Question

9. A bank is operating under a required reserve ratio of 10%. If this bank has excess reserves of $1,000, it can loan out up to a maximum of: A. $0. B. $1,000. C. $1,100. D. $10,000. E. None of these

10. The money supply will grow faster through deposit creation when the legal reserve requirement is: A. high, and banks hold excess reserves. B. high, and banks cannot find good customers to lend to. C. low, and banks are able to lend out all their excess reserves. D. low, and banks are unable to loan out all their excess reserves. E. high, and banks are not able to loan out all their excess reserves.

11. I have $10,000 in a cookie jar that I keep under my mattress. If I deposit that money in a checking account and the required reserve ratio is 10%, the maximum possible increase in the money supply that will result from my deposit is: A. $9,000. B. $10,000. C. $11,000. D. $90,000. E. $100,000.

12. I have $10,000 in a cookie jar that I keep under my mattress. If I deposit that money in a checking account and the required reserve ratio is 10%, the actual increase in the money supply resulting from my deposit if banks hold 2% in excess reserves will be: A. $8,333. B. $8,800. C. $11,200. D. $73,333. E.$83,333.

13. Best National Bank operates with a 20% required reserve ratio. One day a depositor withdraws $500 from his or her checking account at this bank. As a result, the bank's reserves: A. fall by $500. B. fall by $400. C. fall by $100. D. rise by $100. E. rise by $500.

Answer 1

9. incomplete question.

10. C. low, and banks are able to lend out all their excess reserves.

When required reserve ratio is less than banks have more money to lend into the system and thus increases money supply. Higher required reserve decreases amount of money with banks and thus able to lend less money into the system.

11. Bank will keep 10% of deposits as reserve requirement i.e. 10% of 10,000 = $ 1000 and lend remaining money.

Increase in money supply = Change in reserves x Multiplier = 9000 x 1/Required reserve ratio = 9000 x 1/0.10 = 90,000

Answer is c) $ 90,000

12. Required reserve of bank = 10% of 10000 = $ 1000

Excess reserve= 10000 - 1000 = $ 9000

But bank hold 2% of excess reserve = 10,000 x 2% = 200

Lending amount = 9000 - 200 = 8800

So, actual increase in money supply = $ 8800

13. A) Fall by $ 500

When depositor withdraws $ 500 from his account then bank is left with $ 500 less money in its reserves as bank pay $ 500 from the amount which it keeps in reserves.