Question 1

Which statement best explains the role of the Canadian Deposit Insurance Corporation (CDIC)?

Accepted Answer

A)  The CDIC protects depositors in the event of bank failures. 
B)  The CDIC protects commercial banks in the event of mortgage defaults 
C)  The CDIC determines the bank rate. 
D)  The CDIC determines the reserve requirement. 
A)  The CDIC protects depositors in the event of bank failures. 
B)  The CDIC protects commercial banks in the event of mortgage defaults 
C)  The CDIC determines the bank rate. 
D)  The CDIC determines the reserve requirement. A

Question 2

Economists argue that the move from barter to money increased trade and production. How is this possible?

Accepted Answer

The use of money allows people to trade more easily. When it is easier to trade what one produces, people specialize. The specialization creates greater production.

Question 3

Monetary policy is determined by the Minister of Finance.

Accepted Answer

A) True 
 B)False  False

Question 4

If banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall, other things equal.

Accepted Answer

A) True 
 B)False

Question 5

If the reserve ratio decreased from 10 percent to 5 percent, which of the following would happen to the money multiplier?

Accepted Answer

A)  It would rise from 10 to 20. 
B)  It would rise from 5 to 10. 
C)  It would fall from 10 to 5. 
D)  It would fall from 20 to 5. 
A)  It would rise from 10 to 20. 
B)  It would rise from 5 to 10. 
C)  It would fall from 10 to 5. 
D)  It would fall from 20 to 5.

Question 6

What is the role of money in an economy?

Accepted Answer

A)  Money serves as a person's wealth. 
B)  Money allows people to save 
C)  Money is an investment asset. 
D)  Money allows greater specialization. 
A)  Money serves as a person's wealth. 
B)  Money allows people to save 
C)  Money is an investment asset. 
D)  Money allows greater specialization.

Question 7

What is a bank's capital?

Accepted Answer

A)  the bank's reserves 
B)  the bank's deposits 
C)  the bank's debt 
D)  the bank's equity 
A)  the bank's reserves 
B)  the bank's deposits 
C)  the bank's debt 
D)  the bank's equity

Question 8

Which organization plays the role of a central bank in Canada?

Accepted Answer

A)  the Royal Canadian Mint 
B)  the Toronto Stock Exchange 
C)  the Bank of Canada 
D)  the Royal Bank of Canada 
A)  the Royal Canadian Mint 
B)  the Toronto Stock Exchange 
C)  the Bank of Canada 
D)  the Royal Bank of Canada

Question 9

At one time, the country of Islandtopia had no banks, but had currency of $10 million. Then a banking system was established with a reserve requirement of 20 percent. The people of Islandtopia now keep half their money in the form of currency and half in the form of bank deposits. If banks do not hold excess reserves, how much currency do the people of Islandtopia now hold?

Accepted Answer

A)  $2 million 
B)  $5 million 
C)  $9 million 
D)  $12 million 
A)  $2 million 
B)  $5 million 
C)  $9 million 
D)  $12 million

Question 10

What happens in a 100-percent-reserve banking system?

Accepted Answer

A)  Banks can create money by issuing currency. 
B)  Banks can create money by lending out reserves. 
C)  Banks can lend money to their customers. 
D)  Banks hold as many reserves as they hold deposits. 
A)  Banks can create money by issuing currency. 
B)  Banks can create money by lending out reserves. 
C)  Banks can lend money to their customers. 
D)  Banks hold as many reserves as they hold deposits.

Question 11

In order to support the Canadian dollar, the Bank of Canada buys an amount of Euros from some major commercial Canadian banks (a type of operation the Bank of Canada rarely undertakes).
a. What is the immediate and the long-term impact of this operation on the money supply?
b. If the Bank of Canada does not wish that the currency swap influence the money supply, what does it have to do?

Accepted Answer

a. Since the purchase is from major comm

Question 12

What does the legal tender requirement imply?

Accepted Answer

A)  People are more likely to accept the dollar as a medium of exchange. 
B)  The government must hold enough gold to redeem all currency. 
C)  People may not make trades with anything else. 
D)  It is illegal to hold foreign currencies. 
A)  People are more likely to accept the dollar as a medium of exchange. 
B)  The government must hold enough gold to redeem all currency. 
C)  People may not make trades with anything else. 
D)  It is illegal to hold foreign currencies.

Question 13

-Refer to Table 10-2. If the reserve requirement is 30 percent, what is this bank's reserve position?

Accepted Answer

A)  It has $29,000 of excess reserves. 
B)  It needs $10,000 more in reserves to meet its reserve requirement. 
C)  It needs $27,500 more in reserves to meet its reserve requirement. 
D)  It just meets its reserve requirement. 
A)  It has $29,000 of excess reserves. 
B)  It needs $10,000 more in reserves to meet its reserve requirement. 
C)  It needs $27,500 more in reserves to meet its reserve requirement. 
D)  It just meets its reserve requirement.

Question 14

What is the fundamental function of credit cards?

Accepted Answer

A)  Credit cards are used for deferring payments. 
B)  Credit cards are used as store of value. 
C)  Credit cards are used for increasing the money supply. 
D)  Credit cards are used as investment assets. 
A)  Credit cards are used for deferring payments. 
B)  Credit cards are used as store of value. 
C)  Credit cards are used for increasing the money supply. 
D)  Credit cards are used as investment assets.

Question 15

Which statement best defines liquidity?

Accepted Answer

A)  It is the ease with which an asset is converted to the medium of exchange. 
B)  It is a measurement of the intrinsic value of commodity money. 
C)  It is the ability of an asset to retain purchasing power. 
D)  It refers to how many times a dollar changes hands in a given year. 
A)  It is the ease with which an asset is converted to the medium of exchange. 
B)  It is a measurement of the intrinsic value of commodity money. 
C)  It is the ability of an asset to retain purchasing power. 
D)  It refers to how many times a dollar changes hands in a given year.

Question 16

If the reserve ratio is 100 percent, how much will the money supply eventually increase if there is a deposit of $1,000 of paper money in a bank?

Accepted Answer

A)  $0- 
B)  $1,000 
C)  $2,000 
D)  $10,000 
A)  $0- 
B)  $1,000 
C)  $2,000 
D)  $10,000

Question 17

Which of the following is included in the M2 definition of the money supply?

Accepted Answer

A)  credit cards 
B)  term deposits 
C)  treasury bills 
D)  US dollars 
A)  credit cards 
B)  term deposits 
C)  treasury bills 
D)  US dollars

Question 18

Suppose a bank uses $200 of its $500 excess reserves to make a new loan when the reserve ratio is 20 percent. How does this action by itself initially change the money supply?

Accepted Answer

A)  The money supply increases by $40. 
B)  The money supply decreases by $40. 
C)  The money supply increases by $200. 
D)  The money supply decreases by $200. 
A)  The money supply increases by $40. 
B)  The money supply decreases by $40. 
C)  The money supply increases by $200. 
D)  The money supply decreases by $200.

Question 19

As banks create money, they create wealth.

Accepted Answer

A) True 
 B)False

Question 20

Suppose the reserve ratio is 25 percent and the public holds $10 million in cash. Then the public decides to withdraw $5 million from the banks. How does the money supply eventually change?

Accepted Answer

A)  falls by $5 million 
B)  falls by $10 million 
C)  falls by $20 million 
D)  falls by $35 million 
A)  falls by $5 million 
B)  falls by $10 million 
C)  falls by $20 million 
D)  falls by $35 million

Which statement best explains the role of the Canadian Deposit Insurance Corporation (CDIC)?

Economists argue that the move from barter to money increased trade and production. How is this possible?

Monetary policy is determined by the Minister of Finance.

If banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall, other things equal.

If the reserve ratio decreased from 10 percent to 5 percent, which of the following would happen to the money multiplier?

What is the role of money in an economy?

What is a bank's capital?

Which organization plays the role of a central bank in Canada?

What happens in a 100-percent-reserve banking system?

What does the legal tender requirement imply?

-Refer to Table 10-2. If the reserve requirement is 30 percent, what is this bank's reserve position?

What is the fundamental function of credit cards?

Which statement best defines liquidity?

If the reserve ratio is 100 percent, how much will the money supply eventually increase if there is a deposit of $1,000 of paper money in a bank?

Which of the following is included in the M2 definition of the money supply?

Suppose a bank uses $200 of its $500 excess reserves to make a new loan when the reserve ratio is 20 percent. How does this action by itself initially change the money supply?

As banks create money, they create wealth.

Suppose the reserve ratio is 25 percent and the public holds $10 million in cash. Then the public decides to withdraw $5 million from the banks. How does the money supply eventually change?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 10: The Monetary System

Which statement best explains the role of the Canadian Deposit Insurance Corporation (CDIC)?

Economists argue that the move from barter to money increased trade and production. How is this possible?

Monetary policy is determined by the Minister of Finance.

If banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall, other things equal.

If the reserve ratio decreased from 10 percent to 5 percent, which of the following would happen to the money multiplier?

What is the role of money in an economy?

What is a bank's capital?

Which organization plays the role of a central bank in Canada?

What happens in a 100-percent-reserve banking system?

What does the legal tender requirement imply?

-Refer to Table 10-2. If the reserve requirement is 30 percent, what is this bank's reserve position?

What is the fundamental function of credit cards?

Which statement best defines liquidity?

If the reserve ratio is 100 percent, how much will the money supply eventually increase if there is a deposit of $1,000 of paper money in a bank?

Which of the following is included in the M2 definition of the money supply?

Suppose a bank uses $200 of its $500 excess reserves to make a new loan when the reserve ratio is 20 percent. How does this action by itself initially change the money supply?

As banks create money, they create wealth.

Suppose the reserve ratio is 25 percent and the public holds $10 million in cash. Then the public decides to withdraw $5 million from the banks. How does the money supply eventually change?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters