Problem 1
A goldsmith has \(\$ 2\) million of gold in his vaults. He issues S5 million in gold receipts. His gold holdings are what fraction of the paper money (gold receipts) he has issued? a. \(1 / 10\) b. \(1 / 5\) c. \(2 / 5\) d. \(5 / 5\)
Problem 2
A commercial bank has \(\$ 100\) million in checkable-deposit liabilities and \(\$ 12\) million in actual reserves. The required reserve ratio is 10 percent. How big are the bank's excess reserves? a. \(\$ 100\) million. b. \(\$ 88\) million. c. \(\$ 12\) million. d. \(\$ 2\) million.
Problem 3
The actual reason that banks must hold required reserves is: a. To enhance liquidity and deter bank runs. b. To help fund the Federal Deposit Insurance Corporation, which insures bank deposits. c. To give the Fed control over the lending ability of commercial banks. d. To help increase the number of bank loans.
Problem 4
A single commercial bank in a multibank banking system can lend only an amount equal to its initial preloan ___________________. a. Total reserves. b. Excess reserves. c. Total deposits. d. Excess deposits.
Problem 5
The two conflicting goals facing commercial banks are: a. Profit and liquidity. b. Profit and loss. c. Deposits and withdrawals. d. Assets and liabilities.
Problem 6
Suppose that the banking system in Canada has a required reserve ratio of 10 percent while the banking system in the United States has a required reserve ratio of 20 percent. In which country would \(\$ 100\) of initial excess reserves be able to cause a larger total amount of money creation? a. Canada. b. United States.
Problem 7
Suppose that the Fed has set the reserve ratio at 10 percent and that banks collectively have \(\$ 2\) billion in excess reserves. What is the maximum amount of new checkable-deposit money that can be created by the banking system? a. \(\$ 0\) b. \(\$ 200\) million. c. \(\$ 2\) billion. d. \(\$ 20\) billion.
