 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.
9. The required reserve ratio applies to checkable deposits at:
A. national banks.
B. credit unions.
C. savings and loans.
D. institutions of all of these types.
10. The multiple by which the commercial banking system can expand the supply of money is equal to the reciprocal of:
A. the MPS.
B. its actual reserves.
C. its excess reserves.
D. the reserve ratio.
11. If excess reserves in the banking system are $4,000, checkable deposits are $40,000, and the required reserve ratio is 10 percent, then actual reserves are:
A. $4,000.
B. $6,000.
C. $8,000.
D. $5,000.
12. (Last Word) Which of the following represents a change in today’s banking policies that should prevent a recurrence of the bank panics of 1930–1933?
A. banks are more cautious lenders
B. banks keep large amounts of excess reserves on hand
C. the FDIC insures bank deposits and therefore depositors do not panic and rush to withdraw money when individual banks have financial problems
D. the President now has the authority to close banks whenever panics occur
13. If actual reserves in the banking system are $8,000, checkable deposits are $70,000, and the required reserve ratio is 10 percent, then excess reserves are:
A. zero.
B. $1,000.
C. $2,000.
D. $500.
14. What is a bank run?
A. when a bank president steals the deposits and moves to the Bahamas.
B. the ability for government to take over failed banks.
C. government offers deposit insurance, which prevents bank failures.
D. depositors rush to the bank to withdraw all their deposits, causing a bank failure.
15. What is the federal funds rate?
A. the interest rate that banks charge to their best customers.
B. the interest rate that banks lend to themselves using their deposits at the Federal Reserve.
C. the interest rate the Federal Reserve charges for loaning funds to banks.
D. the interest rate the Federal Reserve charges for lending to the federal government.
Answers:
| 1. D |
2. B |
3. A |
4. B |
5. D |
6. B |
| 7. D |
8. D |
9. D |
10. D |
11. C |
12. C |
| 13. B |
14. D |
15. B |
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