Question 1

Money's liquidity refers to the ease with which:

Accepted Answer

A) coins can be melted down. 
B) illegally obtained money can be laundered. 
C) loans can be floated. 
D) money can be converted into goods and services. 
A) coins can be melted down. 
B) illegally obtained money can be laundered. 
C) loans can be floated. 
D) money can be converted into goods and services.

Question 2

In a country on a gold standard, the quantity of money is determined by the:

Accepted Answer

A) government. 
B) central bank. 
C) amount of gold. 
D) buying and selling of government securities. 
A) government. 
B) central bank. 
C) amount of gold. 
D) buying and selling of government securities.

Question 3

The ratio of the money supply to the monetary base is called:

Accepted Answer

A) the currency-deposit ratio. 
B) the reserve-deposit ratio. 
C) high-powered money. 
D) the money multiplier. 
A) the currency-deposit ratio. 
B) the reserve-deposit ratio. 
C) high-powered money. 
D) the money multiplier.

Question 4

If the Bank of Canada conducts a Special Purchase and Resale Agreement (SPRA), the money supply will:

Accepted Answer

A) decrease. 
B) increase. 
C) stay the same. 
D) collapse. 
A) decrease. 
B) increase. 
C) stay the same. 
D) collapse.

Question 5

Bank reserves equal:

Accepted Answer

A) gold kept in bank vaults. 
B) gold kept at the central bank. 
C) currency plus demand deposits. 
D) deposits that banks have received but have not lent out. 
A) gold kept in bank vaults. 
B) gold kept at the central bank. 
C) currency plus demand deposits. 
D) deposits that banks have received but have not lent out.

Question 6

All of the following assets are included in M1 except:

Accepted Answer

A) currency. 
B) demand deposits. 
C) traveller's cheques. 
D) money market deposit accounts. 
A) currency. 
B) demand deposits. 
C) traveller's cheques. 
D) money market deposit accounts.

Question 7

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

Accepted Answer

A) increases by $100. 
B) decreases by $100. 
C) increases by more than $100. 
D) remains the same. 
A) increases by $100. 
B) decreases by $100. 
C) increases by more than $100. 
D) remains the same.

Question 8

Payment is deferred by using _____, but immediate access to funds occurs when using _____.

Accepted Answer

A) currency; demand deposits 
B) credit cards; debit cards 
C) demand deposits; savings deposits 
D) debit cards; credit cards 
A) currency; demand deposits 
B) credit cards; debit cards 
C) demand deposits; savings deposits 
D) debit cards; credit cards

Question 9

An increase in the bank rate will result in _____.

Accepted Answer

A) an increase in the money supply. 
B) an increase in the monetary base. 
C) a decrease in the monetary base. 
D) no change in the monetary base. 
A) an increase in the money supply. 
B) an increase in the monetary base. 
C) a decrease in the monetary base. 
D) no change in the monetary base.

Question 10

John withdraws $100 from his chequing account and deposits it in his saving account. What will be the effect of this transaction on different measures of money, such as C, M1, and M2?

Accepted Answer

Chequing accounts are included

Question 11

In a system with fractional-reserve banking:

Accepted Answer

A) all banks hold reserves equal to a fraction of their loans. 
B) no banks can make loans. 
C) the banking system completely controls the size of the money supply. 
D) all banks hold reserves equal to a fraction of their deposits. 
A) all banks hold reserves equal to a fraction of their loans. 
B) no banks can make loans. 
C) the banking system completely controls the size of the money supply. 
D) all banks hold reserves equal to a fraction of their deposits.

Question 12

In 1932, the U.S. government imposed a 2-cent tax on cheques written on deposits in bank accounts. This action would be expected to _____ the currency-deposit ratio and _____ the money supply.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease 
A) increase; increase 
B) increase; decrease 
C) decrease; increase 
D) decrease; decrease

Question 13

People use money as a medium of exchange when they:

Accepted Answer

A) hold money to transfer purchasing power into the future. 
B) use money as a measure of economic transactions. 
C) use money to buy goods and services. 
D) hold money to gain power and esteem. 
A) hold money to transfer purchasing power into the future. 
B) use money as a measure of economic transactions. 
C) use money to buy goods and services. 
D) hold money to gain power and esteem.

Question 14

If many banks fail, this is likely to:

Accepted Answer

A) increase the ratio of currency to deposits. 
B) decrease the ratio of currency to deposits. 
C) have no effect on the ratio of currency to deposits. 
D) decrease the amount of currency in circulation if the Bank of Canada takes no action. 
A) increase the ratio of currency to deposits. 
B) decrease the ratio of currency to deposits. 
C) have no effect on the ratio of currency to deposits. 
D) decrease the amount of currency in circulation if the Bank of Canada takes no action.

Question 15

If you hear in the news that the Bank of Canada conducted open-market purchases, then you should expect _____ to increase.

Accepted Answer

A) reserve requirements 
B) the discount rate 
C) the money supply 
D) the reserve-deposit ratio 
A) reserve requirements 
B) the discount rate 
C) the money supply 
D) the reserve-deposit ratio

Question 16

Economists occasionally speak of "helicopter money" as a shorthand approach to explaining increases in the money supply. Suppose the Governor of the Bank of Canada flies over the country in a helicopter, dropping 10 million newly printed $100 bills (a total of $1 billion). By how much will the money supply increase in the following scenarios, holding everything else constant:
a.all of the new bills are held by the public as currency?
b.all of the new bills are deposited in banks that choose to hold 10 percent of their deposits as reserves (and no one in the economy holds any currency)?
c.all of the new bills are deposited in banks that practice 100-percent-reserve banking?
d.people in the economy hold half of their money as currency and half as deposits, while banks choose to hold 10 percent of their deposits as reserves?

Accepted Answer

a. $1 billion
b. $10

Question 17

The money supply will increase if the:

Accepted Answer

A) currency-deposit ratio increases. 
B) reserve-deposit ratio increases. 
C) monetary base increases. 
D) discount rate increases. 
A) currency-deposit ratio increases. 
B) reserve-deposit ratio increases. 
C) monetary base increases. 
D) discount rate increases.

Question 18

To increase the money supply, the Bank of Canada:

Accepted Answer

A) buys government bonds. 
B) sells government bonds. 
C) buys corporate stocks. 
D) sells corporate stocks. 
A) buys government bonds. 
B) sells government bonds. 
C) buys corporate stocks. 
D) sells corporate stocks.

Question 19

If the Bank of Canada wishes to increase the money supply, it should:

Accepted Answer

A) decrease the overnight rate. 
B) increase interest paid on reserves. 
C) sell government bonds. 
D) decrease the monetary base. 
A) decrease the overnight rate. 
B) increase interest paid on reserves. 
C) sell government bonds. 
D) decrease the monetary base.

Money's liquidity refers to the ease with which:

In a country on a gold standard, the quantity of money is determined by the:

The ratio of the money supply to the monetary base is called:

If the Bank of Canada conducts a Special Purchase and Resale Agreement (SPRA), the money supply will:

Bank reserves equal:

All of the following assets are included in M1 except:

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

Payment is deferred by using _, but immediate access to funds occurs when using _.

An increase in the bank rate will result in _____.

John withdraws $100 from his chequing account and deposits it in his saving account. What will be the effect of this transaction on different measures of money, such as C, M1, and M2?

In a system with fractional-reserve banking:

In 1932, the U.S. government imposed a 2-cent tax on cheques written on deposits in bank accounts. This action would be expected to _ the currency-deposit ratio and _ the money supply.

People use money as a medium of exchange when they:

If many banks fail, this is likely to:

If you hear in the news that the Bank of Canada conducted open-market purchases, then you should expect _____ to increase.

The money supply will increase if the:

To increase the money supply, the Bank of Canada:

If the Bank of Canada wishes to increase the money supply, it should:

The Science of Macroeconomics

The Data of Microeconomics

National Income: Where It Comes From and Where It Goes

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Islm Model

Aggregate Demand Ii: Applying the Islm Model

The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

The Microfoundations of Consumption and Investment

Filters

Exam 4: The Monetary System: What It Is and How It Works

Money's liquidity refers to the ease with which:

In a country on a gold standard, the quantity of money is determined by the:

The ratio of the money supply to the monetary base is called:

If the Bank of Canada conducts a Special Purchase and Resale Agreement (SPRA), the money supply will:

Bank reserves equal:

All of the following assets are included in M1 except:

In a 100-percent-reserve banking system, if a customer deposits $100 of currency into a bank, then the money supply:

Payment is deferred by using _____, but immediate access to funds occurs when using _____.

An increase in the bank rate will result in _____.

John withdraws $100 from his chequing account and deposits it in his saving account. What will be the effect of this transaction on different measures of money, such as C, M1, and M2?

In a system with fractional-reserve banking:

In 1932, the U.S. government imposed a 2-cent tax on cheques written on deposits in bank accounts. This action would be expected to _____ the currency-deposit ratio and _____ the money supply.

People use money as a medium of exchange when they:

If many banks fail, this is likely to:

If you hear in the news that the Bank of Canada conducted open-market purchases, then you should expect _____ to increase.

The money supply will increase if the:

To increase the money supply, the Bank of Canada:

If the Bank of Canada wishes to increase the money supply, it should:

The Science of Macroeconomics

The Data of Microeconomics

National Income: Where It Comes From and Where It Goes

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Islm Model

Aggregate Demand Ii: Applying the Islm Model

The Open Economy Revisited: the Mundellfleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

The Microfoundations of Consumption and Investment

Filters

Payment is deferred by using _, but immediate access to funds occurs when using _.

In 1932, the U.S. government imposed a 2-cent tax on cheques written on deposits in bank accounts. This action would be expected to _ the currency-deposit ratio and _ the money supply.