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:
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:
*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.
The reserve requirement directly limits the ability of banks to:
Change their interest rates
Advertise their services
Accept additional deposits
*Make new loans