Quiz 514

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Quiz 514

1. In a system of 100-percent-reserve banking,

a. banks do not make loans.
b. currency is the only form of money.
c. deposits are banks’ only assets.
d. All of the above are correct.

2. In a system of 100-percent-reserve banking,

a. banks do not accept deposits.
b. banks do not influence the supply of money.
c. loans are the only asset item for banks.
d. All of the above are correct.

3. In a system of 100-percent-reserve banking, the purpose of a bank is to

a. make loans to households.
b. influence the money supply.
c. give depositors a safe place to keep their money.
d. buy and sell gold.

4. In a 100-percent-reserve banking system, if people decided to decrease the amount of currency

they held by increasing the amount they held in checkable deposits, then
a. M1 would increase.
b. M1 would decrease.
c. M1 would not change.
d. M1 might rise or fall.

5. A bank which must hold 100 percent reserves opens in an economy that had no banks and a
currency of $150. If customers deposit $50 into the bank, what is the value of the money supply?
a. $50
b. $100
c. $150
d. $200

6. In a fractional-reserve banking system, a bank

a. does not make loans.
b. does not accept deposits.
c. keeps only a fraction of its deposits in reserve.
d. None of the above is correct.

7. Under a fractional-reserve banking system, banks

a. hold more reserves than deposits.
b. generally lend out a majority of the funds deposited.
c. cause the money supply to fall by lending out reserves.
d. All of the above are correct.

8. Banks are able to create money only when

a. interest rates are above 2%.
b. the Fed sells U.S. government bonds.
c. the reserve ratio is 100%.
d. only a fraction of deposits are held in reserve.

9. If a bank has a reserve ratio of 8 percent, then

a. government regulation requires the bank to use at least 8 percent of its deposits to make loans.
b. the bank’s ratio of loans to deposits is 8 percent.
c. the bank keeps 8 percent of its deposits as reserves and loans out the rest.
d. the bank keeps 8 percent of its assets as reserves and loans out the rest.

10. A bank’s reserve ratio is 8 percent and the bank has $1,000 in deposits. Its reserves amount
to
a. $8.
b. $80.
c. $92.
d. $920.

11. A bank’s reserve ratio is 10 percent and the bank has $5,000 in deposits. Its reserves amount
to
a. $50.
b. $500.
c. $4,500.
d. $4,950.

12. A bank’s reserve ratio is 5 percent and the bank has $2,280 in reserve. Its deposits amount to
a. $114.
b. $2,166.
c. $2,400.
d. $45,600.
13. Suppose the banking system currently has $400 billion in reserves, the reserve requirement is
8 percent, and excess reserves amount to $5 billion. What is the level of deposits?
a. $5,000 billion
b. $4,937.5 billion
c. $5,062.5 billion
d. $4,995 billion

14. If a bank that desires to hold no excess reserves and has just enough reserves to meet the
required reserve ratio of 15 percent receives a deposit of $600, it has a
a. $600 increase in excess reserves and no increase in required reserves.
b. $600 increase in required reserves and no increase in excess reserves.
c. $510 increase in excess reserves and a $90 increase in required reserves.
d. $90 increase in excess reserves and a $510 increase in required reserves.

15. On a bank's T-account, which are part of the bank’s assets?

a. both deposits made by its customers and reserves
b. deposits made by its customers but not reserves
c. reserves but not deposits made by its customers
d. neither deposits made by its customers nor reserves

16. On a bank's T-account, which are part of the banks liabilities?

a. both deposits made by its customers and reserves
b. deposits made by its customers but not reserves
c. reserves but not deposits made by its customers
d. neither deposits made by its customers nor reserves

17. Which of the following is an asset of a bank and a liability for its customers?
a. deposits of its customers and loans to its customers
b. deposits of its customers but not loans to its customers
c. loans to its customers but not the deposits of its customers
d. neither the deposits of its customers nor the loans to its customers

18. Which of the following is a liability of a bank and an asset of its customers?
a. deposits of its customers and loans to its customers
b. deposits of its customers but not loans to its customers
c. loans of its customers but not the deposits of its customers
d. neither the deposits of its customers nor the loans to its customers

19. A bank’s assets equal its liabilities under

a. both 100-percent-reserve banking and fractional-reserve banking.
b. 100-percent-reserve banking but not under fractional-reserve banking.
c. fractional-reserve banking but not under 100-percent-reserve banking.
d. neither 100-percent-reserve banking nor fractional-reserve banking.

20. A bank loans Kellie's Print Shop $350,000 to remodel a building near campus to use as a new
store. On their respective balance sheets, this loan is
a. an asset for the bank and a liability for Kellie's Print Shop. The loan increases the money
supply.
b. an asset for the bank and a liability for Kellie's Print Shop. The loan does not increase the
money supply.
c. a liability for the bank and an asset for Kellie's Print Shop. The loan increases the money
supply.
d. a liability for the bank and an asset for Kellie's Print Shop. The loan does not increase the
money supply.

21. A bank loans Greg’s Ice Cream $250,000 to remodel a building near campus to use as a new
store. On their respective balance sheets, this loan is
a. a liability for the bank and an asset for Greg's Ice Cream. The loan increases the money
supply.
b. a liability for the bank and an asset for Greg's Ice Cream. The loan does not increase the
money supply.
c. an asset for the bank and a liability for Greg's Ice Cream. The loan increases the money
supply.
d. an asset for the bank and a liability for Greg's Ice Cream. The loan does not increase the
money supply.

22. Reserves are

a. the central bank of the U.S.
b. deposits that banks hold in excess of the required amount.
c. the purchase of bonds by the Federal Open Market Committee.
d. deposits that banks have received but have not yet loaned out.

23. A bank has a 5 percent reserve requirement, $5,000 in deposits, and has loaned out all it can
given the reserve requirement.
a. It has $25 in reserves and $4,975 in loans.
b. It has $250 in reserves and $4,750 in loans.
c. It has $1,000 in reserves and $4,000 in loans.
d. None of the above is correct.

24. A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it
can given the reserve requirement.
a. It has $80 in reserves and $9,920 in loans.
b. It has $800 in reserves and $9,200 in loans.
c. It has $1,250 in reserves and $8,750 in loans.
d. None of the above is correct.

25. A bank has $8,000 in deposits and $6,000 in loans. It has loaned out all it can given the
reserve requirement. It follows that the reserve requirement is
a. 2.5 percent.
b. 33.3 percent.
c. 25 percent.
d. 75 percent.
26. A bank has $500,000 in deposits and $475,000 in loans. It has loaned out all it can. It has a
reserve ratio of
a. 2.5 percent.
b. 5 percent.
c. 9.5 percent.
d. 25 percent.

27. The manager of the bank where you work tells you that your bank has $6 million in excess
reserves. She also tells you that the bank has $400 million in deposits and $362 million dollars in
loans. Given this information you find that the reserve requirement must be
a. 44/400.
b. 6/362.
c. 38/400.
d. 32/400.

28. The manager of the bank where you work tells you that your bank has $10 million in excess
reserves. She also tells you that the bank has $400 million in deposits and $375 million dollars in
loans. Given this information you find that the reserve requirement must be
a. 10/400.
b. 25/400.
c. 35/400.
d. 15/400.

29. A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can
given the reserve requirement.
a. It has $3,600 in deposits.
b. It has $32,400 in deposits.
c. It has $39,600 in deposits.
d. It has $40,000 in deposits.

30. A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can
given the reserve requirement.
a. It has $6,400 in deposits.
b. It has $10,000 in deposits.
c. It has $9,600 in deposits.
d. It has $1,600 in deposits.

31. Suppose the banking system currently has $300 billion in reserves, the reserve requirement is
5 percent, and excess reserves are $30 billion. What is the level of loans?
a. $270 billion
b. $5,400 billion
c. $6,000 billion
d. $5,100 billion

32. The reserve requirement is 12 percent. Lucy deposits $600 into a bank. By how much do
excess reserves change?
a. $600
b. $528
c. $72
d. $12

33. If a bank desires to hold no excess reserves, the reserve requirement is 8 percent, and it
receives a new deposit of $500,
a. its required reserves increase by $40.
b. its total reserves initially increase by $460.
c. it will be able to make a new loan of up to $492.
d. All of the above are correct.

34. If the reserve requirement is 10 percent, a bank desires to hold no excess reserves, and it
receives a new deposit of $500, it
a. must increase required reserves by $50.
b. will initially see reserves increase by $500.
c. will be able to use this deposit to make new loans amounting to $450.
d. All of the above are correct.

35. If the reserve requirement is 12 percent and banks desire to hold no excess reserves, when a
bank receives a new deposit of $1,000,
a. it must increase its required reserves by more than $150.
b. its total reserves initially increase by $120.
c. it will be able to make new loans up to a maximum of $880.
d. None of the above is correct.

36. Suppose banks desire to hold no excess reserves and that the Fed has set a reserve
requirement of 6 percent. If you deposit $8,000 into First Raven Bank,
a. First Raven’s required reserves increase by $480.
b. First Raven will be able to lend out $7,520.
c. First Raven’s assets and liabilities both will increase by $8,000.
d. All of the above are correct.

37. If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it
receives a new deposit of $10, then this bank
a. must increase its required reserves by $10.
b. will initially see its total reserves increase by $10.50.
c. will be able to make new loans up to a maximum of $9.50.
d. All of the above are correct.

38. Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has
$18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this
bank now have to lend out if it decides to hold only required reserves?
a. $27,000
b. $27,190
c. $26,190
d. $9,000

39. When a bank loans out $1,000, the money supply

a. does not change.
b. decreases.
c. increases.
d. may do any of the above.

40. If a bank uses $200 of excess reserves to make a new loan when the reserve ratio is 15
percent, this action by itself initially makes the money supply
a. and wealth increase by $200.
b. and wealth decrease by $200.
c. increase by $200 while wealth does not change.
d. decrease by $200 while wealth decreases by $200.

41. If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 8 percent,
this action by itself initially makes the money supply
a. and wealth increase by $500.
b. and wealth decrease by $500.
c. increase by $500 while wealth does not change.
d. decrease by $500 while wealth decreases by $500.

42. If R represents the reserve ratio for all banks in the economy, then the money multiplier is
a. 1/(1-R).
b. 1/R.
c. 1/(1+R).
d. (1+R)/R.

43. The money multiplier equals

a. 1/R, where R represents the quantity of reserves in the economy.
b. 1/R, where R represents the reserve ratio for all banks in the economy.
c. 1/(1+R), where R represents the quantity of reserves in the economy.
d. 1/(1+R), where R represents the reserve ratio for all banks in the economy.

44. As the reserve ratio decreases, the money multiplier

a. increases.
b. does not change.
c. decreases.
d. could do any of the above.

45. If the central bank in some country raised the reserve requirement, then the money multiplier
for that country
a. would increase.
b. would not change.
c. would decrease.
d. could do any of the above.

46. In the special case of the 100 percent-reserve banking, the money multiplier is
a. 1 and banks create money.
b. 1 and banks do not create money.
c. 2 and banks create money
d. 2 and banks do not create money.

47. Which of the following statements is correct? In the special case of the 100-percent reserve
banking the money multiplier is
a. 0 and banks create money.
b. 0 and banks do not create money.
c. 1 and banks create money
d. 1 and banks do not create money.

48. If the reserve ratio is 100-percent, then a new deposit of $1000 into a bank account
a. eventually increases the money supply by $1000.
b. leaves the size of the money supply unchanged.
c. eventually decreases the size of the money supply by $1000.
d. eventually increases the money supply by $2000.

49. If you deposit $100 of currency into a demand deposit at a bank, this action by itself
a. does not change the money supply.
b. increases the money supply.
c. decreases the money supply.
d. has an indeterminate effect on the money supply.

50. If the reserve ratio is 4 percent, then the money multiplier is

a. 24.
b. 25.
c. 26.
d. 4.

51. If the reserve ratio is 8 percent, then the money multiplier is

a. 12.5.
b. 11.5.
c. 13.5.
d. 8.

52. If the reserve ratio is 12 percent, then the money multiplier is

a. 9.3.
b. 8.3.
c. 7.3.
d. 12.
53. If the reserve ratio is 10 percent, the money multiplier is
a. 100.
b. 10.
c. 9/10.
d. 1/10.

54. If the reserve ratio is 15 percent, the money multiplier is

a. 7.7.
b. 6.7.
c. 5.7.
d. 15.

55. If the reserve ratio is 7.5 percent, the money multiplier is

a. 7.5.
b. 10.3.
c. 13.3.
d. 11.3.

56. If the reserve ratio increased from 10 percent to 20 percent, the money multiplier would
a. rise from 10 to 20.
b. rise from 5 to 10.
c. fall from 10 to 5.
d. not change.

57. If the reserve ratio is 5 percent, then $1,000 of additional reserves can create up to
a. $5,500 of new money.
b. $5,000 of new money.
c. $4,000 of new money.
d. None of the above is correct.

58. If the reserve ratio is 5 percent, then $500 of additional reserves can create up to
a. $10,500 of new money.
b. $10,000 of new money.
c. $9,500 of new money.
d. $2,500 of new money.

59. If the reserve ratio is 5 percent, then $600 of additional reserves can create up to
a. $30 of new money.
b. $3,000 of new money.
c. $12,000 of new money.
d. None of the above is correct.

60. If the reserve ratio is 8 percent, then an additional $800 of reserves can increase the money
supply by as much as
a. $6,400.
b. $8,000.
c. $12,500.
d. $10,000.

61. If the reserve ratio is 10 percent, $1,400 of additional reserves can create up to
a. $140 of new money.
b. $14,000 of new money.
c. $140,000 of new money.
d. None of the above is correct.

62. If the reserve ratio is 6 percent, then $9,000 of additional reserves can create up to
a. $159,000 of new money.
b. $54,000 of new money.
c. $150,000 of new money.
d. $141,000 of new money.

63. If the reserve ratio is 8 percent, then a decrease in reserves of $6,000 can cause the money
supply to fall by as much as
a. $48,000.
b. $75,000.
c. $55,200.
d. $10,800.

64. If the reserve ratio is 12.5 percent, then $2,000 of additional reserves can create up to
a. $8,000 of new money.
b. $16,000 of new money.
c. $32,000 of new money.
d. None of the above is correct.

65. If the reserve ratio is 12.5 percent, then $1,000 of additional reserves can create up to
a. $7,000 of new money.
b. $8,000 of new money.
c. $11,500 of new money.
d. $12,500 of new money.

66. If the reserve ratio is 20 percent, then $100 of new reserves can generate
a. $60 of new money in the economy.
b. $250 of new money in the economy.
c. $500 of new money in the economy.
d. $2,000 of new money in the economy.

67. If the reserve ratio is 4 percent, then $81,250 of new money can be generated by
a. $325 of new reserves.
b. $3,250 of new reserves.
c. $20,312.50 of new reserves.
d. $2,031,250 of new reserves.
68. If the reserve ratio is 12.5 percent, then $5,600 of money can be generated by
a. $64 of new reserves.
b. $448 of new reserves.
c. $700 of new reserves.
d. $800 of new reserves.

69. Suppose the Federal Reserve increases bank reserves and banks lend out some of these
reserves, but at some point banks still have $5 million more they wish to lend out. If the reserve
requirement is 10 percent, how much more money can banks create if they lend out the
remaining amount?
a. $55 million
b. $50 million
c. $45 million
d. $40 million

70. If $300 of new reserves generates $800 of new money in the economy, then the reserve ratio
is
a. 2.7 percent.
b. 12.5 percent.
c. 37.5 percent.
d. 40 percent.

71. In the nation of Wiknam, the money supply is $80,000 and reserves are $18,000. Assuming
that people hold only deposits and no currency, and that banks hold no excess reserves, then the
reserve requirement is
a. 29 percent.
b. 22.5 percent.
c. 16 percent.
d. None of the above is correct.

72. In Ugoland, the money supply is $8 million and reserves are $1 million. Assuming that
people hold only deposits and no currency, and that banks hold no excess reserves, then the
reserve requirement is
a. 14 percent.
b. 12.5 percent.
c. 8 percent.
d. None of the above is correct.

Table 29-3. An economy starts with $50,000 in currency. All of this currency is deposited into a
single bank, and the bank then makes loans totaling $45,750. The T-account of the bank is
shown below.

Assets Liabilities
Reserves $4,250 Deposits $50,000
Loans 45,750
73. Refer to Table 29-3. The bank’s reserve ratio is
a. 17.5 percent.
b. 8.5 percent.
c. 91.5 percent.
d. 100 percent.

74. Refer to Table 29-3. If all banks in the economy have the same reserve ratio as this bank,
then the value of the economy’s money multiplier is
a. 9.33.
b. 1.09.
c. 10.76.
d. 11.76.

75. Refer to Table 29-3. If all banks in the economy have the same reserve ratio as this bank,
then an increase in reserves of $150 for this bank has the potential to increase deposits for all
banks by
a. $287.25.
b. $1,614.71.
c. $1,764.71.
d. $2,000 or more.

Table 29-4.

The First Bank of Fairfield

Assets Liabilities
Reserves $1,000 Deposits $8,000
Loans 7,000

76. Refer to Table 29-4. The reserve ratio for this bank is
a. 8 percent.
b. 12.5 percent.
c. 87.5 percent.
d. 25 percent.

77. Refer to Table 29-4. If $800 is deposited into the First Bank of Fairfield, and the bank takes
no other actions, its
a. reserves will increase by $100.
b. liabilities will increase by $800.
c. assets will decrease by $800.
d. loans will increase by $800.

78. Refer to Table 29-4. Starting from the situation as depicted by the T-account, if someone
deposits $500 into the First Bank of Fairfield, and if the bank makes new loans so as to keep its
reserve ratio unchanged, then the amount of new loans that it makes will be
a. $40.
b. $437.50.
c. $71.42.
d. $428.57.

Table 29-5.

The First Bank of Roswell

Assets Liabilities
Reserves $30,000 Deposits $200,000
Loans 170,000

79. Refer to Table 29-5. If the bank faces a reserve requirement of 6 percent, then the bank
a. is in a position to make a new loan of $12,000.
b. is in a position to make a new loan of $18,000.
c. has excess reserves of $12,000.
d. None of the above is correct.

80. Refer to Table 29-5. If the bank faces a reserve requirement of 8 percent, then the bank
a. is in a position to make a new loan of $14,000.
b. has fewer reserves than are required.
c. has excess reserves of $16,400.
d. None of the above is correct.

81. Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting
from the situation as depicted by the T-account, a customer deposits an additional $60,000 into
his account at the bank. If the bank takes no other action it will
a. have $64,000 in excess reserves.
b. have $4,000 in excess reserves.
c. be in a position to make new loans equal to $6,000
d. None of the above is correct.

82. Refer to Table 29-5. If the bank faces a reserve requirement of 20 percent, then it
a. has $10,000 of excess reserves.
b. needs $10,000 more reserves to meet its reserve requirements.
c. needs $20,000 more reserves to meet its reserve requirements.
d. just meets its reserve requirement.

83. Refer to Table 29-5. If the bank is holding $4,000 in excess reserves, then the reserve
requirement with which it must comply is
a. 17 percent.
b. 12 percent.
c. 13 percent.
d. 14 percent.

Table 29-6.
Bank of Pleasantville

Assets Liabilities
Reserves $3,000 Deposits $50,000
Loans 47,000

84. Refer to Table 29-6. From the table it follows that the Bank of Pleasantville operates in a
a. fractional-reserve banking system, since its reserves are less than its deposits.
b. fractional-reserve banking system, since its reserves are less than its loans.
c. 100-percent-reserve banking system, since its assets are equal to its liabilities.
d. 100-percent-reserve banking system if the Fed’s reserve requirement is 10 percent; otherwise,
it operates in a fractional-reserve banking system.

85. Refer to Table 29-6. The Bank of Pleasantville’s reserve ratio is

a. 6.4 percent.
b. 16.7 percent.
c. 6.0 percent.
d. 15.7 percent.

86. Refer to Table 29-6. Assume there is a reserve requirement and the Bank of Pleasantville is
exactly in compliance with that requirement. Assume the same is true for all other banks. Lastly,
assume people hold only deposits and no currency. What is the money multiplier?
a. 6
b. 16.7
c. 15.6
d. 6.4

87. Refer to Table 29-6. If the Fed’s reserve requirement is 5 percent, then what quantity of
excess reserves does the Bank of Pleasantville now hold?
a. $500
b. $250
c. $2,000
d. $3,600

88. Refer to Table 29-6. Assume the Fed’s reserve requirement is 5 percent and all banks besides
the Bank of Pleasantville are exactly in compliance with the 5 percent requirement. Further
assume that people hold only deposits and no currency. Starting from the situation as depicted by
the T-account, if the Bank of Pleasantville decides to make new loans so as to end up with no
excess reserves, then by how much does the money supply eventually increase?
a. $10,833.33.
b. $13,000.
c. $8,333.33.
d. $10,000.

Table 29-7.
Bank of Springfield

Assets Liabilities
Reserves $19,800 Deposits $180,000
Loans 160,200

89. Refer to Table 29-7. If the Bank of Springfield has lent out all the money it can given its
level of deposits, then what is the reserve requirement?
a. 8.1 percent
b. 11.0 percent
c. 12.4 percent
d. 89.0 percent

90. Refer to Table 29-7. Assuming the Bank of Springfield and all other banks have the same
reserve ratio, then what is the value of the money multiplier?
a. 1.1
b. 12.3
c. 8.1
d. 9.1

91. Refer to Table 29-7. If the Fed requires a reserve ratio of 6 percent, then what quantity of
excess reserves does the Bank of Springfield now hold?
a. $9,600
b. $10,800
c. $10,200
d. $9,000

92. Refer to Table 29-7. Assume the Fed’s reserve requirement is 10 percent and that the Bank of
Springfield makes new loans so as to make its new reserve ratio 10 percent. From then on, no
bank holds any excess reserves. Assume also that people hold only deposits and no currency.
Then by what amount does the economy’s money supply increase?
a. $37,800
b. $18,000
c. $2,000
d. $16,300

Table 29-8
First National Bank
Assets Liabilities and Owners’ Equity
Reserves $1,200 Deposits $9,000
Loans $8,000 Debt $800
Short-term securities $800 Capital (owners’ equity) $200

93. Refer to Table 29-8. The required reserve ratio is 12 percent. Which of the following is true?
a. This banks reserve ratio is 12 percent. Its excess reserves are $0.
b. This banks reserve ratio is 13.3 percent. Its excess reserves are $120.
c. This banks reserve ratio is 15 percent. Its excess reserves are $240.
d. This banks reserve ratio is 10 percent. Its excess reserves are $300.

94. Refer to Table 29-8. The required reserve ratio is 12 percent and First National Bank sells
$120 of its short-term securities to the Federal Reserve. This action will
a. increase First National’s reserves by $120. Its excess reserves are $240.
b. decrease First National’s reserves by $120. Its excess reserves are $0.
c. increase First National’s loans by $120. Its reserves decrease by $120.
d. decrease First National’s loans by $120. Its reserves increase by $120.

95. Refer to Table 29-8. This bank’s leverage ratio is

a. 2.
b. 50.
c. 13.3.
d. 7.5.

96. First National Bank (FNB) has a reserve ratio of 20 percent, a required reserve ratio of 10
percent, and deposits of $1,000. If FNB receives an additional deposit of $100,
a. then it has required reserves of $210 and holds excess reserves of $10.
b. then it has required reserves of $10 and holds excess reserves of $20.
c. then it has required reserves of $110 and holds excess reserves of $190.
d. then it has required reserves of $110 and holds excess reserves of $0.

97. Bank capital is

a. the machinery, structures, and equipment of the bank.
b. the resources that owners have put into the bank.
c. the reserves of the bank.
d. the bank’s total assets.

98. The leverage ratio is calculated as

a. assets minus liabilities.
b. assets divided by bank capital
c. the reciprocal of the required reserve ratio
d. the required reserve ratio multiplied by bank capital.

99. Suppose a bank is operating with a leverage ratio of 10. A 6 percent increase in the value of
assets
a. will reduce liabilities by 6 percent.
b. will result in a 60 percent increase in owner’s equity.
c. will result in a 60 percent decrease in owner’s equity.
d. will reduce liabilities by 10 percent.

100. Bank regulators impose capital requirements in order to

a. increase the amount of leverage in the economy.
b. provide an incentive for banks to hold risky assets.
c. ensure banks can pay off depositors.
d. increase the probability of a credit crunch.

101. Lisa deposits $750 with her bank. The T-account for her bank account is now:

Assets Liabilities
Reserves $750 Deposits $750

What is the change in the money supply?

a. No change, and Lisa's bank is an example of 100-percent-reserve banking
b. No change, and Lisa's bank is an example of fractional-reserve banking
c. $750, and Lisa's bank is an example of 100-percent-reserve banking
d. $750, and Lisa's bank is an example of fractional-reserve banking

102. If the reserve ratio increased from 5 percent to 10 percent, then the money multiplier would
a. rise from 5 to 10.
b. rise from 10 to 20.
c. fall from 20 to 10.
d. fall from 10 to 5.

103. If $500 of new reserves generates $1000 of new money in the economy, then the money
multiplier is
a. 2 and the reserve ratio is 50 percent.
b. 2 and the reserve ratio is 2 percent.
c. 0.5 and the reserve ratio is 50 percent.
d. 0.5 and the reserve ratio is 2 percent.

104. The 2008 credit crunch occurred when banks reduced lending in response to
a. the loss of asset value for mortgage backed securities and mortgage loans.
b. having too little capital to satisfy capital requirements.
c. an excess of bank capital.
d. an increase in the required reserve ratio.