Question 1

Monetary policy is determined by the Bank of Canada's governor.

Accepted Answer

A) True 
 B)False

Question 2

When the Bank of Canada decreases the bank rate, banks will borrow more from the Bank of Canada. Which of the following best describes the consequences of this process?

Accepted Answer

A) Banks lend more to the public, and so the money supply will decrease. 
B) Banks lend less to the public, and so the money supply will decrease. 
C) Banks lend more to the public, and so the money supply will increase. 
D) Banks lend less to the public, and so the money supply will increase. 
A) Banks lend more to the public, and so the money supply will decrease. 
B) Banks lend less to the public, and so the money supply will decrease. 
C) Banks lend more to the public, and so the money supply will increase. 
D) Banks lend less to the public, and so the money supply will increase.

Question 3

Use the balance sheet for the following questions.
Table 29-3
  
-Refer to Table 29-3. If the reserve requirement is 10 percent, what is the state of this bank?

Accepted Answer

A) It can make a new loan of $18 000. 
B) It has less reserves than required. 
C) It has excess reserves of less than $8000. 
D) It has excess reserves of more than $8000. 
A) It can make a new loan of $18 000. 
B) It has less reserves than required. 
C) It has excess reserves of less than $8000. 
D) It has excess reserves of more than $8000.

Question 4

How could the Bank of Canada decrease the money supply?

Accepted Answer

A) buy government bonds 
B) decrease the bank rate 
C) decrease the reserve requirement 
D) increase the bank rate 
A) buy government bonds 
B) decrease the bank rate 
C) decrease the reserve requirement 
D) increase the bank rate

Question 5

Which of the following might explain why Canada has so much currency per person?

Accepted Answer

A) Canadian citizens are holding a lot of foreign currency. 
B) Currency may be a preferable store of wealth for criminals. 
C) People use credit and debit cards more frequently. 
D) Much of Canadian currency is held by foreigners. 
A) Canadian citizens are holding a lot of foreign currency. 
B) Currency may be a preferable store of wealth for criminals. 
C) People use credit and debit cards more frequently. 
D) Much of Canadian currency is held by foreigners.

Question 6

Table 29-4 The following information pertains to the Bank of Edmonton.
  
-Refer to Table 29-4. If the Bank of Edmonton has loaned out all the money it wants, given its deposits, what is its reserve ratio?

Accepted Answer

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

Question 7

Which of the following characterizes commodity money?

Accepted Answer

A) It is money that is backed by gold. 
B) It is the principal type of money in use today. 
C) It is money with intrinsic value. 
D) It is comprised of receipts created in international trade that are used as a medium of exchange. 
A) It is money that is backed by gold. 
B) It is the principal type of money in use today. 
C) It is money with intrinsic value. 
D) It is comprised of receipts created in international trade that are used as a medium of exchange.

Question 8

Which of the following does M1 include?

Accepted Answer

A) currency 
B) savings deposits 
C) travellers' cheques 
D) foreign currency accounts 
A) currency 
B) savings deposits 
C) travellers' cheques 
D) foreign currency accounts

Question 9

Table 29-1
  
-Refer to Table 29-1. What is the M2 money supply?

Accepted Answer

A) $125 billion 
B) $210 billion 
C) $341 billion 
D) $421 billion 
A) $125 billion 
B) $210 billion 
C) $341 billion 
D) $421 billion

Question 10

If the reserve ratio is 20 percent, what is the money multiplier?

Accepted Answer

A) 2 
B) 4 
C) 5 
D) 8 
A) 2 
B) 4 
C) 5 
D) 8

Question 11

Which of the following best describes the consequences of a decrease in reserve requirements?

Accepted Answer

A) The reserve ratio decreases, the money multiplier decreases, and the money supply decreases. 
B) The reserve ratio increases, the money multiplier increases, and the money supply increases. 
C) The reserve ratio decreases, the money multiplier increases, and the money supply increases. 
D) The reserve ratio increases, the money multiplier decreases, and the money supply decreases. 
A) The reserve ratio decreases, the money multiplier decreases, and the money supply decreases. 
B) The reserve ratio increases, the money multiplier increases, and the money supply increases. 
C) The reserve ratio decreases, the money multiplier increases, and the money supply increases. 
D) The reserve ratio increases, the money multiplier decreases, and the money supply decreases.

Question 12

Use the balance sheet below for the following questions.
Table 29-2
  
-Refer to Table 29-2. If $400 is deposited into the First Bank of Mason City, which of the following happens?

Accepted Answer

A) The bank will be able to make additional loans totalling $400. 
B) Excess reserves initially increase by $400. 
C) Required reserves initially increase by $8000. 
D) Excess reserves initially increase by $320. 
A) The bank will be able to make additional loans totalling $400. 
B) Excess reserves initially increase by $400. 
C) Required reserves initially increase by $8000. 
D) Excess reserves initially increase by $320.

Question 13

Which of the following lists contains only actions that decrease the money supply?

Accepted Answer

A) lower the bank rate; raise the reserve requirement ratio 
B) lower the bank rate; lower the reserve requirement ratio 
C) raise the bank rate; raise the reserve requirement ratio 
D) raise the bank rate; lower the reserve requirement ratio 
A) lower the bank rate; raise the reserve requirement ratio 
B) lower the bank rate; lower the reserve requirement ratio 
C) raise the bank rate; raise the reserve requirement ratio 
D) raise the bank rate; lower the reserve requirement ratio

Question 14

Suppose the public decides to hold more currency and fewer deposits in banks. Which of the following best describes the effects of this decision?

Accepted Answer

A) Bank reserves decrease, and the money supply eventually decreases. 
B) Bank reserves decrease, but the money supply does not change. 
C) Bank reserves increase, and the money supply eventually increases. 
D) Bank reserves increase, but the money supply does not change. 
A) Bank reserves decrease, and the money supply eventually decreases. 
B) Bank reserves decrease, but the money supply does not change. 
C) Bank reserves increase, and the money supply eventually increases. 
D) Bank reserves increase, but the money supply does not change.

Question 15

At one time, the country of Freedonia had no banks, but had currency of $40 million. Then a banking system was established with a reserve requirement of one-third. The people of Freedonia now keep half their money in the form of currency and half in the form of bank deposits. If banks do not hold excess reserves, how much currency do the people of Freedonia now hold?

Accepted Answer

A) $13.33 million 
B) $20 million 
C) $30 million 
D) $36.36 million 
A) $13.33 million 
B) $20 million 
C) $30 million 
D) $36.36 million

Question 16

Table 29-5 The following information pertains to the Bank of Kingston.
  
-Refer to Table 29-5. If the Bank of Kingston has lent out all the money it can given its deposits, then what is its reserve ratio?

Accepted Answer

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

Question 17

Suppose the reserve ratio is 20 percent, and banks do not hold excess reserves. Under these circumstances, suppose the Bank of Canada sells $40 million of bonds to the public. Which of the following best describes the effects of this open market operation?

Accepted Answer

A) Bank reserves increase by $40 million, and the money supply eventually increases by $200 million. 
B) Bank reserves increase by $40 million, and the money supply eventually increases by $800 million. 
C) Bank reserves decrease by $40 million, and the money supply eventually decreases by $200 million. 
D) Bank reserves decrease by $40 million, and the money supply eventually decreases by $800 million. 
A) Bank reserves increase by $40 million, and the money supply eventually increases by $200 million. 
B) Bank reserves increase by $40 million, and the money supply eventually increases by $800 million. 
C) Bank reserves decrease by $40 million, and the money supply eventually decreases by $200 million. 
D) Bank reserves decrease by $40 million, and the money supply eventually decreases by $800 million.

Question 18

What is the average currency holding of Canadian dollars relative to Canadian population, and what could explain it?

Accepted Answer

A) Average currency holdings are about $800. One explanation for this relatively small amount is that people use credit and debit cards to make transactions. 
B) Average currency holdings are about $800. One explanation for this relatively small amount is that Canadian citizens hold a lot of foreign currency. 
C) Average holdings of currency are about $2052. One explanation for this relatively large amount is that criminals may prefer currency as a medium of exchange. 
D) Average holdings are about $2052. One explanation for this relatively large average is that foreign citizens hold a lot of Canadian currency. 
A) Average currency holdings are about $800. One explanation for this relatively small amount is that people use credit and debit cards to make transactions. 
B) Average currency holdings are about $800. One explanation for this relatively small amount is that Canadian citizens hold a lot of foreign currency. 
C) Average holdings of currency are about $2052. One explanation for this relatively large amount is that criminals may prefer currency as a medium of exchange. 
D) Average holdings are about $2052. One explanation for this relatively large average is that foreign citizens hold a lot of Canadian currency.

Question 19

In Wellville, the money supply is $80 000 and reserves are $18 000. Assuming that people hold only deposits and no currency, and that banks hold only required reserves, what is the required reserve ratio?

Accepted Answer

A) 29 percent 
B) 22.5 percent 
C) 16 percent 
D) 4.44 percent 
A) 29 percent 
B) 22.5 percent 
C) 16 percent 
D) 4.44 percent

Question 20

Suppose the banking system has $10 million in reserves, the reserve requirement is 20 percent, and there are no excess reserves. The public holds $10 million in cash. Then bankers decide that it is prudent to hold some excess reserves, and so begin to hold 25 percent of deposits in the form of reserves. Other things the same, what will this action cause the money supply to do?

Accepted Answer

A) to change forms, but not size 
B) to fall by $10 million 
C) to fall by $5 million 
D) to fall by $0.5 million 
A) to change forms, but not size 
B) to fall by $10 million 
C) to fall by $5 million 
D) to fall by $0.5 million

Monetary policy is determined by the Bank of Canada's governor.

When the Bank of Canada decreases the bank rate, banks will borrow more from the Bank of Canada. Which of the following best describes the consequences of this process?

Use the balance sheet for the following questions. Table 29-3 -Refer to Table 29-3. If the reserve requirement is 10 percent, what is the state of this bank?

How could the Bank of Canada decrease the money supply?

Which of the following might explain why Canada has so much currency per person?

Table 29-4 The following information pertains to the Bank of Edmonton. -Refer to Table 29-4. If the Bank of Edmonton has loaned out all the money it wants, given its deposits, what is its reserve ratio?

Which of the following characterizes commodity money?

Which of the following does M1 include?

Table 29-1 -Refer to Table 29-1. What is the M2 money supply?

If the reserve ratio is 20 percent, what is the money multiplier?

Which of the following best describes the consequences of a decrease in reserve requirements?

Use the balance sheet below for the following questions. Table 29-2 -Refer to Table 29-2. If $400 is deposited into the First Bank of Mason City, which of the following happens?

Which of the following lists contains only actions that decrease the money supply?

Suppose the public decides to hold more currency and fewer deposits in banks. Which of the following best describes the effects of this decision?

Table 29-5 The following information pertains to the Bank of Kingston. -Refer to Table 29-5. If the Bank of Kingston has lent out all the money it can given its deposits, then what is its reserve ratio?

Suppose the reserve ratio is 20 percent, and banks do not hold excess reserves. Under these circumstances, suppose the Bank of Canada sells $40 million of bonds to the public. Which of the following best describes the effects of this open market operation?

What is the average currency holding of Canadian dollars relative to Canadian population, and what could explain it?

In Wellville, the money supply is $80 000 and reserves are $18 000. Assuming that people hold only deposits and no currency, and that banks hold only required reserves, what is the required reserve ratio?

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 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

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Exam 10: The Monetary System

Monetary policy is determined by the Bank of Canada's governor.

When the Bank of Canada decreases the bank rate, banks will borrow more from the Bank of Canada. Which of the following best describes the consequences of this process?

Use the balance sheet for the following questions. Table 29-3 -Refer to Table 29-3. If the reserve requirement is 10 percent, what is the state of this bank?

How could the Bank of Canada decrease the money supply?

Which of the following might explain why Canada has so much currency per person?

Table 29-4 The following information pertains to the Bank of Edmonton. -Refer to Table 29-4. If the Bank of Edmonton has loaned out all the money it wants, given its deposits, what is its reserve ratio?

Which of the following characterizes commodity money?

Which of the following does M1 include?

Table 29-1 -Refer to Table 29-1. What is the M2 money supply?

If the reserve ratio is 20 percent, what is the money multiplier?

Which of the following best describes the consequences of a decrease in reserve requirements?

Use the balance sheet below for the following questions. Table 29-2 -Refer to Table 29-2. If $400 is deposited into the First Bank of Mason City, which of the following happens?

Which of the following lists contains only actions that decrease the money supply?

Suppose the public decides to hold more currency and fewer deposits in banks. Which of the following best describes the effects of this decision?

Table 29-5 The following information pertains to the Bank of Kingston. -Refer to Table 29-5. If the Bank of Kingston has lent out all the money it can given its deposits, then what is its reserve ratio?

Suppose the reserve ratio is 20 percent, and banks do not hold excess reserves. Under these circumstances, suppose the Bank of Canada sells $40 million of bonds to the public. Which of the following best describes the effects of this open market operation?

What is the average currency holding of Canadian dollars relative to Canadian population, and what could explain it?

In Wellville, the money supply is $80 000 and reserves are $18 000. Assuming that people hold only deposits and no currency, and that banks hold only required reserves, what is the required reserve ratio?

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 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