Question 1

What does the Bank of Canada NOT do?

Accepted Answer

A)  control the supply of money 
B)  control the value of money 
C)  make loans to individuals 
D)  regulate the banking system 
A)  control the supply of money 
B)  control the value of money 
C)  make loans to individuals 
D)  regulate the banking system

Question 2

Suppose the reserve ratio is 4 percent,banks do not hold excess reserves,people do not hold currency,and the Bank of Canada purchases $25 million of government bonds.Which statement best describes the effects of Bank of Canada's purchase?

Accepted Answer

A)  Bank reserves increase by $25 million,and the money supply eventually increases by $500 million. 
B)  Bank reserves decrease by $25 million,and the money supply eventually increases by $500 million. 
C)  Bank reserves increase by $25 million,and the money supply eventually decreases by $500 million. 
D)  Bank reserves decrease by $25 million,and the money supply eventually decreases by $500 million. 
A)  Bank reserves increase by $25 million,and the money supply eventually increases by $500 million. 
B)  Bank reserves decrease by $25 million,and the money supply eventually increases by $500 million. 
C)  Bank reserves increase by $25 million,and the money supply eventually decreases by $500 million. 
D)  Bank reserves decrease by $25 million,and the money supply eventually decreases by $500 million.

Question 3

Table 10-2  
-Refer to the Table 10-2.If the reserve requirement is 12 percent,what is the state of this bank?

Accepted Answer

A)  It can make a new loan of $17,500. 
B)  It has less reserves than required. 
C)  It has excess reserves of less than $5000. 
D)  It has excess reserves of more than $5000. 
A)  It can make a new loan of $17,500. 
B)  It has less reserves than required. 
C)  It has excess reserves of less than $5000. 
D)  It has excess reserves of more than $5000.

Question 4

The Bank of Canada is run by the Board of Directors,which is appointed by the Minister of Finance.

Accepted Answer

A) True 
 B)False

Question 5

Which statement best explains the role of the Bank of Canada?

Accepted Answer

A)  It maintains a target exchange rate. 
B)  It determines the bank rate. 
C)  It makes loans to large corporations. 
D)  It controls the government budget deficit. 
A)  It maintains a target exchange rate. 
B)  It determines the bank rate. 
C)  It makes loans to large corporations. 
D)  It controls the government budget deficit.

Question 6

Table 10-2  
-Refer to the Table 10-2.If the Last Bank of Panorama Springs is holding $4000 in excess reserves,what is the reserve requirement?

Accepted Answer

A)  8 percent 
B)  9 percent 
C)  10 percent 
D)  12 percent 
A)  8 percent 
B)  9 percent 
C)  10 percent 
D)  12 percent

Question 7

Table 10-4
The following information pertains to the Bank of Moncton.  
-Refer to the Table 10-4.Assume that all banks hold the same reserve ratio as the Bank of Moncton.What is the money multiplier?

Accepted Answer

A)  12.5 
B)  15 
C)  17.5 
D)  20 
A)  12.5 
B)  15 
C)  17.5 
D)  20

Question 8

Table 10-1  
-Refer to the Table 10-1.If $400 is deposited into the First Bank of Dawson City,what will happen?

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 $340. 
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 $340.

Question 9

Which of the following is included in M2?

Accepted Answer

A)  gold 
B)  mortgages 
C)  currency 
D)  investment accounts 
A)  gold 
B)  mortgages 
C)  currency 
D)  investment accounts

Question 10

What do the Bank of Canada's policy decisions have an important influence on?

Accepted Answer

A)  both the rate of inflation and the level of employment in the short run 
B)  the rate of inflation in the long run and the level of employment in the short run 
C)  the rate of inflation in the short run and the level of employment in the long run 
D)  both the rate of inflation and the level of employment in both the short run and the long run 
A)  both the rate of inflation and the level of employment in the short run 
B)  the rate of inflation in the long run and the level of employment in the short run 
C)  the rate of inflation in the short run and the level of employment in the long run 
D)  both the rate of inflation and the level of employment in both the short run and the long run

Question 11

What is the role of money in an economy?

Accepted Answer

A)  Money serves as a person's wealth. 
B)  Money allows people to save 
C)  Money is an investment asset. 
D)  Money allows greater specialization. 
A)  Money serves as a person's wealth. 
B)  Money allows people to save 
C)  Money is an investment asset. 
D)  Money allows greater specialization.

Question 12

A bank has $100 reserves,$10,000 loans,$500 securities,$9000 deposits,and $1400 debt.
a)Calculate the bank's capital.
b)Calculate the bank's leverage ratio.
c)Suppose the bank's securities are mainly mortgage-based bonds and a wave of mortgage defaults combined with a fall in the stock market reduces the bank's assets by 10 percent.What is the percentage and dollar-value change of the bank's capital? Is the bank solvent?

Accepted Answer

a)Capital = Assets - Deposits - Debt = $

Question 13

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)  $33.34 million 
D)  $36.36 million 
A)  $13.33 million 
B)  $20 million 
C)  $33.34 million 
D)  $36.36 million

Question 14

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 15

Explain how each of the following actions changes the money supply.
a.The Bank of Canada buys bonds.
b.The Bank of Canada raises the bank rate.
c.The Bank of Canada raises the reserve requirement.

Accepted Answer

a.If the Bank of Canada buys bonds,it pa

Question 16

Which statement best describes the process of open-market purchases conducted by the Bank of Canada?

Accepted Answer

A)  The Bank of Canada buys Treasury bills,which increases the money supply. 
B)  The Bank of Canada buys Treasury bills,which decreases the money supply. 
C)  The Bank of Canada borrows from member banks,which increases the money supply. 
D)  The Bank of Canada lends money to member banks,which decreases the money supply. 
A)  The Bank of Canada buys Treasury bills,which increases the money supply. 
B)  The Bank of Canada buys Treasury bills,which decreases the money supply. 
C)  The Bank of Canada borrows from member banks,which increases the money supply. 
D)  The Bank of Canada lends money to member banks,which decreases the money supply.

Question 17

Which account balance is included in M1+?

Accepted Answer

A)  a chequing account 
B)  a credit card account 
C)  a term savings account 
D)  a stock investment 
A)  a chequing account 
B)  a credit card account 
C)  a term savings account 
D)  a stock investment

Question 18

When the Bank of Canada conducts open-market purchases,how do commercial banks' assets most likely change?

Accepted Answer

A)  Reserves increase,and banks increase lending. 
B)  Reserves increase,and banks decrease lending. 
C)  Reserves decrease,and banks increase lending. 
D)  Reserves decrease,and banks decrease lending. 
A)  Reserves increase,and banks increase lending. 
B)  Reserves increase,and banks decrease lending. 
C)  Reserves decrease,and banks increase lending. 
D)  Reserves decrease,and banks decrease lending.

Question 19

What characterizes currency?

Accepted Answer

A)  It has intrinsic value. 
B)  It has no intrinsic value. 
C)  It may be used as a medium of exchange but is not legal tender. 
D)  It performs all the functions of money except providing a unit of account. 
A)  It has intrinsic value. 
B)  It has no intrinsic value. 
C)  It may be used as a medium of exchange but is not legal tender. 
D)  It performs all the functions of money except providing a unit of account.

Question 20

In Wellville,the money supply is $80,000 and reserves are $12,800.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)  12 percent 
B)  14.5 percent 
C)  16 percent 
D)  29 percent 
A)  12 percent 
B)  14.5 percent 
C)  16 percent 
D)  29 percent

What does the Bank of Canada NOT do?

Suppose the reserve ratio is 4 percent,banks do not hold excess reserves,people do not hold currency,and the Bank of Canada purchases $25 million of government bonds.Which statement best describes the effects of Bank of Canada's purchase?

Table 10-2 -Refer to the Table 10-2.If the reserve requirement is 12 percent,what is the state of this bank?

The Bank of Canada is run by the Board of Directors,which is appointed by the Minister of Finance.

Which statement best explains the role of the Bank of Canada?

Table 10-2 -Refer to the Table 10-2.If the Last Bank of Panorama Springs is holding $4000 in excess reserves,what is the reserve requirement?

Table 10-4 The following information pertains to the Bank of Moncton. -Refer to the Table 10-4.Assume that all banks hold the same reserve ratio as the Bank of Moncton.What is the money multiplier?

Table 10-1 -Refer to the Table 10-1.If $400 is deposited into the First Bank of Dawson City,what will happen?

Which of the following is included in M2?

What do the Bank of Canada's policy decisions have an important influence on?

What is the role of money in an economy?

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?

Explain how each of the following actions changes the money supply. a.The Bank of Canada buys bonds. b.The Bank of Canada raises the bank rate. c.The Bank of Canada raises the reserve requirement.

Which statement best describes the process of open-market purchases conducted by the Bank of Canada?

Which account balance is included in M1+?

When the Bank of Canada conducts open-market purchases,how do commercial banks' assets most likely change?

What characterizes currency?

In Wellville,the money supply is $80,000 and reserves are $12,800.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 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

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Exam 10: The Monetary System

What does the Bank of Canada NOT do?

Suppose the reserve ratio is 4 percent,banks do not hold excess reserves,people do not hold currency,and the Bank of Canada purchases $25 million of government bonds.Which statement best describes the effects of Bank of Canada's purchase?

Table 10-2 -Refer to the Table 10-2.If the reserve requirement is 12 percent,what is the state of this bank?

The Bank of Canada is run by the Board of Directors,which is appointed by the Minister of Finance.

Which statement best explains the role of the Bank of Canada?

Table 10-2 -Refer to the Table 10-2.If the Last Bank of Panorama Springs is holding $4000 in excess reserves,what is the reserve requirement?

Table 10-4 The following information pertains to the Bank of Moncton. -Refer to the Table 10-4.Assume that all banks hold the same reserve ratio as the Bank of Moncton.What is the money multiplier?

Table 10-1 -Refer to the Table 10-1.If $400 is deposited into the First Bank of Dawson City,what will happen?

Which of the following is included in M2?

What do the Bank of Canada's policy decisions have an important influence on?

What is the role of money in an economy?

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?

Explain how each of the following actions changes the money supply. a.The Bank of Canada buys bonds. b.The Bank of Canada raises the bank rate. c.The Bank of Canada raises the reserve requirement.

Which statement best describes the process of open-market purchases conducted by the Bank of Canada?

Which account balance is included in M1+?

When the Bank of Canada conducts open-market purchases,how do commercial banks' assets most likely change?

What characterizes currency?

In Wellville,the money supply is $80,000 and reserves are $12,800.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 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