Economics 252 – Homework Chapter 13 – Money and Banks

(1) Suppose a bank has $200,000 in deposits, a required reserve ratio of 5 percent, and bank reserves of $45,000. Then the bank can make new loans in the amount of:

(a) $2,500.

(b) $10,000.

(c) $20,000.

(d) $35,000.

(2) Suppose a bank has $200,000 in deposits, a required reserve ratio of 10 percent, and reserves of $100,000. Then it has excess reserves of:

(a) $200,000.

(b) $80,000.

(c) $20,000.

(d) negative $200,000.

(3) If the banking system has a reserve ratio of 25 percent, then the money multiplier is:

(a) 4.0

(b) 1.25

(c) 0.25

(d) 5.0

(4) Suppose a bank has $300 million in deposits, a required reserve ratio of 10 percent, and total bank reserves of $45 million. Then the potential deposit creation for the whole banking system is:

(a) $3,000,000

(b) $15,000,000

(c) $150,000,000

(d) $450,000,000

(5) The money supply becomes smaller when:

(a) a loan is repaid.

(b) an individual deposits currency in his or her checking account.

(c) when a bank uses its excess reserves to make a loan.

(d) a first bank must transfer reserves to second bank when the loan proceeds made at the first bank are deposited at the second bank.