Title: Lending and Money Creation
Course: TEST Course

Q: Which is true of banks' deposits?
- Banks lend out all of their deposits to earn income.
- Banks keep all of their deposits on hand as cash to enable them to pay out withdrawals by depositors.
- Banks lend out most, but not all, of the deposits to earn income.
A: Banks lend out most, but not all, of the deposits to earn income.

Q: Which is inaccurate about banks' deposits?
- Banks lend out most of the deposits to earn income.
- Banks keep some of their deposits on hand as cash to enable them to pay out withdrawals by depositors.
- Banks lend out all of their deposits to earn income.
A: Banks lend out all of their deposits to earn income.

Q: When banks receive new deposits, they can make new loans and thus create money
- equal to the full amount of the new deposits.
- up to the amount of their checkable deposits.
- only up to the amount of their excess reserves.
A: only up to the amount of their excess reserves.

Q: How much money can a bank loan out, and make money on, of the banks’ newly received deposits?
- The bank can loan out what is equal to the full amount of the new deposits.
- The bank can loan out up to the amount of their checkable deposits.
- The bank can loan out only up to the amount of its excess reserves.
A: The bank can loan out only up to the amount of its excess reserves.

Q: Banks create money through which of the following processes?
- printing money
- writing checks on bank deposits
- lending money
A: lending money

Q: Which process is used by banks to create money?
- Banks printing money.
- Banks using bank deposits to pay expenses.
- Banks lend money and collect interest on the loans.
A: Banks lend money and collect interest on the loans.

Q: Money creation in the United States results from which of the following?
- The rise in the value of gold.
- The purchases of government securities.
- The process of multiple banks’ lending out deposits.
A: The process of multiple banks’ lending out deposits.

Q: Which answer is true for how money is created in the United States?
- The value of silver increases.
- Government securities are purchased.
- Many banks lend out deposited money.
A: Many banks lend out deposited money.

Q: The money multiplier defines the amount of
- consumer demand following an increase in government spending.
- money that a bank can create.
- money that the banking system can create.
A: money that the banking system can create.

Q: The money multiplier is defined as
- the change in deposits divided by the change in the money supply.
- consumer demand following government spending.
- the change in the money supply divided by the change in deposits newly deposited into the banking system.
A: the change in the money supply divided by the change in deposits newly deposited into the banking system.

Q: If the reserve requirement is 10 percent and a monetary expansion increases excess reserves by $5 million, the total change in the money supply after all rounds of lending are completed is ________.
- 100 million
- 5 million
- 50 million
A: 50 million

Q: If the reserve requirement is 10 percent and a monetary expansion increases excess reserves by $10 million, the total change in the money supply after all rounds of lending are completed is ________.
- 50 million
- 5 million
- 100 million
A: 100 million

Q: The required reserve ratio for Jack's bank is 10 percent. If Jack deposits $2,000 cash in his checking account, what is the amount of new money the bank would create when it lends out its excess reserves?
- $200
- $1,000
- $1,800
A: $1,800

Q: The required reserve ratio for Julie's bank is 10 percent. If Julie deposits $5,000 cash into her checking account, what amount of new money could the bank create when it lends out its excess reserves?
- $500
- $2,500
- $4,500
A: $4,500

Q: The money supply may expand by less than the amount predicted by the money multiplier if
- unemployment is low.
- banks loan out all of their excess reserves.
- banks do not loan out all of their excess reserves.
A: banks do not loan out all of their excess reserves.

Q: If money supply expansion falls below expected amounts predicted by the money multiplier, what has most likely occurred?
- There is low unemployment.
- Banks have loaned out all of their excess reserves.
- Banks have failed to loan out all of their excess reserves.
A: Banks have failed to loan out all of their excess reserves.