Question 1

When a person pays a loan back to a bank by writing a cheque for the amount due,demand deposits decline and the money supply is reduced.

Accepted Answer

A) True 
 B)False  True

Question 2

If banks desired a 100 percent reserve ratio,what would a $10 000 reduction in banking reserves decrease the money supply by?

Accepted Answer

A) $1000 
B) $10 000 
C) $100 000 
D) $1 000 000 
A) $1000 
B) $10 000 
C) $100 000 
D) $1 000 000 B

Question 3

Other things being constant,if the public decides to hold more money in the form of currency rather than chequing deposits,what will be the effect on bank reserves and M2?

Accepted Answer

A) Bank reserves will increase, and M2 will ultimately decline as well. 
B) Bank reserves will decline, and M2 will ultimately increase as well. 
C) Bank reserves will decline, and M2 will ultimately decline as well. 
D) Bank reserves will increase, and M2 will ultimately increase as well. 
A) Bank reserves will increase, and M2 will ultimately decline as well. 
B) Bank reserves will decline, and M2 will ultimately increase as well. 
C) Bank reserves will decline, and M2 will ultimately decline as well. 
D) Bank reserves will increase, and M2 will ultimately increase as well. C

Question 4

Uncertainty may cause banks to hold larger excess reserves.Other things being constant,what impact will this have on the volume of loans and the money supply?

Accepted Answer

A) It will tend to reduce both the volume of loans and the money supply. 
B) It will have no effect on the volume of loans or the money supply. 
C) It will tend to increase both the volume of loans and the money supply. 
D) It will tend to increase the volume of loans but reduce the money supply. 
A) It will tend to reduce both the volume of loans and the money supply. 
B) It will have no effect on the volume of loans or the money supply. 
C) It will tend to increase both the volume of loans and the money supply. 
D) It will tend to increase the volume of loans but reduce the money supply.

Question 5

Which of the following statements about a gold standard is the most accurate?

Accepted Answer

A) It is a measurement of the importance of gold and it indicates high quality. 
B) It is the basis for monetary exchange internationally. 
C) It is an internationally recognized means for defining currency exchange rates. 
D) It is a system where currency (e.g., the dollar) is defined as equivalent in value to a certain amount of gold. 
A) It is a measurement of the importance of gold and it indicates high quality. 
B) It is the basis for monetary exchange internationally. 
C) It is an internationally recognized means for defining currency exchange rates. 
D) It is a system where currency (e.g., the dollar) is defined as equivalent in value to a certain amount of gold.

Question 6

What is the primary benefit of monetary exchange as compared to barter exchange?

Accepted Answer

A) Increased efficiency in arranging transactions. 
B) Increased time devoted to finding trade partners. 
C) Increased time devoted to shopping for what we want. 
D) The possibility of tracking trade for tax purposes. 
A) Increased efficiency in arranging transactions. 
B) Increased time devoted to finding trade partners. 
C) Increased time devoted to shopping for what we want. 
D) The possibility of tracking trade for tax purposes.

Question 7

Money is a more efficient store of value than wheat.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following best describes M2?

Accepted Answer

A) It is a broader definition than M2+. 
B) It is the narrowest definition of the money supply. 
C) It focuses on money's use as a means of payment. 
D) It consists of currency outside chartered banks and demand deposits at chartered banks. 
A) It is a broader definition than M2+. 
B) It is the narrowest definition of the money supply. 
C) It focuses on money's use as a means of payment. 
D) It consists of currency outside chartered banks and demand deposits at chartered banks.

Question 9

Suppose you found $3000 hidden in your closet and deposited it in a demand deposit account at your bank.If the desired reserve ratio was 40 percent,how much would the deposit directly create in excess reserves?

Accepted Answer

A) $1200 
B) $1800 
C) $3000 
D) $3400 
A) $1200 
B) $1800 
C) $3000 
D) $3400

Question 10

What impact will a decrease in the excess reserves banks want to hold,together with people taking currency out of their demand deposit accounts,have on the money supply?

Accepted Answer

A) It would leave the money supply unchanged. 
B) It would decrease the money supply. 
C) It would have an indeterminate effect on the money supply. 
D) It would increase the money supply. 
A) It would leave the money supply unchanged. 
B) It would decrease the money supply. 
C) It would have an indeterminate effect on the money supply. 
D) It would increase the money supply.

Question 11

If a bank has $1 million in demand deposits,$400 000 in reserves,and desires a 30 percent reserve ratio,how much money could a bank directly create by loaning out its excess reserves?

Accepted Answer

A) $100 000 
B) $300 000 
C) $400 000 
D) $600 000 
A) $100 000 
B) $300 000 
C) $400 000 
D) $600 000

Question 12

What are desired reserves of a bank a certain percentage of?

Accepted Answer

A) their deposits 
B) their cash on hand 
C) their loans 
D) their total assets 
A) their deposits 
B) their cash on hand 
C) their loans 
D) their total assets

Question 13

Which of the following would result without money to serve as a medium of exchange?

Accepted Answer

A) We would all have to be self-sufficient. 
B) The transactions cost of exchange would increase. 
C) Gains from trade would be impossible. 
D) Our cost of living would be higher. 
A) We would all have to be self-sufficient. 
B) The transactions cost of exchange would increase. 
C) Gains from trade would be impossible. 
D) Our cost of living would be higher.

Question 14

Which of the following is NOT money?

Accepted Answer

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

Question 15

Scenario 11-2
A bank's assets consist of $1 000 000 in total reserves, $2 100 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $3 000 000 in demand deposits and $1 300 000 in capital.
-Refer to Scenario 11-2.If the bank desires to keep reserves equal to one-third of deposits,what is the level of the bank's excess reserves and how much money could the excess reserves be used to create in the banking system as a result?

Accepted Answer

A) Excess reserves are $300 000 and could be used to create $300 000 in the banking system. 
B) Excess reserves are zero and could not be used to create any money in the banking system. 
C) Excess reserves are $700 000 and could be used to create $2 100 000 in the banking system. 
D) Excess reserves are $300 000 and could be used to create $900 000 in the banking system. 
A) Excess reserves are $300 000 and could be used to create $300 000 in the banking system. 
B) Excess reserves are zero and could not be used to create any money in the banking system. 
C) Excess reserves are $700 000 and could be used to create $2 100 000 in the banking system. 
D) Excess reserves are $300 000 and could be used to create $900 000 in the banking system.

Question 16

Which of the following transactions is an example of money serving as a medium of exchange?

Accepted Answer

A) Roland puts his coins into a piggy bank. 
B) John buys a cup of coffee and a roll at the faculty dining room. 
C) Steve puts a five-dollar bill in his money belt. 
D) Scott deposits cash into a savings account. 
A) Roland puts his coins into a piggy bank. 
B) John buys a cup of coffee and a roll at the faculty dining room. 
C) Steve puts a five-dollar bill in his money belt. 
D) Scott deposits cash into a savings account.

Question 17

Scenario 11-1
A bank's assets consist of $500 000 in total reserves, $1 600 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $2 000 000 in demand deposits and $1 300 000 in capital.
-Refer to Scenario 11-1.If the desired reserve ratio is 10 percent,what is the level of the bank's excess reserves and how much could it loan out as a result?

Accepted Answer

A) Excess reserves are $200 000, and it could loan out $200 000. 
B) Excess reserves are $200 000, and it could loan out $2 000 000. 
C) Excess reserves are $300 000, and it could loan out $300 000. 
D) Excess reserves are $300 000, and it could loan out $3 000 000. 
A) Excess reserves are $200 000, and it could loan out $200 000. 
B) Excess reserves are $200 000, and it could loan out $2 000 000. 
C) Excess reserves are $300 000, and it could loan out $300 000. 
D) Excess reserves are $300 000, and it could loan out $3 000 000.

Question 18

If chartered banks have a deserved reserve ratio of 100 percent of their deposits,a $1000 deposit in a chequing account would lead to a $100 000 increase in the money supply.

Accepted Answer

A) True 
 B)False

Question 19

What is the term for the money supply that includes currency outside chartered banks plus demand deposits and savings deposits at chartered banks?

Accepted Answer

A) M1 
B) M2 
C) M2+ 
D) M3 
A) M1 
B) M2 
C) M2+ 
D) M3

Question 20

If a bank had a desired reserve ratio of 10 percent and excess reserves of $2000,what is the largest loan it could extend?

Accepted Answer

A) $200 
B) $1800 
C) $2 000 
D) $20 000 
A) $200 
B) $1800 
C) $2 000 
D) $20 000

When a person pays a loan back to a bank by writing a cheque for the amount due,demand deposits decline and the money supply is reduced.

If banks desired a 100 percent reserve ratio,what would a $10 000 reduction in banking reserves decrease the money supply by?

Other things being constant,if the public decides to hold more money in the form of currency rather than chequing deposits,what will be the effect on bank reserves and M2?

Uncertainty may cause banks to hold larger excess reserves.Other things being constant,what impact will this have on the volume of loans and the money supply?

Which of the following statements about a gold standard is the most accurate?

What is the primary benefit of monetary exchange as compared to barter exchange?

Money is a more efficient store of value than wheat.

Which of the following best describes M2?

Suppose you found $3000 hidden in your closet and deposited it in a demand deposit account at your bank.If the desired reserve ratio was 40 percent,how much would the deposit directly create in excess reserves?

What impact will a decrease in the excess reserves banks want to hold,together with people taking currency out of their demand deposit accounts,have on the money supply?

If a bank has $1 million in demand deposits,$400 000 in reserves,and desires a 30 percent reserve ratio,how much money could a bank directly create by loaning out its excess reserves?

What are desired reserves of a bank a certain percentage of?

Which of the following would result without money to serve as a medium of exchange?

Which of the following is NOT money?

Which of the following transactions is an example of money serving as a medium of exchange?

If chartered banks have a deserved reserve ratio of 100 percent of their deposits,a $1000 deposit in a chequing account would lead to a $100 000 increase in the money supply.

What is the term for the money supply that includes currency outside chartered banks plus demand deposits and savings deposits at chartered banks?

If a bank had a desired reserve ratio of 10 percent and excess reserves of $2000,what is the largest loan it could extend?

The Role and Method of Economics

Scarcity, trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Introduction to the Macroeconomy

Measuring Economic Performance

Economic Growth in the Global Economy

Aggregate Demand

Aggregate Supply and Macroeconomic Equilibrium

Fiscal Policy

The Bank of Canada

Monetary Policy

International Trade

International Finance

Filters

Exam 11: Money and the Banking System

When a person pays a loan back to a bank by writing a cheque for the amount due,demand deposits decline and the money supply is reduced.

If banks desired a 100 percent reserve ratio,what would a $10 000 reduction in banking reserves decrease the money supply by?

Other things being constant,if the public decides to hold more money in the form of currency rather than chequing deposits,what will be the effect on bank reserves and M2?

Uncertainty may cause banks to hold larger excess reserves.Other things being constant,what impact will this have on the volume of loans and the money supply?

Which of the following statements about a gold standard is the most accurate?

What is the primary benefit of monetary exchange as compared to barter exchange?

Money is a more efficient store of value than wheat.

Which of the following best describes M2?

Suppose you found $3000 hidden in your closet and deposited it in a demand deposit account at your bank.If the desired reserve ratio was 40 percent,how much would the deposit directly create in excess reserves?

What impact will a decrease in the excess reserves banks want to hold,together with people taking currency out of their demand deposit accounts,have on the money supply?

If a bank has $1 million in demand deposits,$400 000 in reserves,and desires a 30 percent reserve ratio,how much money could a bank directly create by loaning out its excess reserves?

What are desired reserves of a bank a certain percentage of?

Which of the following would result without money to serve as a medium of exchange?

Which of the following is NOT money?

Which of the following transactions is an example of money serving as a medium of exchange?

If chartered banks have a deserved reserve ratio of 100 percent of their deposits,a $1000 deposit in a chequing account would lead to a $100 000 increase in the money supply.

What is the term for the money supply that includes currency outside chartered banks plus demand deposits and savings deposits at chartered banks?

If a bank had a desired reserve ratio of 10 percent and excess reserves of $2000,what is the largest loan it could extend?

The Role and Method of Economics

Scarcity, trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Introduction to the Macroeconomy

Measuring Economic Performance

Economic Growth in the Global Economy

Aggregate Demand

Aggregate Supply and Macroeconomic Equilibrium

Fiscal Policy

The Bank of Canada

Monetary Policy

International Trade

International Finance

Filters