CHAPTER 14 How Banks and Thrifts Create Money Topic Question numbers ___________________________________________________________________________________________________ 1. Bank balance sheets 1-9 2. Banks and money creation 10-91 3. Monetary multiplier 92-102 4. Combined topics 103-109 Last Word 110-113 True-False 114-124 ___________________________________________________________________________________________________ Multiple Choice Questions Bank balance sheets 1. Which of the following statements is correct? A) The actual reserves of a commercial bank equal its excess reserves minus its required reserves. B) A bank's liabilities plus its net worth equal its assets. C) When borrowers repay bank loans, the supply of money increases. D) A single commercial bank can safely lend a multiple amount of its excess reserves. 2. A bank that has assets of $85 billion and a net worth of $10 billion must have: A) liabilities of $75 billion. B) excess reserves of $10 billion. C) liabilities of $10 billion. D) excess reserves of $75 billion. 3. A bank that has liabilities of $150 billion and a net worth of $20 billion must have: A) excess reserves of $130 billion. B) assets of $150 billion. C) excess reserves of $150 billion. D) assets of $170 billion. 4. If a bank has liabilities that exceed its net worth it: A) will not be able to meet the legal reserve ratio. B) is considered to be insolvent. C) most likely is a heavy borrower from its district Federal Reserve Bank. D) may or may not be a profitable firm. Page 1
5. Which of the following describes the identity embodied in a balance sheet? A) Net Worth plus Assets equal Liabilities B) Assets plus Liabilities equal Net Worth C) Assets equal Liabilities plus Net Worth D) Assets plus Reserves equal Net Worth 6. The claims of the owners of a firm against the firm's assets are called: A) working capital. B) assets. C) net worth. D) liabilities. 7. Which of the following are all assets to a commercial bank? A) demand deposits, capital stock, and reserves B) vault cash, property, and reserves C) vault cash, property, and capital stock D) vault cash, capital stock, and demand deposits 8. The reserves of a commercial bank consist of: A) the amount of money market funds it holds. B) deposits at the Federal Reserve Bank and vault cash. C) government securities that the bank holds. D) the bank's net worth. 9. A commercial bank's reserves are: A) liabilities to both the commercial bank and the Federal Reserve Bank holding them. B) liabilities to the commercial bank and assets to the Federal Reserve Bank holding them. C) assets to both the commercial bank and the Federal Reserve Bank holding them. D) assets to the commercial bank and liabilities to the Federal Reserve Bank holding them.
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