Question 1

What is the difference between commodity money and fiat money? Why do people accept fiat currency in trade for goods and services?

Accepted Answer

Commodity money has "intrinsic value," o

Question 2

Draw a simple T-account for First National Bank of Me, which has $9000 of deposits, a reserve ratio of 10 percent, and excess reserves of $300.

Accepted Answer

First National Bank

Question 3

If the reserve ratio is 10 percent and a bank receives a new deposit of $20, what happens to the bank's reserves in the longer term?

Accepted Answer

A)  increase by $2 
B)  increase by $18 
C)  increase by $20 
D)  increase by $200 
A)  increase by $2 
B)  increase by $18 
C)  increase by $20 
D)  increase by $200

Question 4

Which statement best describes bank runs today?

Accepted Answer

A)  Bank runs are uncommon because of the high required reserve ratio. 
B)  Bank runs are uncommon because of CDIC deposit insurance. 
C)  Bank runs are common because of the low required reserve ratio. 
D)  Bank runs are common because the CDIC is inefficient. 
A)  Bank runs are uncommon because of the high required reserve ratio. 
B)  Bank runs are uncommon because of CDIC deposit insurance. 
C)  Bank runs are common because of the low required reserve ratio. 
D)  Bank runs are common because the CDIC is inefficient.

Question 5

An increase in reserve requirements raises the reserve ratio and decreases the money supply.

Accepted Answer

A) True 
 B)False

Question 6

What is one of the functions of the Bank of Canada?

Accepted Answer

A)  to maximize profits on behalf of its shareholders 
B)  to issue currency 
C)  to convert currency into gold 
D)  to bail out the government 
A)  to maximize profits on behalf of its shareholders 
B)  to issue currency 
C)  to convert currency into gold 
D)  to bail out the government

Question 7

Bottles of very fine wine have less liquidity than demand deposits.

Accepted Answer

A) True 
 B)False

Question 8

-Refer to Table 10-4. If the Bank of the Kawarthas has lent out all the money it can, then what is its reserve ratio?

Accepted Answer

A)  0 percent 
B)  5 percent 
C)  20 percent 
D)  100 percent 
A)  0 percent 
B)  5 percent 
C)  20 percent 
D)  100 percent

Question 9

Sophie wants to trade Lego for toy cars. Henry wants to trade toy cars for Lego. Sophie and Henry have a double coincidence of wants.

Accepted Answer

A) True 
 B)False

Question 10

The use of money allows trade to be roundabout.

Accepted Answer

A) True 
 B)False

Question 11

If the reserve ratio is 15 percent, by how much will an additional $1000 of reserves increase the money supply?

Accepted Answer

A)  $1176 
B)  $1275 
C)  $5667 
D)  $6667 
A)  $1176 
B)  $1275 
C)  $5667 
D)  $6667

Question 12

Banks could not change the money supply if they were required to hold all deposits in reserve.

Accepted Answer

A) True 
 B)False

Question 13

If the reserve ratio is 5 percent and a bank receives a new deposit of $1,000, by how much can the bank increase its new loans?

Accepted Answer

A)  by $950 
B)  by $1,000 
C)  by $5,000 
D)  by $20,000 
A)  by $950 
B)  by $1,000 
C)  by $5,000 
D)  by $20,000

Question 14

When the Bank of Canada decreases the bank rate, banks will borrow more from the Bank of Canada. Which statement best describes the outcomes of this process?

Accepted Answer

A)  Banks lend more to the public, and so the money supply will decrease. 
B)  Banks lend less to the public, and so the money supply will decrease. 
C)  Banks lend more to the public, and so the money supply will increase. 
D)  Banks lend less to the public, and so the money supply will increase. 
A)  Banks lend more to the public, and so the money supply will decrease. 
B)  Banks lend less to the public, and so the money supply will decrease. 
C)  Banks lend more to the public, and so the money supply will increase. 
D)  Banks lend less to the public, and so the money supply will increase.

Question 15

-Refer to Table 10-1. If $500 is deposited into the First Bank of Dawson City, what will happen?

Accepted Answer

A)  The bank will be able to make additional loans totalling $500. 
B)  Excess reserves initially increase by $500. 
C)  Required reserves initially increase by $10,000. 
D)  Excess reserves initially increase by $400. 
A)  The bank will be able to make additional loans totalling $500. 
B)  Excess reserves initially increase by $500. 
C)  Required reserves initially increase by $10,000. 
D)  Excess reserves initially increase by $400.

Question 16

Since 1994, what was phased out as a tool used by the Bank of Canada to control the money supply?

Accepted Answer

A)  changing reserve requirements 
B)  changing the overnight rate 
C)  open-market operations 
D)  foreign exchange market operations 
A)  changing reserve requirements 
B)  changing the overnight rate 
C)  open-market operations 
D)  foreign exchange market operations

Question 17

-Refer to Table 10-3. If the Bank of Kamloops has loaned out all the money it wants, given its deposits, what is its reserve ratio?

Accepted Answer

A)  1 percent 
B)  5 percent 
C)  10 percent 
D)  15 percent 
A)  1 percent 
B)  5 percent 
C)  10 percent 
D)  15 percent

Question 18

How has the Bank of Canada historically viewed changes in reserve requirements to control the money supply?

Accepted Answer

A)  It has been gradually lowering the reserve requirements to keep inflation rates low. 
B)  It has traditionally made frequent changes in order to stabilize the economy. 
C)  It has been reluctant to make frequent changes as this would disrupt the business of banking. 
D)  It has been gradually increasing the reserve requirements to keep inflation rates low. 
A)  It has been gradually lowering the reserve requirements to keep inflation rates low. 
B)  It has traditionally made frequent changes in order to stabilize the economy. 
C)  It has been reluctant to make frequent changes as this would disrupt the business of banking. 
D)  It has been gradually increasing the reserve requirements to keep inflation rates low.

Question 19

Which statement best explains whether bank runs are a problem for the economy?

Accepted Answer

A)  They are not a problem because bank runs will affect neither the money supply nor the money multiplier. 
B)  Bank runs are only a problem for insolvent banks. 
C)  They are a problem, but they can be neither prevented nor stopped by a central bank. 
D)  Bank runs are a problem because bank failures may spread to healthy banks. 
A)  They are not a problem because bank runs will affect neither the money supply nor the money multiplier. 
B)  Bank runs are only a problem for insolvent banks. 
C)  They are a problem, but they can be neither prevented nor stopped by a central bank. 
D)  Bank runs are a problem because bank failures may spread to healthy banks.

Question 20

What is the difference between the reserve ratio and the reserve requirement? Which is generally larger?

Accepted Answer

The reserve ratio is the percent of depo

What is the difference between commodity money and fiat money? Why do people accept fiat currency in trade for goods and services?

Draw a simple T-account for First National Bank of Me, which has $9000 of deposits, a reserve ratio of 10 percent, and excess reserves of $300.

If the reserve ratio is 10 percent and a bank receives a new deposit of $20, what happens to the bank's reserves in the longer term?

Which statement best describes bank runs today?

An increase in reserve requirements raises the reserve ratio and decreases the money supply.

What is one of the functions of the Bank of Canada?

Bottles of very fine wine have less liquidity than demand deposits.

-Refer to Table 10-4. If the Bank of the Kawarthas has lent out all the money it can, then what is its reserve ratio?

Sophie wants to trade Lego for toy cars. Henry wants to trade toy cars for Lego. Sophie and Henry have a double coincidence of wants.

The use of money allows trade to be roundabout.

If the reserve ratio is 15 percent, by how much will an additional $1000 of reserves increase the money supply?

Banks could not change the money supply if they were required to hold all deposits in reserve.

If the reserve ratio is 5 percent and a bank receives a new deposit of $1,000, by how much can the bank increase its new loans?

When the Bank of Canada decreases the bank rate, banks will borrow more from the Bank of Canada. Which statement best describes the outcomes of this process?

-Refer to Table 10-1. If $500 is deposited into the First Bank of Dawson City, what will happen?

Since 1994, what was phased out as a tool used by the Bank of Canada to control the money supply?

-Refer to Table 10-3. If the Bank of Kamloops has loaned out all the money it wants, given its deposits, what is its reserve ratio?

How has the Bank of Canada historically viewed changes in reserve requirements to control the money supply?

Which statement best explains whether bank runs are a problem for the economy?

What is the difference between the reserve ratio and the reserve requirement? Which is generally larger?

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

What is the difference between commodity money and fiat money? Why do people accept fiat currency in trade for goods and services?

Draw a simple T-account for First National Bank of Me, which has $9000 of deposits, a reserve ratio of 10 percent, and excess reserves of $300.

If the reserve ratio is 10 percent and a bank receives a new deposit of $20, what happens to the bank's reserves in the longer term?

Which statement best describes bank runs today?

An increase in reserve requirements raises the reserve ratio and decreases the money supply.

What is one of the functions of the Bank of Canada?

Bottles of very fine wine have less liquidity than demand deposits.

-Refer to Table 10-4. If the Bank of the Kawarthas has lent out all the money it can, then what is its reserve ratio?

Sophie wants to trade Lego for toy cars. Henry wants to trade toy cars for Lego. Sophie and Henry have a double coincidence of wants.

The use of money allows trade to be roundabout.

If the reserve ratio is 15 percent, by how much will an additional $1000 of reserves increase the money supply?

Banks could not change the money supply if they were required to hold all deposits in reserve.

If the reserve ratio is 5 percent and a bank receives a new deposit of $1,000, by how much can the bank increase its new loans?

When the Bank of Canada decreases the bank rate, banks will borrow more from the Bank of Canada. Which statement best describes the outcomes of this process?

-Refer to Table 10-1. If $500 is deposited into the First Bank of Dawson City, what will happen?

Since 1994, what was phased out as a tool used by the Bank of Canada to control the money supply?

-Refer to Table 10-3. If the Bank of Kamloops has loaned out all the money it wants, given its deposits, what is its reserve ratio?

How has the Bank of Canada historically viewed changes in reserve requirements to control the money supply?

Which statement best explains whether bank runs are a problem for the economy?

What is the difference between the reserve ratio and the reserve requirement? Which is generally larger?

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