HW_1_Questions_Fractional_Reserve[1]

# HW_1_Questions_Fractional_Reserve[1] - HW 1 Questions 1...

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HW 1 Questions 1. Assume Bank A receives \$100 in deposits from the Fed and reserve requirement is 40%. In the following table write out the money multiplication process. Only write out the money multiplier process until Bank E. Bank Deposits Loans Reserves A 0 100 0 B C D E Total 2. How much actual money is there in the banking system, M0, and how much demand deposits are there in the banking system, M1? How much money was created through lending? 3. What are the pros and cons of fractional reserve banking and the gold standard 4. Should banks be required to hold more or less reserves? Multiple Choice Questions 1. Suppose that a bank's actual reserves are \$5 million, its checkable deposits are \$5 million, and its excess reserves are \$3 million. The reserve requirement must be: A. 40 percent. B. 20 percent. C. 10 percent. D. 5 percent. 2. The Federal funds market is the market in which: A. banks borrow from the Federal Reserve Banks. B. U.S. securities are bought and sold. C. banks borrow reserves from one another on an overnight basis. D. Federal Reserve Banks borrow from one another. Answer the next question(s) on the basis of the following table for a commercial bank or thrift:

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3. Refer to row 2 in the above table. The number appropriate for space X is: A. \$20,000. B. \$60,000. C. \$200,000. D. \$100,000. 4. Refer to row 3 in the above table. The number appropriate for space Y is: A. \$24,000. B. \$32,000.
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## This note was uploaded on 09/13/2011 for the course FIN 353 taught by Professor Cobus during the Spring '08 term at S.F. State.

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HW_1_Questions_Fractional_Reserve[1] - HW 1 Questions 1...

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