Question 1

If we assume m to be equal to the maximum amount of dollar that can be created from a single dollar of excess reserves and R to be equal to the desired reserve ratio, then we can say that for the banking system:

Accepted Answer

A)   m = R - 1.
B)   R = m/1.
C)   R = m - 1.
D)   m = 1/R.E) B) and D)
F) None of the above

Question 2

Chartered banks create money when they:

Accepted Answer

A)   accept cash deposits from the public.
B)   purchase government securities from the central banks.
C)   create demand deposits in exchange for IOUs.
D)   raise their interest rates.E) A) and C)
F) None of the above

Question 3

Beside chartered banks, the Canadian banking system is supplemented by other financial intermediaries. These institutions include:

Accepted Answer

A)   loan companies, trust companies, credit unions, and caisses populaires.
B)   trust companies, the Bank of Canada and small size chartered banks.
C)   trust companies, credit unions, and the Bank of Canada.
D)   loan companies, trust companies and foreign banks.E) A) and D)
F) B) and D)

Question 4

Suppose the ABC bank has excess reserves of $4,000 and outstanding demand deposits of $80,000. If the desired reserve ratio is 25 percent, what is the size of the bank's actual cash reserves?

Accepted Answer

A)   $16,000
B)   $84,000
C)   $24,000
D)   $20,000E) C) and D)
F) All of the above

Question 5

Currency and coins held within chartered banks are:

Accepted Answer

A)   part of the M2+ definition of the money supply.
B)   part of the M2 definition of the money supply.
C)   part of the M1 definition of the money supply.
D)   not part of the definitions of the money supply.E) All of the above
F) A) and C)

Question 6

When we say that money serves as a unit of account, we mean that it is:

Accepted Answer

A)   a way to keep some of our wealth in a readily spendable form for future use.
B)   a means of payment.
C)   a monetary unit for measuring and comparing the relative values of goods.
D)   declared as legal tender by the government.E) B) and C)
F) A) and C)

Question 7

The value of money varies:

Accepted Answer

A)   inversely with the price level.
B)   directly with the volume of employment.
C)   directly with the price level.
D)   directly with the interest rate.E) All of the above
F) None of the above

Question 8

When the receipts given by goldsmiths to depositors were used to make purchases:

Accepted Answer

A)   the gold standard was created.
B)   existing banking laws were violated.
C)   the receipts became in effect paper money.
D)   a fractional reserve banking system was created.E) None of the above
F) A) and D)

Question 9

In 2011, the value of M2++ in Canada was about:

Accepted Answer

A)   $182 billion.
B)   $1092 billion.
C)   $233 billion.
D)   $2063 billion.E) A) and B)
F) B) and D)

Question 10

The purchasing power of the dollar:

Accepted Answer

A)   has been increasing in recent years because of economic growth.
B)   varies directly with the cost-of-living index.
C)   is inversely related to the level of aggregate demand.
D)   is the reciprocal of the price level.E) None of the above
F) C) and D)

Question 11

In Canada the money supply (M1)  is comprised of:

Accepted Answer

A)   coins, paper currency, and demand deposits.
B)   currency, notice deposits, and bonds.
C)   coins, paper currency, demand deposits, and credit balances with brokers.
D)   paper currency, coin, gold certificates, and time deposits.E) A) and D)
F) B) and C)

Question 12

A chartered bank's demand-deposit liabilities can be calculated by:

Accepted Answer

A)   dividing its desired reserve by its excess reserves.
B)   dividing its desired reserve by the reserve ratio.
C)   multiplying its desired reserve by its excess reserves.
D)   multiplying its desired reserve by the reserve ratio.E) A) and C)
F) None of the above

Question 13

The following balance sheet is for the First National Bank. Assume the desired reserve ratio is 15 percent.
 
-Refer to the above data. If a cheque for $20,000 is drawn and cleared against this bank, it will have excess reserves of:

Accepted Answer

A)   $15,000.
B)   $20,000.
C)   $25,000.
D)   $30,000.E) A) and C)
F) A) and B)

Question 14

The multiple by which the chartered banking system can expand the supply of money is equal to the reciprocal of:

Accepted Answer

A)   the MPS.
B)   its actual cash reserves.
C)   its excess reserves.
D)   the desired reserve ratio.E) None of the above
F) A) and D)

Question 15

Token money is:

Accepted Answer

A)   minted by the Bank of Canada.
B)   minted by the Royal Canadian mint.
C)   minted by the Treasury of Canada.
D)   not considered to be part of the money supply.E) A) and B)
F) A) and C)

Question 16

If the price index rises from 100 to 130, the value of the dollar will fall by about:

Accepted Answer

A)   15 percent.
B)   19 percent.
C)   30 percent.
D)   23 percent.E) A) and B)
F) A) and C)

Question 17

The following balance sheet is for the First Edmonton Bank. All figures are in millions.
 
-Refer to the above information. If this bank finds that it has excess reserves of $6, the desired ratio must be:

Accepted Answer

A)   10 percent.
B)   12 percent.
C)   14 percent.
D)   20 percent.E) None of the above
F) A) and B)

Question 18

The following is a consolidated balance sheet for the chartered banking system. All figures are in billions. Assume that the desired reserve ratio is 20 percent.
 
-Refer to the above information. If there is a deposit of $10 billion of new currency into chequing accounts in the banking system, excess reserves will increase by:

Accepted Answer

A)   $1 billion.
B)   $2 billion.
C)   $8 billion.
D)   $10 billion.E) B) and C)
F) A) and B)

Question 19

If excess reserves in the banking system are $4,000, demand deposits are $40,000, and the desired reserve ratio is 10 percent, then actual cash reserves:

Accepted Answer

A)   are $4,000.
B)   are $6,000.
C)   are $8,000.
D)   cannot be determined from this information.E) All of the above
F) B) and C)

Question 20

If the price index rises from 100 to 120, the value of the dollar:

Accepted Answer

A)   may either rise or fall.
B)   will rise by 16.67 percent.
C)   will fall by 16.67 percent.
D)   will rise by 20 percent.E) None of the above
F) B) and C)

Exam 12: Money, Banking, and Money Creation

Beside chartered banks, the Canadian banking system is supplemented by other financial intermediaries. These institutions include:

Correct Answer
verified

The multiple by which the chartered banking system can expand the supply of money is equal to the reciprocal of:

Correct Answer
verified

If the price index rises from 100 to 120, the value of the dollar:

Correct Answer
verified

If excess reserves in the banking system are $4,000, demand deposits are $40,000, and the desired reserve ratio is 10 percent, then actual cash reserves:

Correct Answer
verified

In Canada the money supply (M1) is comprised of:

Correct Answer
verified

If the price index rises from 100 to 130, the value of the dollar will fall by about:

Correct Answer
verified

In 2011, the value of M2++ in Canada was about:

Correct Answer
verified

The value of money varies:

Correct Answer
verified

Suppose the ABC bank has excess reserves of $4,000 and outstanding demand deposits of $80,000. If the desired reserve ratio is 25 percent, what is the size of the bank's actual cash reserves?

Correct Answer
verified

Token money is:

Correct Answer
verified

If we assume m to be equal to the maximum amount of dollar that can be created from a single dollar of excess reserves and R to be equal to the desired reserve ratio, then we can say that for the banking system:

Correct Answer
verified

The following balance sheet is for the First Edmonton Bank. All figures are in millions. -Refer to the above information. If this bank finds that it has excess reserves of $6, the desired ratio must be:

Correct Answer
verified

A chartered bank's demand-deposit liabilities can be calculated by:

Correct Answer
verified

Currency and coins held within chartered banks are:

Correct Answer
verified

When the receipts given by goldsmiths to depositors were used to make purchases:

Correct Answer
verified

The purchasing power of the dollar:

Correct Answer
verified

The following balance sheet is for the First National Bank. Assume the desired reserve ratio is 15 percent. -Refer to the above data. If a cheque for $20,000 is drawn and cleared against this bank, it will have excess reserves of:

Correct Answer
verified

When we say that money serves as a unit of account, we mean that it is:

Correct Answer
verified

Chartered banks create money when they:

Correct Answer
verified

Correct Answer
verified

Exam 12: Money, Banking, and Money Creation

Beside chartered banks, the Canadian banking system is supplemented by other financial intermediaries. These institutions include:

Correct AnswerverifiedShow Answer

The multiple by which the chartered banking system can expand the supply of money is equal to the reciprocal of:

Correct AnswerverifiedShow Answer

If the price index rises from 100 to 120, the value of the dollar:

Correct AnswerverifiedShow Answer

If excess reserves in the banking system are $4,000, demand deposits are $40,000, and the desired reserve ratio is 10 percent, then actual cash reserves:

Correct AnswerverifiedShow Answer

In Canada the money supply (M1) is comprised of:

Correct AnswerverifiedShow Answer

If the price index rises from 100 to 130, the value of the dollar will fall by about:

Correct AnswerverifiedShow Answer

In 2011, the value of M2++ in Canada was about:

Correct AnswerverifiedShow Answer

The value of money varies:

Correct AnswerverifiedShow Answer

Suppose the ABC bank has excess reserves of $4,000 and outstanding demand deposits of $80,000. If the desired reserve ratio is 25 percent, what is the size of the bank's actual cash reserves?

Correct AnswerverifiedShow Answer

Token money is:

Correct AnswerverifiedShow Answer

If we assume m to be equal to the maximum amount of dollar that can be created from a single dollar of excess reserves and R to be equal to the desired reserve ratio, then we can say that for the banking system:

Correct AnswerverifiedShow Answer

The following balance sheet is for the First Edmonton Bank. All figures are in millions. -Refer to the above information. If this bank finds that it has excess reserves of $6, the desired ratio must be:

Correct AnswerverifiedShow Answer

A chartered bank's demand-deposit liabilities can be calculated by:

Correct AnswerverifiedShow Answer

Currency and coins held within chartered banks are:

Correct AnswerverifiedShow Answer

When the receipts given by goldsmiths to depositors were used to make purchases:

Correct AnswerverifiedShow Answer

The purchasing power of the dollar:

Correct AnswerverifiedShow Answer

The following balance sheet is for the First National Bank. Assume the desired reserve ratio is 15 percent. -Refer to the above data. If a cheque for $20,000 is drawn and cleared against this bank, it will have excess reserves of:

Correct AnswerverifiedShow Answer

When we say that money serves as a unit of account, we mean that it is:

Correct AnswerverifiedShow Answer

Chartered banks create money when they:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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