Question 1

Mia puts money into a piggy bank so she can spend it later.Which function of money does this illustrate?

Accepted Answer

A)  store of value 
B)  medium of exchange 
C)  unit of account 
D)  wealth 
A)  store of value 
B)  medium of exchange 
C)  unit of account 
D)  wealth

Question 2

During recessions,banks typically choose to hold more excess reserves relative to their deposits.Which statement best describes the effects of the increase in reserves?

Accepted Answer

A)  The money multiplier increases,and the money supply increases. 
B)  The money multiplier decreases,and the money supply decreases. 
C)  The money multiplier does not change,but the money supply increases. 
D)  The money multiplier does not change,but the money supply decreases. 
A)  The money multiplier increases,and the money supply increases. 
B)  The money multiplier decreases,and the money supply decreases. 
C)  The money multiplier does not change,but the money supply increases. 
D)  The money multiplier does not change,but the money supply decreases.

Question 3

Suppose a bank has $10,000 in deposits and $6000 in loans.What is its reserve ratio?

Accepted Answer

A)  3 percent 
B)  7 percent 
C)  40 percent 
D)  70 percent 
A)  3 percent 
B)  7 percent 
C)  40 percent 
D)  70 percent

Question 4

Which of the following has intrinsic value?

Accepted Answer

A)  a gold coin 
B)  a twenty-dollar bill 
C)  a bank account 
D)  a personal cheque 
A)  a gold coin 
B)  a twenty-dollar bill 
C)  a bank account 
D)  a personal cheque

Question 5

Which of the following ranks assets from most to least liquid?

Accepted Answer

A)  currency,diamonds,stocks 
B)  currency,stocks,diamonds 
C)  diamonds,currency,stocks 
D)  diamonds,stocks,currency 
A)  currency,diamonds,stocks 
B)  currency,stocks,diamonds 
C)  diamonds,currency,stocks 
D)  diamonds,stocks,currency

Question 6

Assume that banks do not hold excess reserves.The banking system has $20 million in reserves and has a reserve requirement of 20 percent.The public holds $10 million in currency.Then the public decides to withdraw $5 million in currency from the banking system.If the Bank of Canada wants to keep the money supply stable by changing the reserve requirement,then what will the new reserve requirement be?

Accepted Answer

A)  16 percent 
B)  18.2 percent 
C)  20 percent 
D)  25 percent 
A)  16 percent 
B)  18.2 percent 
C)  20 percent 
D)  25 percent

Question 7

Suppose a bank has a 6 percent reserve ratio,$4000 in deposits,and it loans out all it can,given the reserve ratio.Which of the following describes the bank's assets?

Accepted Answer

A)  It has $800 in reserves and $16,000 in loans. 
B)  It has $240 in reserves and $3760 in loans. 
C)  It has $240in reserves and $4000 in loans. 
D)  It has $800 in reserves and $3200 in loans. 
A)  It has $800 in reserves and $16,000 in loans. 
B)  It has $240 in reserves and $3760 in loans. 
C)  It has $240in reserves and $4000 in loans. 
D)  It has $800 in reserves and $3200 in loans.

Question 8

Which list contains only actions that decrease the money supply?

Accepted Answer

A)  raising the bank rate; making open-market purchases 
B)  raising the bank rate; making open-market sales 
C)  lowering the bank rate; making open-market purchases 
D)  lowering the bank rate; making open-market sales 
A)  raising the bank rate; making open-market purchases 
B)  raising the bank rate; making open-market sales 
C)  lowering the bank rate; making open-market purchases 
D)  lowering the bank rate; making open-market sales

Question 9

What happens in a 100-percent-reserve banking system?

Accepted Answer

A)  Banks can create money by issuing currency. 
B)  Banks can create money by lending out reserves. 
C)  Banks can lend money to their customers. 
D)  Banks hold as many reserves as they hold deposits. 
A)  Banks can create money by issuing currency. 
B)  Banks can create money by lending out reserves. 
C)  Banks can lend money to their customers. 
D)  Banks hold as many reserves as they hold deposits.

Question 10

A bank has (in millions): $200 reserves,$800 loans,$400 securities,$1000 deposits,and $100 debt.How much is the bank's capital?

Accepted Answer

A)  $300 million 
B)  $600 million 
C)  $1000 million 
D)  $1400 million 
A)  $300 million 
B)  $600 million 
C)  $1000 million 
D)  $1400 million

Question 11

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 12

The Bank of Canada was created in 1934 in the wake of the Great Depression.

Accepted Answer

A) True 
 B)False

Question 13

The money multiplier equals 1 divided by (1 - the reserve ratio).

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is included in M2 but not in M1+?

Accepted Answer

A)  currency 
B)  demand deposits 
C)  savings deposits 
D)  gold 
A)  currency 
B)  demand deposits 
C)  savings deposits 
D)  gold

Question 15

Which of the following is NOT a tool of monetary policy?

Accepted Answer

A)  open-market operations 
B)  reserve requirements 
C)  changing the bank rate 
D)  increasing the tax rate 
A)  open-market operations 
B)  reserve requirements 
C)  changing the bank rate 
D)  increasing the tax rate

Question 16

If a central bank wanted to increase the money supply,what would it most likely do?

Accepted Answer

A)  It would make open-market purchases and lower the bank rate. 
B)  It would make open-market sales and lower the bank rate. 
C)  It would make open-market purchases and raise the bank rate. 
D)  It would make open-market sales and raise the bank rate. 
A)  It would make open-market purchases and lower the bank rate. 
B)  It would make open-market sales and lower the bank rate. 
C)  It would make open-market purchases and raise the bank rate. 
D)  It would make open-market sales and raise the bank rate.

Question 17

What is most likely to happen under a fractional reserve banking system?

Accepted Answer

A)  Banks hold more reserves than deposits. 
B)  Banks generally lend out a majority of the funds deposited. 
C)  Banks cause the money supply to fall by lending out reserves. 
D)  Banks only accept savings deposits. 
A)  Banks hold more reserves than deposits. 
B)  Banks generally lend out a majority of the funds deposited. 
C)  Banks cause the money supply to fall by lending out reserves. 
D)  Banks only accept savings deposits.

Question 18

Suppose the value of bank notes issued by the Bank of Canada last year was $56 billion,while the money supply (M2+)was about $1.3 trillion.
a.Assuming that half of the bank note value is in the hands of the population and the other half is in banks' reserves,what must have been the money multiplier?
b.What is the average bank reserve ratio corresponding to the money multiplier calculated in part a?
c.Now,let us assume that people hold one-tenth of their money (cash plus deposits)in cash and nine-tenths in bank deposits.With the reserve ratio calculated above,what is the value of the bank notes in the banks' reserves?
d.What is the value of the bank notes in circulation if the bank reserves are equal to the number you calculated in part c?

Accepted Answer

a.Let M be the money multiplier.This num

Question 19

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 20

When the Bank of Canada decreases the bank rate,banks will borrow more from the Bank of Canada.Which statement best describes the outcomes 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.

Mia puts money into a piggy bank so she can spend it later.Which function of money does this illustrate?

During recessions,banks typically choose to hold more excess reserves relative to their deposits.Which statement best describes the effects of the increase in reserves?

Suppose a bank has $10,000 in deposits and $6000 in loans.What is its reserve ratio?

Which of the following has intrinsic value?

Which of the following ranks assets from most to least liquid?

Suppose a bank has a 6 percent reserve ratio,$4000 in deposits,and it loans out all it can,given the reserve ratio.Which of the following describes the bank's assets?

Which list contains only actions that decrease the money supply?

What happens in a 100-percent-reserve banking system?

A bank has (in millions): $200 reserves,$800 loans,$400 securities,$1000 deposits,and $100 debt.How much is the bank's capital?

What does the legal tender requirement imply?

The Bank of Canada was created in 1934 in the wake of the Great Depression.

The money multiplier equals 1 divided by (1 - the reserve ratio).

Which of the following is included in M2 but not in M1+?

Which of the following is NOT a tool of monetary policy?

If a central bank wanted to increase the money supply,what would it most likely do?

What is most likely to happen under a fractional reserve banking system?

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

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

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

Mia puts money into a piggy bank so she can spend it later.Which function of money does this illustrate?

During recessions,banks typically choose to hold more excess reserves relative to their deposits.Which statement best describes the effects of the increase in reserves?

Suppose a bank has $10,000 in deposits and $6000 in loans.What is its reserve ratio?

Which of the following has intrinsic value?

Which of the following ranks assets from most to least liquid?

Suppose a bank has a 6 percent reserve ratio,$4000 in deposits,and it loans out all it can,given the reserve ratio.Which of the following describes the bank's assets?

Which list contains only actions that decrease the money supply?

What happens in a 100-percent-reserve banking system?

A bank has (in millions): $200 reserves,$800 loans,$400 securities,$1000 deposits,and $100 debt.How much is the bank's capital?

What does the legal tender requirement imply?

The Bank of Canada was created in 1934 in the wake of the Great Depression.

The money multiplier equals 1 divided by (1 - the reserve ratio).

Which of the following is included in M2 but not in M1+?

Which of the following is NOT a tool of monetary policy?

If a central bank wanted to increase the money supply,what would it most likely do?

What is most likely to happen under a fractional reserve banking system?

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

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

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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