Question

1: Bank A has $36,000 in required reserves. The required reserve ratio is 20 percent. Bank...

1: Bank A has $36,000 in required reserves. The required reserve ratio is 20 percent. Bank A has total deposits of

a: $7,200.

b: $36,000.

c: $180,000.

d : $360,000.

2: When is a particular bank in a position to make new loans?

a: ​When required reserves equal actual reserves.

​b: When required reserves exceed actual reserves.

​c: When required reserves are less than actual reserves.

​d: all of the above

3: An increase in currency in circulation would ____ M1 and ____ M2.

​a: increase; increase.

​b: not change; increase.

​c: decrease; decrease.

​d: not change; decrease.

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Homework Answers

Answer #1

1. Required reserve = Total deposit * required reserve ratio

Or, $36,000 = Total deposit * 20%

Or, Total deposit = $36,000 / 20% = $36,000/0.2 = $180,000

Answer: option C

2. A bank can make new loans when it has excess reserves.

Actual reserves = required reserve + excess reserve

If Actual reserve is greater than required reserve, then it will have excess reserve. And the bank can make new loans.

Answer: option C

3. M1 = coins and currency in circulation + checkable deposits + traveler's checks.

M2 = M1 + savings deposits + money market funds + certificates of deposit + other time deposits

Increase in currency in circulation increases M1 and therefore M2 also increases.

Answer: option A

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