Bob the Builder

Module 25 Practice Set 1

Multiple Choice
Identify the choice that best completes the statement or answers the question.

Assets
Liabilities
Reserves $20,000
Deposits _________
Loans _______

Table 25-1: Balance Sheet

____ 1. Use Table 25-1. If the reserve ratio is 25%, loans are:
A.
$5,000.
B.
$15,000.
C.
$60,000.
D.
$80,000.
E.
$20,000.

____ 2. Banks are illiquid because:
A.
their deposits are less liquid than their loans.
B.
their loans are less liquid than their deposits.
C.
their assets are greater than their liabilities.
D.
their liabilities are greater than their assets.
E.
their assets are equal to their liabilities.

Assets
Liabilities
Cash in bank vault
$2 million
Checkable deposits $100 million
Deposits at the Federal Reserve
$13 million

Loans
$75 million

Property
$8 million

Bonds
$2 million

Table 25-2: ABC Bank's Balance Sheet

____ 3. Use Table 25-2. Using the information in ABC Bank's Balance sheet, the bank is holding excess reserve of:
A.
$17 million.
B.
$15 million.
C.
$5 million.
D.
$25 million.
E.
$3 million.

Scenario 25-1 First National Bank First National Bank has $80 million in checkable deposits, $15 million in deposits with the Federal Reserve, $5 million cash in the bank vault and $5 million in government bonds.

____ 4. Use Scenario 25-1. Consider the information for First National Bank. If the minimum reserve ratio is 20%, how much is the bank required to keep in reserves?
A.
$20 million
B.
$16 million
C.
$25 million
D.
$10 million
E.
$40 million

____ 5. A bank run occurs when:
A.
too many people are trying to borrow more at one time.
B.
the assets of the bank are greater than the liabilities of the bank.
C.
interest rates start to increase.
D.
interest rates are higher than inflation rates.
E.
many bank depositors are trying to withdraw their funds from the bank.