When An Individual Deposits Currency Into A Checking Account

Question: Assets of the commercial banking system include:

Answer: reserves and loans.

Question: Liabilities of the commercial banking system include:

Answer: deposits.

Question: Bank reserves are:

Answer: cash and similar assets held to meet depositor withdrawals or payments.

Question: Banks hold reserves:

Answer: to meet depositor withdrawals and payments.

Question: In a fractional-reserve banking system the reserve/deposit ratio equals:

Answer: less than 100 percent.

Question: Commercial banks create new money:

Answer: through multiple rounds of lending.

Question: When a bank makes a loan by crediting the borrower's checking account balance with an amount equal to the loan:

Answer: money is created.

Question: When the actual reserve/deposit ratio exceeds the desired reserve/deposit ratio banks:

Answer: make more loans.

Question: If the Central Bank of Macroland puts an additional 1,000 dollars of currency into the economy, the public deposits all currency into the banking system, and banks have a desired reserve/deposit ratio of 0.10, then the banks will eventually make new loans totaling ______ and the money supply will increase by _______.

Answer: $9,000; $10,000

Question: When an individual deposits currency into a checking account:

Answer: bank reserves increase, which allows banks to lend more and increases the money supply.

Question: If a bank's desired reserve/deposit ratio is 0.33 and it has deposit liabilities of $100 million and reserves of $50 million, it:

Answer: has too many reserves and will increase its lending.

Question: The money supply in Econland is 1,000, and currency held by the public equals bank reserves. The desired reserve/deposit ratio is 0.25. Bank reserves equal _____.

Answer: 200