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Chapter 15: Q1. (page 319)

A goldsmith has \(2 million of gold in his vaults. He issues \)5 million in gold receipts. His gold holdings are what fraction of the paper money (gold receipts) he has issued?

  1. 1/10

  2. 1/5

  3. 2/5

  4. 5/5

Short Answer

Expert verified

The correct answer is c. 2/5. Goldsmith's gold holdings are a 2/5 fraction of the paper money he has issued.

Step by step solution

01

Explanation

The holding with the goldsmith will equal the fraction of the outstanding gold receipt.

The goldsmith has $2 million worth of gold and issues $5 million worth of gold receipts per the question. Thus, the money in circulation will equal $5 million.

The fraction of his holdings will be equal to the amount of gold upon the total gold receipts issue as shown below:

His holdings = Gold amount / issued gold receipts

His holdings = $2 million/ $5 million

Thus, the fraction is 2/5.

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Most popular questions from this chapter

Suppose the assets of the Silver Lode Bank are \(100,000 higher than on the previous day and its net worth is up to \)20,000. By how much and in what direction must its liabilities have changed from the day before?

Suppose the following simplified consolidated balance sheet is for the entire commercial banking system and that all figures are in billions of dollars. The reserve ratio is 25 percent.

a. What is the amount of excess reserves in this commercial banking system? What is the maximum amount the banking system might lend? Show in columns 1 and 1′ how the consolidated balance sheet would look after this amount has been loaned. What is the value of the monetary multiplier?

b. Answer the questions in part a assuming the reserve ratio is 20 percent. What is the resulting difference in the amount that the commercial banking system can loan?

How would a decrease in the reserve requirement affect the (a) size of the monetary multiplier, (b) amount of excess reserves in the banking system, and (c) extent to which the system could expand the money supply through the creation of checkable deposits via loans?

The actual reason that banks must hold required reserves is:

  1. To enhance liquidity and deter bank runs

  2. To help fund the Federal Deposit Insurance Corporation, which insures bank deposits

  3. To give the Fed control over the lending ability of commercial banks.

  4. To help increase the number of bank loans

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?

  1. \)0

  2. \(200 million

  3. \)2 billion

  4. $20 billion
See all solutions

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