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Suppose First National Bank has zero excess reserves. If the required reserve ratio increases, which of the following will happen immediately?

Bank assets will decrease

*The bank will not have enough required reserves

The money multiplier will increase

Total reserves will increase

Initially a bank has a minimum reserve requirement of 10 percent and no excess reserves. If $10,000 is deposited in the bank, then ceteris paribus:

The bank can increase its loans by $10,000.

*The bank can increase its loans by $9,000.

Total reserves will increase by $9,000.

Required reserves will increase by $10,000.

A bank may lend an amount equal to its:

Required reserves

Total reserves

Total assets

*Excess reserves

Which of the following requires U.S. banks to maintain a minimum reserve ratio?

The Organization of Commercial Banks

The U.S. Treasury

*The Federal Reserve


In order to simplify market transactions, an economy must use:

U.S. dollars

*A form of money



Constraints on deposit creation include all of the following except:

*An increase in the money multiplier

The lack of interest in borrowing money on the part of individuals

The decision by individuals to stop depositing money in transaction accounts

An increase in the reserve requirement

Money creation occurs when:

A person puts cash in a bank

A person deposits a payroll check in their checking account

*Banks make loans to borrowers

The Federal Reserve increases the reserve requirement

If there is no minimum reserve requirement in the banking system, the potential ability of banks to create money is:



Limited by the amount of deposits

Limited by the number of banks in the banking system

Which of the following is not an essential characteristic of money?

*It serves as a benchmark for barter

It serves as a store of value

It serves as a medium of exchange

It serves as a standard of value

Which of the following is true for U.S. banks?

*Banks must keep only a fraction of total deposits as reserves

Banks create money by printing it

Banks are allowed to lend as much money as they choose

Banks transfer money from spenders to savers

The overwhelming majority of the basic money supply in the U.S. is in the form of:

Traveler's checks and currency in circulation

Currency in circulation and savings accounts

*Transactions accounts and currency in circulation

Credit card balances and transactions accounts

Which of the following is an essential function performed by banks?

Transferring funds from spenders to savers

*Transferring funds from savers to spenders

Keeping the money supply constant

Lending funds to the Federal Reserve

Banks try to keep their holdings of excess reserves low in order to:

Create as much money as possible for the economy.

Keep the money multiplier low.

Escape Fed penalties.

*Maximize profits.

The reserve requirement directly limits the ability of banks to:

Change their interest rates

Advertise their services

Accept additional deposits

*Make new loans

Suppose a bank has $100,000 in deposits and a minimum reserve requirement of 7 percent. Then required reserves are:





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