1.

A commercial bank's reserves are: A. liabilities to both the commercial bank and the Federal Reserve Bank holding them. B. liabilities to the commercial bank and assets to the Federal Reserve Bank holding them. C. assets to both the commercial bank and the Federal Reserve Bank holding them. D. assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.

2.

The primary purpose of the legal reserve requirement is to: A. prevent banks from hoarding too much vault cash. B. provide a means by which the monetary authorities can influence the lending ability of commercial banks. C. prevent commercial banks from earning excess profits. D. provide a dependable source of interest income for commercial banks.

3.	Demand deposits are also called: A. checking accounts. B. high-powered money. C. savings balances. D. Federal Reserve Notes.

4.

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.

5.	Suppose the reserve requirement is 20 percent. If a bank has demand deposits of $4 million and actual reserves of $1 million, it can safely lend out: A. $1 million. B. $1.2 million. C. $200,000. D. $800,000.

6.

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? A. decreased by $600 B. increased by $1,800 C. increased by $600 D. increased by $1,200

7.

Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent. Assets Liabilities & Net Worth Reserves $ 27,000 Loans 50,000 Securities 33,000 Property 200,000 Demand deposits $110,000 Capital stock 200,000 R-1 REF14033 Refer to the above data. This commercial bank has excess reserves of: A. $0. B. $3,000. C. $12,000. D. $5,000. E. $7,000.

8.

Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent. Assets Liabilities & Net Worth Reserves $ 27,000 Loans 50,000 Securities 33,000 Property 200,000 Demand deposits $110,000 Capital stock 200,000 R-1 REF14033 Refer to the above data. This bank can safely expand its loans by a maximum of: A. $7,000. B. $25,000. C. $12,000. D. $5,000. E. $35,000.

9.

Use the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent. Assets Liabilities & Net Worth Reserves $ 27,000 Loans 50,000 Securities 33,000 Property 200,000 Demand deposits $110,000 Capital stock 200,000 R-1 REF14033 Refer to the above data. If the original bank sheet was for the commercial banking system, rather than a single bank, loans and deposits could have been expanded by a maximum of: A. $8,000. B. $15,000. C. $48,000. D. $25,000.

10.	If the required reserve ratio was lowered: A. banks would have to reduce their lending. B. the size of the monetary multiplier would increase. C. the actual reserves of banks would increase. D. the Federal funds interest rate would rise.

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