CLEP Macroeconomics chapter practice4 questions

13 Banks, Reserves, and Deposit Expansion

These questions come directly from the chapter practice in the book. Choose the best answer, check your reasoning, and use the explanation to correct any gap.

Question 1

Question 1 of 4

A customer holds a checkable deposit at a commercial bank. On that bank's balance sheet the deposit is

The bank owes that balance to the customer on demand, and an obligation payable on demand is a liability. Choice A reverses who owes whom. Choice C confuses the deposit with the reserves held against it, D confuses customer funds with owner funds, and E treats a balance as though it were earnings.
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B. a liability of the bank

The bank owes that balance to the customer on demand, and an obligation payable on demand is a liability. Choice A reverses who owes whom. Choice C confuses the deposit with the reserves held against it, D confuses customer funds with owner funds, and E treats a balance as though it were earnings.

Question 2

Question 2 of 4

A bank holds deposits of 500 and faces a required reserve ratio of 0.10. Its required reserves equal

Required reserves are 0.10×500=50. Choice A divides 500 by 100, B applies the ratio to a deposit base of 100, D reports what is left over rather than the requirement, and E reports the deposits themselves.
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C. 50

Required reserves are 0.10×500=50. Choice A divides 500 by 100, B applies the ratio to a deposit base of 100, D reports what is left over rather than the requirement, and E reports the deposits themselves.

Question 3

Question 3 of 4

A bank with deposits of 500 and a required reserve ratio of 0.10 holds actual reserves of 80. Its excess reserves equal

The requirement is 0.10×500=50, so excess reserves are 80-50=30. Choice B reports the requirement itself and D reports total reserves. Choice C computes the requirement from reserves rather than deposits, giving 80-0.10×80=72, and E takes 90 percent of deposits as though every dollar were free to lend.
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A. 30

The requirement is 0.10×500=50, so excess reserves are 80-50=30. Choice B reports the requirement itself and D reports total reserves. Choice C computes the requirement from reserves rather than deposits, giving 80-0.10×80=72, and E takes 90 percent of deposits as though every dollar were free to lend.

Question 4

Question 4 of 4

The required reserve ratio is 0.25 and banks lend every dollar of excess reserves. The simple deposit multiplier equals

The multiplier is (1)/(0.25)=4. Choice A repeats the ratio itself, B counts only the loans created and drops the initial deposit, D uses a ratio of 0.20, and E reports the ratio as a percentage instead of inverting it.
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C. 4

The multiplier is (1)/(0.25)=4. Choice A repeats the ratio itself, B counts only the loans created and drops the initial deposit, D uses a ratio of 0.20, and E reports the ratio as a percentage instead of inverting it.

Quiz complete