Question 1

What does the liquidity of an asset indicate?

Accepted Answer

A)  its buying power 
B)  the ease with which it can be converted into the medium of exchange without a significant loss of value 
C)  the ease with which it can be converted into another asset 
D)  how likely people are to convert it into the medium of exchange without a significant loss of value 
A)  its buying power 
B)  the ease with which it can be converted into the medium of exchange without a significant loss of value 
C)  the ease with which it can be converted into another asset 
D)  how likely people are to convert it into the medium of exchange without a significant loss of value

Question 2

How can the Bank of Canada reduce the money supply?

Accepted Answer

A)  by buying securities from a bank 
B)  by buying securities from a private citizen 
C)  by selling securities 
D)  by saving failing banks 
A)  by buying securities from a bank 
B)  by buying securities from a private citizen 
C)  by selling securities 
D)  by saving failing banks

Question 3

Suppose a bank has $100 million in chequable deposits and the desired reserve ratio is 0.1.What are the desired reserves?

Accepted Answer

A)  $1 million 
B)  $5 million 
C)  $10 million 
D)  $50 million 
A)  $1 million 
B)  $5 million 
C)  $10 million 
D)  $50 million

Question 4

Suppose a bank has $100 million in chequable deposits and the desired reserve ratio is 0.1.And suppose the bank has $5 million in excess reserves.What are the bank's actual reserves?

Accepted Answer

A)  $0 
B)  $5 million 
C)  $10 million 
D)  $15 million 
A)  $0 
B)  $5 million 
C)  $10 million 
D)  $15 million

Question 5

Suppose a bank has $100 million in chequable deposits, and the desired reserve ratio is 0.1.The bank has $5 million in actual reserves.What are the excess reserves?

Accepted Answer

A)  ?$10 million 
B)  ?$5 million 
C)  0 
D)  $5 million 
A)  ?$10 million 
B)  ?$5 million 
C)  0 
D)  $5 million

Question 6

Suppose a bank borrows from the Bank of Canada at 3 percent annual interest.In order to make a profit, how much interest should the bank charge for loans it makes to the public?

Accepted Answer

A)  >3 percent annually 
B)  3 percent annually 
C)  0.01 to 2.99 percent annually 
D)  0 percent annually 
A)  >3 percent annually 
B)  3 percent annually 
C)  0.01 to 2.99 percent annually 
D)  0 percent annually

Question 7

What is the largest component of M1+?

Accepted Answer

A)  currency 
B)  chequable deposits 
C)  traveller's cheques 
D)  money market mutual fund accounts 
A)  currency 
B)  chequable deposits 
C)  traveller's cheques 
D)  money market mutual fund accounts

Question 8

Which of the following is NOT a liability to a chartered bank?

Accepted Answer

A)  chequable deposits 
B)  net worth 
C)  borrowings from the Bank of Canada 
D)  deposits with the Bank of Canada 
A)  chequable deposits 
B)  net worth 
C)  borrowings from the Bank of Canada 
D)  deposits with the Bank of Canada

Question 9

Exhibit 13-3
  
-Refer to the table in the exhibit.What kind of transaction just took place at LeftBank?

Accepted Answer

A)  LeftBank received a shipment of cash from the Bank of Canada. 
B)  A LeftBank customer deposited $10,000 cash in his account. 
C)  LeftBank sold a security to the Bank of Canada. 
D)  The Bank of Canada sold a security to LeftBank. 
A)  LeftBank received a shipment of cash from the Bank of Canada. 
B)  A LeftBank customer deposited $10,000 cash in his account. 
C)  LeftBank sold a security to the Bank of Canada. 
D)  The Bank of Canada sold a security to LeftBank.

Question 10

How are deposits and loans recorded on a chartered bank's balance sheet?

Accepted Answer

A)  Deposits are noted as assets, and loans are noted as assets. 
B)  Deposits are noted as assets, and loans are noted as liabilities. 
C)  Deposits are noted as liabilities, and loans are noted as assets. 
D)  Deposits are noted as assets, and loans are noted as liabilities. 
A)  Deposits are noted as assets, and loans are noted as assets. 
B)  Deposits are noted as assets, and loans are noted as liabilities. 
C)  Deposits are noted as liabilities, and loans are noted as assets. 
D)  Deposits are noted as assets, and loans are noted as liabilities.

Question 11

Suppose a chartered bank has $6,000 in chequable deposits and the desired reserve ratio is 0.2.What is the maximum amount of money this single bank can lend?

Accepted Answer

A)  $1,200 
B)  $4,800 
C)  $6,000 
D)  $30,000 
A)  $1,200 
B)  $4,800 
C)  $6,000 
D)  $30,000

Question 12

Tony deposits $2,000 in cash at the Last National Bank and the bank credits Tony's chequing account in the amount of $2,000.How does this immediately affect the money supply M1+?

Accepted Answer

A)  M1+ increases by $2,000. 
B)  The composition of M1+ changes. 
C)  M1+ increases by $2,000 times the money multiplier. 
D)  M1+ decreases by $2,000. 
A)  M1+ increases by $2,000. 
B)  The composition of M1+ changes. 
C)  M1+ increases by $2,000 times the money multiplier. 
D)  M1+ decreases by $2,000.

Question 13

Exhibit 13-2
  
-Refer to the table in the exhibit.Assume a desired reserve ratio of 10 percent.As an individual bank, by how much can CountyBank now increase its lending?

Accepted Answer

A)  by $1,000 
B)  by $900 
C)  by $90 
D)  by $0 
A)  by $1,000 
B)  by $900 
C)  by $90 
D)  by $0

Question 14

Which of the following is NOT money?

Accepted Answer

A)  demand deposits 
B)  coins 
C)  currency 
D)  credit cards 
A)  demand deposits 
B)  coins 
C)  currency 
D)  credit cards

Question 15

Suppose r is the desired reserve ratio.Which of the following is the simple money multiplier?

Accepted Answer

A)  r 
B)  1/(1 - r) 
C)  1 - r 
D)  1/r 
A)  r 
B)  1/(1 - r) 
C)  1 - r 
D)  1/r

Question 16

Suppose Gloria borrows $1,000 to purchase a car.Which of the following represents the changes in Gloria's personal balance sheet after the bank lends her the money but before she spends it?

Accepted Answer

A)  Assets: loan -$1,000, chequing deposit +$1,000. Liabilities and net worth: no change. 
B)  Assets: loan +$1,000, chequing deposit -$1,000. Liabilities and net worth: no change. 
C)  Assets: chequing deposit +$1,000. Liabilities and net worth: loan +$1,000. 
D)  Assets: chequing deposit +$1,000. Liabilities and net worth: loan -$1,000. 
A)  Assets: loan -$1,000, chequing deposit +$1,000. Liabilities and net worth: no change. 
B)  Assets: loan +$1,000, chequing deposit -$1,000. Liabilities and net worth: no change. 
C)  Assets: chequing deposit +$1,000. Liabilities and net worth: loan +$1,000. 
D)  Assets: chequing deposit +$1,000. Liabilities and net worth: loan -$1,000.

Question 17

Which of the following is a strategy a bank might use in order to meet a deficiency of excess reserves?

Accepted Answer

A)  buy securities 
B)  deposit vault cash with the Bank of Canada 
C)  convert some of its deposit at the Bank of Canada into cash 
D)  borrow from another bank in the overnight money market 
A)  buy securities 
B)  deposit vault cash with the Bank of Canada 
C)  convert some of its deposit at the Bank of Canada into cash 
D)  borrow from another bank in the overnight money market

Question 18

What do open market operations involve?

Accepted Answer

A)  opening the discount window 
B)  buying stocks in the stock market 
C)  buying and selling government securities in the open market 
D)  opening new markets for commodities 
A)  opening the discount window 
B)  buying stocks in the stock market 
C)  buying and selling government securities in the open market 
D)  opening new markets for commodities

Question 19

The Bank of Canada performs all of the following functions except one.Which is the exception?

Accepted Answer

A)  making loans to banks 
B)  clearing cheques for banks 
C)  holding deposits of banks 
D)  minting Canadian coins 
A)  making loans to banks 
B)  clearing cheques for banks 
C)  holding deposits of banks 
D)  minting Canadian coins

Question 20

Suppose the desired reserve ratio is 20 percent, and the Bank of Canada buys a $10,000 security from a depository institution that currently has no excess reserves.How is the money supply affected, using the simple multiplier?

Accepted Answer

A)  The money supply increases by $5,000. 
B)  The money supply decreases by $5,000. 
C)  The money supply increases by $50,000. 
D)  The money supply decreases by $50,000. 
A)  The money supply increases by $5,000. 
B)  The money supply decreases by $5,000. 
C)  The money supply increases by $50,000. 
D)  The money supply decreases by $50,000.

What does the liquidity of an asset indicate?

How can the Bank of Canada reduce the money supply?

Suppose a bank has $100 million in chequable deposits and the desired reserve ratio is 0.1.What are the desired reserves?

Suppose a bank has $100 million in chequable deposits and the desired reserve ratio is 0.1.And suppose the bank has $5 million in excess reserves.What are the bank's actual reserves?

Suppose a bank has $100 million in chequable deposits, and the desired reserve ratio is 0.1.The bank has $5 million in actual reserves.What are the excess reserves?

Suppose a bank borrows from the Bank of Canada at 3 percent annual interest.In order to make a profit, how much interest should the bank charge for loans it makes to the public?

What is the largest component of M1+?

Which of the following is NOT a liability to a chartered bank?

Exhibit 13-3 -Refer to the table in the exhibit.What kind of transaction just took place at LeftBank?

How are deposits and loans recorded on a chartered bank's balance sheet?

Suppose a chartered bank has $6,000 in chequable deposits and the desired reserve ratio is 0.2.What is the maximum amount of money this single bank can lend?

Tony deposits $2,000 in cash at the Last National Bank and the bank credits Tony's chequing account in the amount of $2,000.How does this immediately affect the money supply M1+?

Exhibit 13-2 -Refer to the table in the exhibit.Assume a desired reserve ratio of 10 percent.As an individual bank, by how much can CountyBank now increase its lending?

Which of the following is NOT money?

Suppose r is the desired reserve ratio.Which of the following is the simple money multiplier?

Suppose Gloria borrows $1,000 to purchase a car.Which of the following represents the changes in Gloria's personal balance sheet after the bank lends her the money but before she spends it?

Which of the following is a strategy a bank might use in order to meet a deficiency of excess reserves?

What do open market operations involve?

The Bank of Canada performs all of the following functions except one.Which is the exception?

Suppose the desired reserve ratio is 20 percent, and the Bank of Canada buys a $10,000 security from a depository institution that currently has no excess reserves.How is the money supply affected, using the simple multiplier?

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Algebraic Approach to Demand, Supply, and Equilibrium

Introduction to Macroeconomics

Tracking the Canadian Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Money and the Financial System

Monetary Theory and Policy in an Open Economy

Macro Policy Debate: Active or Passive

International Finance

International Trade

Economic Development

Understanding Graphs

Filters

Exam 14: Banking and the Money Supply

What does the liquidity of an asset indicate?

How can the Bank of Canada reduce the money supply?

Suppose a bank has $100 million in chequable deposits and the desired reserve ratio is 0.1.What are the desired reserves?

Suppose a bank has $100 million in chequable deposits and the desired reserve ratio is 0.1.And suppose the bank has $5 million in excess reserves.What are the bank's actual reserves?

Suppose a bank has $100 million in chequable deposits, and the desired reserve ratio is 0.1.The bank has $5 million in actual reserves.What are the excess reserves?

Suppose a bank borrows from the Bank of Canada at 3 percent annual interest.In order to make a profit, how much interest should the bank charge for loans it makes to the public?

What is the largest component of M1+?

Which of the following is NOT a liability to a chartered bank?

Exhibit 13-3 -Refer to the table in the exhibit.What kind of transaction just took place at LeftBank?

How are deposits and loans recorded on a chartered bank's balance sheet?

Suppose a chartered bank has $6,000 in chequable deposits and the desired reserve ratio is 0.2.What is the maximum amount of money this single bank can lend?

Tony deposits $2,000 in cash at the Last National Bank and the bank credits Tony's chequing account in the amount of $2,000.How does this immediately affect the money supply M1+?

Exhibit 13-2 -Refer to the table in the exhibit.Assume a desired reserve ratio of 10 percent.As an individual bank, by how much can CountyBank now increase its lending?

Which of the following is NOT money?

Suppose r is the desired reserve ratio.Which of the following is the simple money multiplier?

Suppose Gloria borrows $1,000 to purchase a car.Which of the following represents the changes in Gloria's personal balance sheet after the bank lends her the money but before she spends it?

Which of the following is a strategy a bank might use in order to meet a deficiency of excess reserves?

What do open market operations involve?

The Bank of Canada performs all of the following functions except one.Which is the exception?

Suppose the desired reserve ratio is 20 percent, and the Bank of Canada buys a $10,000 security from a depository institution that currently has no excess reserves.How is the money supply affected, using the simple multiplier?

The Art and Science of Economic Analysis

Economic Tools and Economic Systems

Economic Decision Makers

Demand, Supply, and Markets

Algebraic Approach to Demand, Supply, and Equilibrium

Introduction to Macroeconomics

Tracking the Canadian Economy

Unemployment and Inflation

Productivity and Growth

Aggregate Expenditure and Aggregate Demand

Aggregate Supply

Fiscal Policy

Money and the Financial System

Monetary Theory and Policy in an Open Economy

Macro Policy Debate: Active or Passive

International Finance

International Trade

Economic Development

Understanding Graphs

Filters