Question 1

Suppose Bank ABC has a target reserve ratio of 2%.If Bank ABC receives a new deposit of $50 million it will immediately find itself with

Accepted Answer

A) no excess cash reserves. 
B) excess cash reserves of $1 million. 
C) excess cash reserves of $10 million. 
D) excess cash reserves of $49 million. 
E) excess cash reserves of $49.5 million. 
A) no excess cash reserves. 
B) excess cash reserves of $1 million. 
C) excess cash reserves of $10 million. 
D) excess cash reserves of $49 million. 
E) excess cash reserves of $49.5 million. D

Question 2

If the target reserve ratio in the banking system is 1%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an expansion of the money supply of

Accepted Answer

A) $0.01. 
B) $1.10. 
C) $1.00. 
D) $10.00. 
E) $100.00. 
A) $0.01. 
B) $1.10. 
C) $1.00. 
D) $10.00. 
E) $100.00. E

Question 3

What are "excess reserves" for a commercial bank?

Accepted Answer

A) any surplus in the bank's supply of gold 
B) any surplus of chequable deposits 
C) any reserves (cash or deposits with the Bank of Canada)that the bank holds over and above its desired reserves 
D) reserves (cash or deposits with the Bank of Canada)that the Bank of Canada requires the bank to hold 
E) excess demand for money from that bank 
A) any surplus in the bank's supply of gold 
B) any surplus of chequable deposits 
C) any reserves (cash or deposits with the Bank of Canada)that the bank holds over and above its desired reserves 
D) reserves (cash or deposits with the Bank of Canada)that the Bank of Canada requires the bank to hold 
E) excess demand for money from that bank C

Question 4

Developments in the financial industry in recent years have resulted in a multitude of types of deposits.For the purposes of studying the money supply,the most important distinction is between chequing and savings deposits which are ________ and term deposits and other financial assets which are ________.

Accepted Answer

A) a store of value; not a store a value 
B) a unit of account; not a unit of account 
C) a component of the money supply; not a component of the money supply 
D) media of exchange; not media of exchange 
E) money substitutes; near money 
A) a store of value; not a store a value 
B) a unit of account; not a unit of account 
C) a component of the money supply; not a component of the money supply 
D) media of exchange; not media of exchange 
E) money substitutes; near money

Question 5

If the Bank of Canada enters the open market and purchases $1000 of government securities,what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system?

Accepted Answer

A) decrease of $1000 
B) decrease of $5000 
C) decrease of $10 000 
D) increase of $5000 
E) increase of $10 000 
A) decrease of $1000 
B) decrease of $5000 
C) decrease of $10 000 
D) increase of $5000 
E) increase of $10 000

Question 6

Consider the following situation in the Canadian banking system: • The Bank of Canada purchases $5 million worth of government securities
From an investment dealer with a cheque drawn on the Bank of Canada.
• The dealer deposits this cheque at Bank XYZ,a commercial bank.
• The target reserve ratio for all commercial banks is 25%.
• All commercial banks operate with no excess reserves.
• There is no cash drain.
TABLE 26-4
Refer to Table 26-4.Suppose the public decides to hold 15% of their deposits in cash - that is,there is now a cash drain of 15%.As a result of the new deposit,the money supply would eventually

Accepted Answer

A) increase by $3.75 million. 
B) increase by $12.50 million. 
C) decrease by $12.50 million. 
D) decrease by $20.00 million. 
E) not change. 
A) increase by $3.75 million. 
B) increase by $12.50 million. 
C) decrease by $12.50 million. 
D) decrease by $20.00 million. 
E) not change.

Question 7

Without a central bank,commercial banks in Canada would probably hold ________ reserves than they do now,resulting in a ________ money supply than at present.

Accepted Answer

A) the same; the same 
B) more; larger 
C) more; smaller 
D) less; smaller 
E) less; larger 
A) the same; the same 
B) more; larger 
C) more; smaller 
D) less; smaller 
E) less; larger

Question 8

Suppose the excess reserves in Eastern Bank increase by $700.Given a target reserve ratio of 1.0% and no cash drain,the maximum change in deposits for the entire banking system would be

Accepted Answer

A) $682.50. 
B) $700.00. 
C) $17 500.00. 
D) $28 000.00. 
E) $70 000.00. 
A) $682.50. 
B) $700.00. 
C) $17 500.00. 
D) $28 000.00. 
E) $70 000.00.

Question 9

When you are estimating your monthly income and expenses,money is being used as

Accepted Answer

A) a medium of exchange. 
B) a store of value. 
C) a unit of account. 
D) a standard unit of deferred payment. 
E) a money substitute. 
A) a medium of exchange. 
B) a store of value. 
C) a unit of account. 
D) a standard unit of deferred payment. 
E) a money substitute.

Question 10

The financial crisis that occurred in 2007 and 2008 highlighted one of the crucial functions of commercial banks and other financial institutions in developed economies.A crucial function that ceased to work smoothly during this time,and contributed to the global recession that began in 2008,was

Accepted Answer

A) the acceptance of deposits from firms and households. 
B) the joint regulation of financial markets. 
C) the provision of credit to firms,households and other banks. 
D) cheque clearing and collection. 
E) the clearing of electronic transfers. 
A) the acceptance of deposits from firms and households. 
B) the joint regulation of financial markets. 
C) the provision of credit to firms,households and other banks. 
D) cheque clearing and collection. 
E) the clearing of electronic transfers.

Question 11

Which of the following is an example of "near money"?

Accepted Answer

A) Scotiabank credit card 
B) American Express card 
C) 30-day Treasury bill 
D) mortgage on a house 
E) car loan 
A) Scotiabank credit card 
B) American Express card 
C) 30-day Treasury bill 
D) mortgage on a house 
E) car loan

Question 12

Northern Bank: Balance Sheet Assets Liabilities
Reserves $800 Deposits $10 000
Loans $11 200 Capital $2000
$12 000 $12 000
TABLE 26-6
Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must ________ and ________.

Accepted Answer

A) increase its reserves by $200; decrease its deposits by $200 
B) increase its reserves by $400; decrease its deposits by $400 
C) not change its reserves; not change its deposits 
D) increase its reserves by $200; decrease its loans by $200 
E) increase its reserves by $400; increase its loans by $800 
A) increase its reserves by $200; decrease its deposits by $200 
B) increase its reserves by $400; decrease its deposits by $400 
C) not change its reserves; not change its deposits 
D) increase its reserves by $200; decrease its loans by $200 
E) increase its reserves by $400; increase its loans by $800

Question 13

Northern Bank: Balance Sheet Assets Liabilities
Reserves $800 Deposits $10 000
Loans $11 200 Capital $2000
$12 000 $12 000
TABLE 26-6
Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.What is its current level of excess reserves?

Accepted Answer

A) -$320 
B) -$200 
C) $0 
D) $320 
E) $200 
A) -$320 
B) -$200 
C) $0 
D) $320 
E) $200

Question 14

The use of debit cards issued by commercial banks has now become standard.When you pay for a purchase at a store using a debit card,you are

Accepted Answer

A) authorizing the transfer of cash from your bank account to the merchant's bank account. 
B) creating an electronic debt to the merchant. 
C) authorizing an electronic transfer of a money substitute from you to the merchant. 
D) authorizing an electronic transfer of deposit money from you to the merchant. 
E) authorizing the transfer of bank notes from you to the merchant. 
A) authorizing the transfer of cash from your bank account to the merchant's bank account. 
B) creating an electronic debt to the merchant. 
C) authorizing an electronic transfer of a money substitute from you to the merchant. 
D) authorizing an electronic transfer of deposit money from you to the merchant. 
E) authorizing the transfer of bank notes from you to the merchant.

Question 15

Why is it unlikely that a bank run will occur in Canada today?

Accepted Answer

A) Because if necessary,the central bank can provide all the reserves that are necessary to avoid this situation. 
B) Because the commercial banks are required by law to maintain 100% of their deposits in cash. 
C) Because there is relatively little demand for cash at present. 
D) Because banking is done mostly electronically. 
E) Because the commercial banks hold enough government securities that are convertible into cash. 
A) Because if necessary,the central bank can provide all the reserves that are necessary to avoid this situation. 
B) Because the commercial banks are required by law to maintain 100% of their deposits in cash. 
C) Because there is relatively little demand for cash at present. 
D) Because banking is done mostly electronically. 
E) Because the commercial banks hold enough government securities that are convertible into cash.

Question 16

What is the main reason that fiat money has value?

Accepted Answer

A) Because it can be manufactured at will by the issuing government. 
B) Because it has intrinsic value equal to its face value. 
C) Because it is fully backed by gold at a fixed ratio. 
D) Because it is only fractionally backed by gold. 
E) Because it is generally accepted. 
A) Because it can be manufactured at will by the issuing government. 
B) Because it has intrinsic value equal to its face value. 
C) Because it is fully backed by gold at a fixed ratio. 
D) Because it is only fractionally backed by gold. 
E) Because it is generally accepted.

Question 17

When you pay for your $74 purchase at the grocery store with a debit card,you are

Accepted Answer

A) transferring $74 of currency from your bank account to the grocery store's bank account. 
B) withdrawing $74 from your bank account with which you pay for your groceries. 
C) transferring your claim on $74 worth of gold to the grocery store. 
D) electronically transferring $74 of deposit money from your bank account to the grocery store's bank account. 
E) essentially promising the grocery store that your bank will pay them $74 at the end of the month when debts are settled. 
A) transferring $74 of currency from your bank account to the grocery store's bank account. 
B) withdrawing $74 from your bank account with which you pay for your groceries. 
C) transferring your claim on $74 worth of gold to the grocery store. 
D) electronically transferring $74 of deposit money from your bank account to the grocery store's bank account. 
E) essentially promising the grocery store that your bank will pay them $74 at the end of the month when debts are settled.

Question 18

The largest component of the assets of the Bank of Canada is

Accepted Answer

A) Government of Canada securities. 
B) Government of Canada deposits. 
C) notes and coins in circulation. 
D) loans to commercial banks. 
E) loans to private individuals. 
A) Government of Canada securities. 
B) Government of Canada deposits. 
C) notes and coins in circulation. 
D) loans to commercial banks. 
E) loans to private individuals.

Question 19

Suppose you found a $100 bill that was lost for many years under your grandmother's mattress.If the banking system has a cash drain of 5%,its target reserve ratio is 20%,and all excess reserves were lent out,your new deposit of the $100 bill would lead to an eventual expansion of the money supply of

Accepted Answer

A) $20. 
B) $25. 
C) $200. 
D) $400. 
E) $500. 
A) $20. 
B) $25. 
C) $200. 
D) $400. 
E) $500.

Question 20

Bank West's Balance Sheet Assets Liabilities
Cash $500 Deposits $20 000
Deposits at Bank of Canada $700 Capital $1 000
Loans and Mortgages $19 800 $21 000
$21 000
TABLE 26-3
Refer to Table 26-3.Assume that Bank West is operating with no excess reserves.What is its actual reserve ratio?

Accepted Answer

A) 2.5% 
B) 2.4% 
C) 5.7% 
D) 6% 
E) 10% 
A) 2.5% 
B) 2.4% 
C) 5.7% 
D) 6% 
E) 10%

Suppose Bank ABC has a target reserve ratio of 2%.If Bank ABC receives a new deposit of $50 million it will immediately find itself with

If the target reserve ratio in the banking system is 1%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an expansion of the money supply of

What are "excess reserves" for a commercial bank?

Developments in the financial industry in recent years have resulted in a multitude of types of deposits.For the purposes of studying the money supply,the most important distinction is between chequing and savings deposits which are and term deposits and other financial assets which are .

If the Bank of Canada enters the open market and purchases $1000 of government securities,what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system?

Without a central bank,commercial banks in Canada would probably hold reserves than they do now,resulting in a money supply than at present.

Suppose the excess reserves in Eastern Bank increase by $700.Given a target reserve ratio of 1.0% and no cash drain,the maximum change in deposits for the entire banking system would be

When you are estimating your monthly income and expenses,money is being used as

The financial crisis that occurred in 2007 and 2008 highlighted one of the crucial functions of commercial banks and other financial institutions in developed economies.A crucial function that ceased to work smoothly during this time,and contributed to the global recession that began in 2008,was

Which of the following is an example of "near money"?

Northern Bank: Balance Sheet Assets Liabilities Reserves $800 Deposits $10 000 Loans $11 200 Capital $2000 $12 000 $12 000 TABLE 26-6 Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must and .

Northern Bank: Balance Sheet Assets Liabilities Reserves $800 Deposits $10 000 Loans $11 200 Capital $2000 $12 000 $12 000 TABLE 26-6 Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.What is its current level of excess reserves?

The use of debit cards issued by commercial banks has now become standard.When you pay for a purchase at a store using a debit card,you are

Why is it unlikely that a bank run will occur in Canada today?

What is the main reason that fiat money has value?

When you pay for your $74 purchase at the grocery store with a debit card,you are

The largest component of the assets of the Bank of Canada is

Suppose you found a $100 bill that was lost for many years under your grandmother's mattress.If the banking system has a cash drain of 5%,its target reserve ratio is 20%,and all excess reserves were lent out,your new deposit of the $100 bill would lead to an eventual expansion of the money supply of

Bank West's Balance Sheet Assets Liabilities Cash $500 Deposits $20 000 Deposits at Bank of Canada $700 Capital $1 000 Loans and Mortgages $19 800 $21 000 $21 000 TABLE 26-3 Refer to Table 26-3.Assume that Bank West is operating with no excess reserves.What is its actual reserve ratio?

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Real Gdp and the Price Level in the Short Run

From the Short Run to the Long Run: the Adjustment of Factor Prices

Long-Run Economic Growth

Money, interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

Exam 26: Money and Banking

Suppose Bank ABC has a target reserve ratio of 2%.If Bank ABC receives a new deposit of $50 million it will immediately find itself with

If the target reserve ratio in the banking system is 1%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an expansion of the money supply of

What are "excess reserves" for a commercial bank?

If the Bank of Canada enters the open market and purchases $1000 of government securities,what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system?

Without a central bank,commercial banks in Canada would probably hold ________ reserves than they do now,resulting in a ________ money supply than at present.

Suppose the excess reserves in Eastern Bank increase by $700.Given a target reserve ratio of 1.0% and no cash drain,the maximum change in deposits for the entire banking system would be

When you are estimating your monthly income and expenses,money is being used as

The financial crisis that occurred in 2007 and 2008 highlighted one of the crucial functions of commercial banks and other financial institutions in developed economies.A crucial function that ceased to work smoothly during this time,and contributed to the global recession that began in 2008,was

Which of the following is an example of "near money"?

Northern Bank: Balance Sheet Assets Liabilities Reserves $800 Deposits $10 000 Loans $11 200 Capital $2000 $12 000 $12 000 TABLE 26-6 Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must ________ and ________.

Northern Bank: Balance Sheet Assets Liabilities Reserves $800 Deposits $10 000 Loans $11 200 Capital $2000 $12 000 $12 000 TABLE 26-6 Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.What is its current level of excess reserves?

The use of debit cards issued by commercial banks has now become standard.When you pay for a purchase at a store using a debit card,you are

Why is it unlikely that a bank run will occur in Canada today?

What is the main reason that fiat money has value?

When you pay for your $74 purchase at the grocery store with a debit card,you are

The largest component of the assets of the Bank of Canada is

Bank West's Balance Sheet Assets Liabilities Cash $500 Deposits $20 000 Deposits at Bank of Canada $700 Capital $1 000 Loans and Mortgages $19 800 $21 000 $21 000 TABLE 26-3 Refer to Table 26-3.Assume that Bank West is operating with no excess reserves.What is its actual reserve ratio?

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Real Gdp and the Price Level in the Short Run

From the Short Run to the Long Run: the Adjustment of Factor Prices

Long-Run Economic Growth

Money, interest Rates, and Economic Activity

Monetary Policy in Canada

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

Without a central bank,commercial banks in Canada would probably hold reserves than they do now,resulting in a money supply than at present.

Northern Bank: Balance Sheet Assets Liabilities Reserves $800 Deposits $10 000 Loans $11 200 Capital $2000 $12 000 $12 000 TABLE 26-6 Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must and .