SOLVED

18.2Â Â Deposit Expansion: The Single Bank 1) A bank creates money A) never since it only lends out money it owns. B) when it makes loans. C) when it prints bank notes. D) when it pays out reserves. 2) If the required reserve ratio is .25, demand deposits are $400 million, and total reserves are $150 million, then excess reserves are A) $25 million. B) $50 million. C) $75 million. D) $125 million. 3) If the required reserve ratio is .10, demand deposits are $200 million, and total reserves are $40 million, then excess reserves are A) $20 million. B) $40 million. C) $400 million. D) $2,000 million. 4) Assume that the required reserve ratio is 10 percent. A bank has deposits of $1,000,000 and cash of $500,000 in the Fed. The bank has demand deposits equal to $1,500,000. Given this information, the bank has excess reserves of A) $850,000. B) $350,000. C) $1,350,000. D) None of the above. 1) Assume that excess reserves are $10 million, demand deposits are $500 million, and total reserves are $135 million. The required reserve ratio is A) .05. B) .1. C) .2. D) .25. 2) Assume that excess reserves are $10 million, the required reserve ratio is 10 percent, and total reserves are $145 million. Demand deposits are A) $135 million. B) $1.35 billion. C) $1.35 million. D) $1.45 billion. 3) Assume that excess reserves are $35 million, demand deposits are $500 million, and total reserves are $135 million. The required reserve ratio is A) .07. B) .2. C) .25. D) .27. 4) Which of the following assets yields a 0 percent return? A) U.S. Treasury Bills B) Excess reserves C) Deposits with correspondent banks D) Municipal bonds 5) Banks prefer __________ hold excess reserves because __________. A) not to; excess reserves earn no interest B) not to; banks are not required to hold them C) to; excess reserves earn interest D) to; banks need them to prevent runs 6) A commercial bank’s ability to lend is determined by its A) required reserves. B) excess reserves. C) total reserves. D) capital. 7) A bank can safely lend only an amount equal to its excess reserves because A) all of its reserves are now required reserves. B) borrowers will spend the proceeds of their loans, and the bank will lose all of its excess reserves. C) the excess reserves will fall to zero when the bank makes the loans. D) This is not true since a bank can safely lend an amount equal to its total reserves. 8) When banks make new loans, the effect on reserves is the same as A) holding excess reserves. B) expanding capital. C) purchasing securities. D) acquiring deposits. 9) The demand deposit multiplier is equal to the A) reciprocal of the reserve requirement ratio. B) reciprocal of the discount rate. C) inverse of the reserve requirement ratio. D) inverse of the discount rate. 10) The demand deposit multiplier __________ as the required reserve ratio __________. A) increases; increases B) increases; decreases C) does not change; increases D) does not change; decreases