1.Most modern banking systems, like one in the U.S., are based on: A.money of intrinsic value. B.commodity money. C.100 percent reserves (backing of deposits). D.fractional reserves.

2.In a fractional reserve banking system: A.bank panics cannot occur. B.the monetary system must be backed by gold. C.banks create money through the lending process. D.the Federal Reserve has no control over the amount of money in circulation.

3.Bank panics: A.occur frequently in fractional reserve banking systems. B.are a risk of fractional reserve banking, but are unlikely when banks are regulated and lend prudently. C.cannot occur in a fractional reserve banking system. D.cannot occur when the monetary system is backed by gold.

4.Consider a bank that has $5,000,000 in cash and $20,000,000 in bank deposits. Its fractional reserve ratio is: A.4%. B.20%. C.25%. D.500%.

5.Consider a bank's balance sheet. Which of the following contains a liability and an asset (respectively) to a commercial bank? A.demand deposits, stock shares B.loans, demand deposits C.loans, property D.demand deposits, loans

6.The total (actual) reserves of a commercial bank consist of: A.required and excess reserves. B.net worth. C.government securities. D.required reserves only.

7.The primary purposes of the reserve requirement ratio, R, is to: A.prevent banks from hoarding too much vault cash and meet demand deposit obligations. B. meet demand deposit obligations andprovide a means by which the monetary authorities can influence the lending ability of commercial banks. C.prevent banks from hoarding cash and prevent commercial banks from earning excess profits. D.meet demand deposit obligations and provide a dependable source of interest income for commercial banks.

8.Suppose a commercial bank has checkable deposits of $200,000,000 and the reserve ratio is 10 percent. Required reserves are: A.$4,000,000. B.$20,000,000. C.$800,000. D.$8,000,000.

Answer questions 9 - 11 on the basis of the following table for a commercial bank or thrift. Remember that excess reserves + required reserves = actual reserves.

Reserve Requirement (%) Checkable Deposits Actual Reserves Excess Reserves

W $300,000 $18,000 $0

5 X $30,000 $0

10 $200,000 Y $8,000

9.Refer to row 1 in the above table. The value appropriate for space W is: A.4. B.6. C.5. D.3.

10.Refer to row 2 in the above table. The value appropriate for space X is: A.$150,000. B.$600,000. C.$300,000. D.$100,000.

11.Refer to Row 3 in the above table. The value appropriate for space Y is:

A.$28,000. B. $8,000. C.$20,000. D.$192,000.

12.The amount that a commercial bank can lend (loanable funds) is determined by its: A.required reserves. B.excess reserves. C.outstanding loans. D.outstanding checkable deposits.

13.When a bank receives additional deposits from depositors, ceteris paribus, its required reserves and excess reserves both _________. A.decrease B.increase C.stay the same D.none of the above

14.When depositors withdraw money from their checking account in a bank, ceteris paribus, its required reserves and excess reserves both _________. A.decrease B.increase C.stay the same D.none of the above

15.Assume the Continental National Bank's balance statement is as follows. Note: Reserves is a combination of required & excess reserves. Securities are loans to the U.S. Government like Treasury Bills and Treasury Notes.

Assuming a legal reserve ratio of 6 percent, how much in excess reserves would this bank have after a check for $30,000 was drawn and cleared against it? A. $10,000 B. $4,000 C. $6,000 D. $60,000

16.Commercial banks create money when they: A.accept cash deposits from the public. B.purchase government securities from the central banks. C.create checkable deposits in the banking system by making loans. D.raise their interest rates.

17.Assume Company X deposits $300,000 in cash in commercial Bank A. If no excess reserves exist at the time this deposit is made and the required reserve ratio is 10 percent, Bank A (only) will increase the money supply by a maximum of ____ in the first round of lending. A.$300,000. B.$285,000. C.$270,000. D. $15,000.

Use the following balance sheet for the ABC National Bank in answering the next question 18 & 19. Assume the required reserve ratio is 5 percent. Note: The reserves account is a combination of requires & excess reserves.

10- 10 10 Rate of interest (percent) Rate of interest (percent) Rate of interest (percent) N & 0 0 -H D. 100 200 300400 100 200 300400 100 200 300 400 500 600 Amount of money demanded Amount of money demanded Amount of money demanded (billions of dollars) (billions of dollars) and supplied (billions of dollars)Sm Interest rate Dm 0 Q Quantity of moneyAssets Liabilities and net worth Reserves $ 27,000 Checkable deposits $110,000 OLoans 50,000 Stock shares 200,0000 Securities 33,000 Property 200,000 O O O