Purdue University North Central
Economics 210
Review Questions Chapter 13 - Money and Banks
(1) When money is used to pay for goods and services, it is functioning as:
(a) a medium of exchange.
(b) a standard of value.
(c) a store of value.
(d) All of the above.
(2) The largest component of the money supply M1 is:
(a) gold.
(b) money in checking accounts.
(c) currency.
(d) None of the above.
(3) Money creation occurs when:
(a) a person puts cash in a bank.
(b) a person deposits a payroll check in their checking account.
(c) banks make loans to borrowers.
(d) borrowers repay loans to banks.
(4) If excess reserves are $50,000, demand deposits are $1,000,000, and the required reserve ratio is 20 percent, then total reserves are:
(a) $50,000.
(b) $150,000
(c) $200,000.
(d) $250,000.
(5) A bank’s required reserve ratio is:
(a) a bank’s demand deposits divided by its reserves.
(b) the amount of a bank’s excess reserves divided by required reserves.
(c) the amount of a bank’s actual reserves divided by its required reserves.
(d) the amount of a bank’s required reserves divided by total deposits.
(6) Suppose a bank has $80,000 in deposits and a required reserve ratio of 10 percent. Then required reserves are:
(a) $8,000.
(b) $80,000.
(c) $800,000.
(d) $20,000.
(7) A bank may lend an amount equal to its:
(a) Required reserves.
(b) Total reserves.
(c) Total assets.
(d) Excess reserves.
(8) Suppose a bank has $1 million in deposits, a required reserve ratio of 10 per cent, and bank reserves of $250,000. The bank has excess reserves of:
(a) $100,000.
(b) $150,000.
(c) $850,000.
(d) $900,000.
(9) If the banking system has a minimum reserve ratio of 20 per cent, then the money multiplier is:
(a) 0.2
(b) 0.8
(c) 1.25
(d) 5.0
(10) Suppose the entire banking system has $100,000 in deposits, a required reserve ratio of 20 per cent, and total bank reserves for the whole system of $30,000. Then the whole system can make new loans in the amount of:
(a) $5,000
(b) $20,000
(c) $25,000
(d) $50,000