Exam 10: The Monetary System

At one time, the country of Aquilonia had no banks, but had currency of $1 million. Then a banking system was established with a reserve requirement of 20 percent. The people of Aquilonia deposited half of their currency into the banking system. If banks do not hold excess reserves, what is Aquilonia's money supply now?

Heather receives a payment in cash of $400 and she deposits it in a bank. a. If the banking system is 100 percent reserve, how does the money supply change? b. If the reserve requirement is 10 percent and the bank holds no excess reserve, how does the money supply change? c. If the reserve requirement is 10 percent and the bank holds an excess reserve of 2 percent, how does the money supply change?

Suppose a bank has a 6 percent reserve ratio, $4000 in deposits, and it loans out all it can, given the reserve ratio. Which of the following describes the bank's assets?

M2 is both larger and more liquid than M1+.

How does M1+ compare with M2?

During recessions, banks typically choose to hold more excess reserves relative to their deposits. Which statement best describes the effects of the increase in reserves?

Which account balance is included in M1+?

What is the role of the Bank of Canada?

Suppose that the reserve ratio is 7 percent and that a bank has $2000 in deposits. What are its required reserves?

What do economists use the word "money" to refer to?

What characterizes fiat money?

Which list contains only actions that decrease the money supply?

What is a characteristic of the Bank of Montreal?

Which statement best defines reserve requirements?

Gary's wealth is $1 million. Economists would say that Gary has $1 million worth of money.

Which statement best describes the outcome of an increase in the bank rate?

If you deposit $100 into a demand deposit at a bank, what does this action do to the money supply?

If the reserve ratio is 10 percent and a bank receives a new deposit of $500, which of the following will this bank most likely do?

If a central bank wanted to increase the money supply, what would it most likely do?

-Refer to Table 10-2. If the Last Bank of Panorama Springs is holding $4000 in excess reserves, what is the reserve requirement?