1. In our current fractional reserve banking system,
A. the total amount of cash reserves in the bank system equals the total demand deposits created.
B. the total amount of demand deposits in the bank system is a fraction of the total amount of cash reserves in the bank system.
C. the total amount of cash reserves in the bank system is a fraction of the total demand deposits created.
D. the risk of bank runs has been eliminated.

2. Which of the following would NOT be an asset of the typical chartered bank?
A. Reserves
B. Demand deposits
C. Cash in the vaults of the bank
D. Loans

3. Suppose that the actual reserves of a chartered bank are $125,000, the loans made by this bank are $1,800,000, and the total demand deposits created by this bank are $2,000,000. If the desired reserve ratio is 5%, this bank's desired reserves equals:
A. $25,000
B. $100,000
C. $125,000
D. $6,250

4. Suppose that the actual reserves of a chartered bank are $125,000, the loans made by this bank are $1,800,000, and the total demand deposits created by this bank are $2,000,000. If the desired reserve ratio is 5%, this bank's excess reserves equals:
A. $25,000
B. $100,000
C. $125,000
D. $6,250

5. The initial simplified balance sheet of the Laurentian Bank, a chartered bank, is described below. The reserve ratio is 4%. The bank's excess reserves are:

A. $400,000
B. $80,000
C. $20,000
D. Zero

6. Given the initial simplified balance sheet of the Laurentian Bank in question 5 above, suppose that Lora Mize deposits $20,000 cash into this bank. After Lora's cash deposit the
A. reserves will be $32,000 and the deposits will be $820,000.
B. reserves will be $52,000 and the equity will be $220,000.
C. reserves will be $52,000 and the deposits will be $820,000.
D. reserves will be $52,000 and the deposits will be $800,000.

7. Refer to question 5 and question 6 above. After Lora's $20,000 cash deposit, what maximum amount of new money can the Laurentian Bank create? Assume a reserve ratio of 4%.
A. $32,800
B. $19,200
C. $32,000
D. $480,000

8. Suppose that the Laurentian Bank creates the maximum amount of new money referred to in question 7 above. Before cheque clearing, the new loans and deposits will be, respectively:
A. $987,200 and $819,200
B. $1,448,000 and $1,280,000
C. $987,200 and $800,000
D. $968,000 and $819,200

9. In creating the maximum amount of money referred to in question 8 above, the Laurentian Bank provided a new loan (equal to the maximum amount) to Builders Corp. Builders Corp immediately writes a cheque to Forrest Lumber Ltd, who banks at the Rocque Bank (another chartered bank). After cheque clearing, the Laurentian bank's reserves and deposits will be, respectively:
A. $32,000 and $800,000
B. $32,800 and $820,000
C. $52,000 and $820,000
D. $32,000 and $820,000

10. After the cheque clearing referred to in question 9 above, the Rocque Bank will have its excess reserves increase by:
A. $19,200
B. $768
C. $18,432
D. $480,000

11. The initial simplified balance sheet of the Bank of Quebec, a chartered bank, is described below. The reserve ratio is 12.5%.

12. Referring to question 11 above, the money multiplier is:
A. .125
B. 12.5
C. 8
D. .875

13. In general, if a cheque is cleared against Bank G in favour of Bank H, then
A. Bank G's reserves will increase.
B. Bank G's deposits will increase.
C. Bank H's reserves will decrease.
D. Bank H's deposits will increase.

14. In general, the maximum amount of new money that the banking system can create, based on a new cash deposit, is equal to
A. Initial deposit x (1/reserve ratio)
B. Initial excess reserves x (1/reserve ratio)
C. Initial excess reserves
D. Reserve ratio x change in deposits

15. In general, the greater the desired reserve ratio,
A. the larger the money multiplier.
B. the smaller the money multiplier.
C. the greater the excess reserves.
D. the larger will be the total demand deposits in the economy.