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 was rarely redeemed for gold.

2.	When the receipts given by goldsmiths to depositors were used to make purchases: A. the gold standard was created. B. existing banking laws were violated. C. the receipts became in effect paper money. D. a fractional reserve banking system was created.

3.

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.

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

5.	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.

6.

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 and net worth Reserves$27,000 Demand deposits$110,000 Loans50,000 Capital stock200,000 Securities33,000 Property200,000 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.

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 and net worth Reserves$27,000 Demand deposits$110,000 Loans50,000 Capital stock200,000 Securities33,000 Property200,000 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.

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 and net worth Reserves$27,000 Demand deposits$110,000 Loans50,000 Capital stock200,000 Securities33,000 Property200,000 R-1 REF14033 Refer to the above data. Assuming the bank has a check cleared against it for the amount loaned in the previous question, its reserves and demand deposits will now be: A. $25,000 and $122,000 respectively. B. $22,000 and $110,000 respectively. C. $32,000 and $115,000 respectively. D. $22,000 and $105,000 respectively.

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 and net worth Reserves$27,000 Demand deposits$110,000 Loans50,000 Capital stock200,000 Securities33,000 Property200,000 R-1 REF14033 Refer to the above data. After the transaction described in the previous question is completed, the bank will now have excess reserves of: A. $0. B. $3,000. C. $12,000. D. $5,000.

10.

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 and net worth Reserves$27,000 Demand deposits$110,000 Loans50,000 Capital stock200,000 Securities33,000 Property200,000 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.

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