Question 1

What does the Bank of Canada NOT do?

Accepted Answer

A)  control the supply of money 
B)  control the value of money 
C)  make loans to individuals 
D)  regulate the banking system 
A)  control the supply of money 
B)  control the value of money 
C)  make loans to individuals 
D)  regulate the banking system

Question 2

What is a generally accepted medium of exchange?

Accepted Answer

A)  hockey cards 
B)  treasury bills 
C)  gold 
D)  currency 
A)  hockey cards 
B)  treasury bills 
C)  gold 
D)  currency

Question 3

What is meant by the term "lender of last resort"? In what circumstances might the Bank of Canada be a lender of last resort?

Accepted Answer

A lender of last resort is a lender to t

Question 4

Which of the three functions of money are met by each of the following assets in the Canadian economy?
a. paper dollar
b. precious metals
c. collectibles such as baseball cards, stamps, and antiques

Accepted Answer

a. medium of exchang

Question 5

Which of the following has intrinsic value?

Accepted Answer

A)  a gold coin 
B)  a one hundred-dollar bill 
C)  a credit card 
D)  a personal cheque 
A)  a gold coin 
B)  a one hundred-dollar bill 
C)  a credit card 
D)  a personal cheque

Question 6

Suppose a bank has $200,000 in deposits and $150,000 in loans. What is its reserve ratio?

Accepted Answer

A)  1 percent 
B)  5 percent 
C)  10 percent 
D)  25 percent 
A)  1 percent 
B)  5 percent 
C)  10 percent 
D)  25 percent

Question 7

Which statement best describes the process of open-market sales conducted by the Bank of Canada?

Accepted Answer

A)  The Bank of Canada sells Treasury bills, which increases the money supply. 
B)  The Bank of Canada sells Treasury bills, which decreases the money supply. 
C)  The Bank of Canada borrows from member banks, which increases the money supply. 
D)  The Bank of Canada lends money to member banks, which decreases the money supply. 
A)  The Bank of Canada sells Treasury bills, which increases the money supply. 
B)  The Bank of Canada sells Treasury bills, which decreases the money supply. 
C)  The Bank of Canada borrows from member banks, which increases the money supply. 
D)  The Bank of Canada lends money to member banks, which decreases the money supply.

Question 8

A bank has $100 reserves, $10,000 loans, $500 securities, $9000 deposits, and $1400 debt.
a) Calculate the bank's capital.
b) Calculate the bank's leverage ratio.
c) Suppose the bank's securities are mainly mortgage-based bonds and a wave of mortgage defaults combined with a fall in the stock market reduces the bank's assets by 10 percent. What is the percentage and dollar-value change of the bank's capital? Is the bank solvent?

Accepted Answer

a) Capital = Assets - Deposits - Debt =

Question 9

As the reserve ratio increases, what happens to the money multiplier and money supply?

Accepted Answer

A)  The money multiplier increases, but the money supply does not change. 
B)  The money multiplier does not change, but the money supply increases. 
C)  The money multiplier and the money supply both increase. 
D)  The money multiplier and the money supply both decrease. 
A)  The money multiplier increases, but the money supply does not change. 
B)  The money multiplier does not change, but the money supply increases. 
C)  The money multiplier and the money supply both increase. 
D)  The money multiplier and the money supply both decrease.

Question 10

Suppose the banking system has $10 million in reserves and the reserve ratio is 25 percent. Then bankers decide to decrease the reserve ratio to 20 percent. How does this decision eventually change the money supply?

Accepted Answer

A)  increases by $0.5 million 
B)  increases by $5 million 
C)  increases by $10 million 
D)  increases by $20 million 
A)  increases by $0.5 million 
B)  increases by $5 million 
C)  increases by $10 million 
D)  increases by $20 million

Question 11

To increase the money supply, what could the Bank of Canada do?

Accepted Answer

A)  sell government bonds 
B)  increase the bank rate 
C)  decrease the reserve requirement 
D)  decrease the money multiplier 
A)  sell government bonds 
B)  increase the bank rate 
C)  decrease the reserve requirement 
D)  decrease the money multiplier

Question 12

Suppose a bank has $10,000 in deposits and $7000 in loans. What is its reserve ratio?

Accepted Answer

A)  3 percent 
B)  7 percent 
C)  30 percent 
D)  70 percent 
A)  3 percent 
B)  7 percent 
C)  30 percent 
D)  70 percent

Question 13

Assume that banks do not hold excess reserves. The banking system has $50 million in reserves and has a reserve requirement of 10 percent. The public holds $20 million in currency. Then the public decides to withdraw $5 million in currency from the banking system. If the Bank of Canada wants to keep the money supply stable by changing the reserve requirement, then what will the new reserve requirement be?

Accepted Answer

A)  8.1 percent 
B)  9.1 percent 
C)  9.7 percent 
D)  10 percent 
A)  8.1 percent 
B)  9.1 percent 
C)  9.7 percent 
D)  10 percent

Question 14

If the reserve ratio is 12.5 percent, how much new money can $1000 of excess reserves create?

Accepted Answer

A)  $800 
B)  $8000 
C)  $80,000 
D)  $00,000 
A)  $800 
B)  $8000 
C)  $80,000 
D)  $00,000

Question 15

-Refer to Table 10-4. If all banks hold only the required 4 percent of deposits as reserves, then what is the money multiplier?

Accepted Answer

A)  5 
B)  10 
C)  15 
D)  25 
A)  5 
B)  10 
C)  15 
D)  25

Question 16

The bank of Hinton has $100 reserves, $10,000 long-term loans, $500 securities, $8800 deposits, and $1400 debt. Due to a macroeconomic slowdown, many people lose their jobs and need to live off their savings for a while. Discuss the possible effects of this situation on the bank of Hinton's assets, liabilities, and capital. Is the bank insolvent? Use numerical examples to illustrate your points.

Accepted Answer

If people use their savings, they withdr

Question 17

Which of the following is included in M1+?

Accepted Answer

A)  credit cards 
B)  savings accounts 
C)  currency 
D)  Canada savings bonds 
A)  credit cards 
B)  savings accounts 
C)  currency 
D)  Canada savings bonds

Question 18

Which of the following is a sterilization operation that supports the Canadian dollar?

Accepted Answer

A)  The Bank of Canada sells U.S. dollars and buys government bonds. 
B)  The Bank of Canada buys U.S. dollars and sells government bonds. 
C)  The Bank of Canada sells both U.S. dollars and government bonds. 
D)  The Bank of Canada buys both U.S. dollars and government bonds. 
A)  The Bank of Canada sells U.S. dollars and buys government bonds. 
B)  The Bank of Canada buys U.S. dollars and sells government bonds. 
C)  The Bank of Canada sells both U.S. dollars and government bonds. 
D)  The Bank of Canada buys both U.S. dollars and government bonds.

Question 19

Which statement best illustrates the medium of exchange function of money?

Accepted Answer

A)  You keep some money hidden in your sock drawer. 
B)  You have your house remortgaged for $500 000. 
C)  You use cash to buy a new tent for $250. 
D)  You borrow $500 from your parents for textbooks. 
A)  You keep some money hidden in your sock drawer. 
B)  You have your house remortgaged for $500 000. 
C)  You use cash to buy a new tent for $250. 
D)  You borrow $500 from your parents for textbooks.

Question 20

Shelly deposits half of her inheritance in a savings account at the bank. In doing so, Shelly is using money as a medium of exchange.

Accepted Answer

A) True 
 B)False

What does the Bank of Canada NOT do?

What is a generally accepted medium of exchange?

What is meant by the term "lender of last resort"? In what circumstances might the Bank of Canada be a lender of last resort?

Which of the three functions of money are met by each of the following assets in the Canadian economy? a. paper dollar b. precious metals c. collectibles such as baseball cards, stamps, and antiques

Which of the following has intrinsic value?

Suppose a bank has $200,000 in deposits and $150,000 in loans. What is its reserve ratio?

Which statement best describes the process of open-market sales conducted by the Bank of Canada?

As the reserve ratio increases, what happens to the money multiplier and money supply?

Suppose the banking system has $10 million in reserves and the reserve ratio is 25 percent. Then bankers decide to decrease the reserve ratio to 20 percent. How does this decision eventually change the money supply?

To increase the money supply, what could the Bank of Canada do?

Suppose a bank has $10,000 in deposits and $7000 in loans. What is its reserve ratio?

If the reserve ratio is 12.5 percent, how much new money can $1000 of excess reserves create?

-Refer to Table 10-4. If all banks hold only the required 4 percent of deposits as reserves, then what is the money multiplier?

Which of the following is included in M1+?

Which of the following is a sterilization operation that supports the Canadian dollar?

Which statement best illustrates the medium of exchange function of money?

Shelly deposits half of her inheritance in a savings account at the bank. In doing so, Shelly is using money as a medium of exchange.

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

Exam 10: The Monetary System

What does the Bank of Canada NOT do?

What is a generally accepted medium of exchange?

What is meant by the term "lender of last resort"? In what circumstances might the Bank of Canada be a lender of last resort?

Which of the three functions of money are met by each of the following assets in the Canadian economy? a. paper dollar b. precious metals c. collectibles such as baseball cards, stamps, and antiques

Which of the following has intrinsic value?

Suppose a bank has $200,000 in deposits and $150,000 in loans. What is its reserve ratio?

Which statement best describes the process of open-market sales conducted by the Bank of Canada?

As the reserve ratio increases, what happens to the money multiplier and money supply?

Suppose the banking system has $10 million in reserves and the reserve ratio is 25 percent. Then bankers decide to decrease the reserve ratio to 20 percent. How does this decision eventually change the money supply?

To increase the money supply, what could the Bank of Canada do?

Suppose a bank has $10,000 in deposits and $7000 in loans. What is its reserve ratio?

If the reserve ratio is 12.5 percent, how much new money can $1000 of excess reserves create?

-Refer to Table 10-4. If all banks hold only the required 4 percent of deposits as reserves, then what is the money multiplier?

Which of the following is included in M1+?

Which of the following is a sterilization operation that supports the Canadian dollar?

Which statement best illustrates the medium of exchange function of money?

Shelly deposits half of her inheritance in a savings account at the bank. In doing so, Shelly is using money as a medium of exchange.

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