Question 1

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 2

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

Accepted Answer

A)  Banks will borrow more from Bank of Canada, so reserves increase. 
B)  Banks will borrow more from Bank of Canada, so reserves decrease. 
C)  Banks will borrow less from Bank of Canada, so reserves increase. 
D)  Banks will borrow less from Bank of Canada, so reserves decrease. 
A)  Banks will borrow more from Bank of Canada, so reserves increase. 
B)  Banks will borrow more from Bank of Canada, so reserves decrease. 
C)  Banks will borrow less from Bank of Canada, so reserves increase. 
D)  Banks will borrow less from Bank of Canada, so reserves decrease.

Question 3

Credit cards are not a medium of exchange and so are not important for analyzing the monetary system.

Accepted Answer

A) True 
 B)False

Question 4

When the Bank of Canada wants to change the money supply, what does it most frequently do?

Accepted Answer

A)  It changes the bank rate. 
B)  It changes the reserve requirement. 
C)  It changes its open-market operations. 
D)  It changes the amount of currency in circulation. 
A)  It changes the bank rate. 
B)  It changes the reserve requirement. 
C)  It changes its open-market operations. 
D)  It changes the amount of currency in circulation.

Question 5

When was the Bank of Canada Act first enacted?

Accepted Answer

A)  1867 
B)  1934 
C)  1935 
D)  1984 
A)  1867 
B)  1934 
C)  1935 
D)  1984

Question 6

Table 10-3
The following information pertains to the Bank of Kamloops. 
 
-Refer to the Table 10-3. Assume that the Bank of Kamloops is holding the required percent of deposits as reserves. Also, assume all other banks hold only the required percent of deposits as reserves, and that people hold only deposits and no currency. What is the money multiplier?

Accepted Answer

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

Question 7

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

Question 8

If the reserve ratio is 5 percent and a bank receives a new deposit of $500, by how much can the bank increase its new loans?

Accepted Answer

A)  by $21 
B)  by $279 
C)  by $475 
D)  by $500 
A)  by $21 
B)  by $279 
C)  by $475 
D)  by $500

Question 9

Which statement best describes the outcome of a decrease in the bank rate?

Accepted Answer

A)  Banks will borrow less from Bank of Canada, so reserves increase. 
B)  Banks will borrow less from Bank of Canada, so reserves decrease. 
C)  Banks will borrow more from Bank of Canada, so reserves increase. 
D)  Banks will borrow more from Bank of Canada, so reserves decrease. 
A)  Banks will borrow less from Bank of Canada, so reserves increase. 
B)  Banks will borrow less from Bank of Canada, so reserves decrease. 
C)  Banks will borrow more from Bank of Canada, so reserves increase. 
D)  Banks will borrow more from Bank of Canada, so reserves decrease.

Question 10

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 11

At one time, the country of Aquilonia had no banks, but had currency of $10 million. Then a banking system was established with a reserve requirement of 10 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?

Accepted Answer

A)  $10 million 
B)  $11 million 
C)  $50 million 
D)  $55 million 
A)  $10 million 
B)  $11 million 
C)  $50 million 
D)  $55 million

Question 12

If the reserve ratio is 10 percent and a bank receives a new deposit of $800, which of the following will this bank most likely do?

Accepted Answer

A)  It will increase its required reserves by $8000. 
B)  It will make new loans of $8000. 
C)  It will be able to make new loans of $800. 
D)  It will initially see its total reserves increase by $800. 
A)  It will increase its required reserves by $8000. 
B)  It will make new loans of $8000. 
C)  It will be able to make new loans of $800. 
D)  It will initially see its total reserves increase by $800.

Question 13

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

Accepted Answer

A)  credit cards 
B)  term deposits 
C)  corporate bonds 
D)  foreign currency accounts 
A)  credit cards 
B)  term deposits 
C)  corporate bonds 
D)  foreign currency accounts

Question 14

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange, even though the ruble was legal tender. The cigarettes provide an example of fiat money.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following is quantitative easing?

Accepted Answer

A)  The Bank of Canada sells short-term government securities. 
B)  The Bank of Canada sells long-term government securities. 
C)  The Bank of Canada buys long-term government securities. 
D)  The Bank of Canada buys short-term government securities. 
A)  The Bank of Canada sells short-term government securities. 
B)  The Bank of Canada sells long-term government securities. 
C)  The Bank of Canada buys long-term government securities. 
D)  The Bank of Canada buys short-term government securities.

Question 16

Suppose the reserve ratio is 10 percent and banks do not hold excess reserves. Under these circumstances, suppose the Bank of Canada sells $60 million of bonds to the public. Which statement best describes the effects of this open-market operation?

Accepted Answer

A)  Bank reserves increase by $60 million, and the money supply eventually increases by $600 million. 
B)  Bank reserves increase by $60 million, and the money supply eventually increases by $800 million. 
C)  Bank reserves decrease by $60 million, and the money supply eventually decreases by $600 million. 
D)  Bank reserves decrease by $60 million, and the money supply eventually decreases by $800 million. 
A)  Bank reserves increase by $60 million, and the money supply eventually increases by $600 million. 
B)  Bank reserves increase by $60 million, and the money supply eventually increases by $800 million. 
C)  Bank reserves decrease by $60 million, and the money supply eventually decreases by $600 million. 
D)  Bank reserves decrease by $60 million, and the money supply eventually decreases by $800 million.

Question 17

What is the difference between money and wealth?

Accepted Answer

Money is defined as the set of

Question 18

Who chairs the Board of Directors of the Bank of Canada?

Accepted Answer

A)  the governor of the Bank of Canada 
B)  the Prime Minister 
C)  the Minister of Finance 
D)  the Governor General 
A)  the governor of the Bank of Canada 
B)  the Prime Minister 
C)  the Minister of Finance 
D)  the Governor General

Question 19

How does M1 compare with M2?

Accepted Answer

A)  M1+ is smaller and less liquid than M2. 
B)  M1+ is smaller but more liquid than M2. 
C)  M1+ is larger than and less liquid than M2. 
D)  M1+ is larger than but more liquid than M2. 
A)  M1+ is smaller and less liquid than M2. 
B)  M1+ is smaller but more liquid than M2. 
C)  M1+ is larger than and less liquid than M2. 
D)  M1+ is larger than but more liquid than M2.

Question 20

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

What does the legal tender requirement imply?

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

Credit cards are not a medium of exchange and so are not important for analyzing the monetary system.

When the Bank of Canada wants to change the money supply, what does it most frequently do?

When was the Bank of Canada Act first enacted?

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

If the reserve ratio is 5 percent and a bank receives a new deposit of $500, by how much can the bank increase its new loans?

Which statement best describes the outcome of a decrease in the bank rate?

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?

If the reserve ratio is 10 percent and a bank receives a new deposit of $800, which of the following will this bank most likely do?

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

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange, even though the ruble was legal tender. The cigarettes provide an example of fiat money.

Which of the following is quantitative easing?

Suppose the reserve ratio is 10 percent and banks do not hold excess reserves. Under these circumstances, suppose the Bank of Canada sells $60 million of bonds to the public. Which statement best describes the effects of this open-market operation?

What is the difference between money and wealth?

Who chairs the Board of Directors of the Bank of Canada?

How does M1 compare with M2?

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

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 and 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 legal tender requirement imply?

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

Credit cards are not a medium of exchange and so are not important for analyzing the monetary system.

When the Bank of Canada wants to change the money supply, what does it most frequently do?

When was the Bank of Canada Act first enacted?

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

If the reserve ratio is 5 percent and a bank receives a new deposit of $500, by how much can the bank increase its new loans?

Which statement best describes the outcome of a decrease in the bank rate?

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?

If the reserve ratio is 10 percent and a bank receives a new deposit of $800, which of the following will this bank most likely do?

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

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange, even though the ruble was legal tender. The cigarettes provide an example of fiat money.

Which of the following is quantitative easing?

Suppose the reserve ratio is 10 percent and banks do not hold excess reserves. Under these circumstances, suppose the Bank of Canada sells $60 million of bonds to the public. Which statement best describes the effects of this open-market operation?

What is the difference between money and wealth?

Who chairs the Board of Directors of the Bank of Canada?

How does M1 compare with M2?

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

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 and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters