Deck 26: Money and Banking

Question 1

What do we mean in our current banking system when we say that a currency is ʺfractionally backedʺ?

A)Banks have many more claims outstanding against them than they have reserves available to pay those claims.
B)The currency is partially backed by the nationʹs supply of gold.
C)A bankʹs currency is fractionally backed by its supply of gold.
D)All paper currency is convertible to gold.
E)Banks maintain a fixed fraction of their outstanding deposits as cash deposits with the central bank.

Answer 1

Banks have many more claims outstanding against them than they have reserves available to pay those claims.

Question 2

Most Canadians accept Canadian dollars in payment for goods and services in Canada because they have confidence that the dollar

A)will be accepted in the future.
B)is fully convertible into gold.
C)is accepted by foreigners as more stable than their own currency.
D)is fully convertible into American dollars at a set exchange rate.
E)is fully backed by the British pound sterling.

Answer 2

will be accepted in the future.

Question 3

Which of the following was the most important initial step in the evolution of paper currency?

A)the acceptance of bank notes
B)the acceptance of goldsmithsʹ receipts
C)the acceptance of metallic coins
D)the issuance of currency by governments
E)the use of the Gold Standard

Answer 3

the acceptance of goldsmithsʹ receipts

Question 4

Suppose an economy has two types of money - gold and silver coins - that are both legal tender but have different non-monetary values.Greshamʹs law has come into effect when

A)people refuse to use the coins of lesser value.
B)the value of the coins is in the same ratio as their non-monetary values.
C)the lower-valued coin is taken out of circulation.
D)the higher-valued coin is taken out of circulation.
E)people use the higher-valued coins for exchange and the lower-valued for savings.

Question 5

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

A)Dave keeps $250 in his drawer for a ʺrainy day.ʺ
B)Mike gets a friend to give him a beer today in return for promising to give the friend two beer when Mike gets paid at the end of the month.
C)Judy lends her car to a friend who signs a promissory note that she will pay Judy $10 a day for the use of the car after she returns the car to Judy.
D)Barry pays $275 with his bank debit card for tickets for an NHL play -off game.
E)ABC Investments Inc.enters in its account books that it owes Nallai $20 for his last monthʹs investment income.

Question 6

Doug compares the unit price of chocolate bars in order to get the ʺbest buy.ʺ This represents using money as

A)a medium of exchange.
B)a store of value.
C)a unit of account.
D)a unit of deferred payment.
E)a money substitute.

Question 7

The biggest disadvantage of a barter system compared to one that uses money is that

A)it is difficult to find goods to trade in a barter system that satisfy the needs of society.
B)a standardized unit of account cannot exist in a barter system.
C)all commodities are difficult to transport and therefore inefficient for exchange.
D)each trade requires a double coincidence of wants.
E)commodities are difficult to use as a store of value.

Question 8

Greshamʹs law predicts that

A)good money drives out bad money.
B)debased money will circulate with undebased money.
C)undebased money will be driven from circulation.
D)debased money will be driven from circulation.
E)money is neutral in the long run.

Question 9

Suppose you come into possession of two ʺsilverʺ dollars,one minted in the 1950s which contains a lot of silver,the other minted in the 2000s which contains no silver at all.The legal exchange rate between the coins is fixed at one for one.According to Greshamʹs law,the 1950s silver dollar

A)is considered ʺbadʺ money.
B)will drive out of circulation the 1990s silver dollar.
C)is more likely to be used as a medium of exchange.
D)is less likely to be used as a medium of exchange.
E)is less likely to be used as a store of value because it will appear old fashioned.

Question 10

The use of money in an economy does which of the following?

A)creates the necessity for a double coincidence of wants
B)solves the problem of inflation
C)creates a problem of trading a portion of indivisible commodities such as a ship
D)promote specialization and the division of labour
E)promotes the use of barter

Question 11

Other things being equal,the purchasing power of money is

A)inversely related to the level of aggregate demand.
B)inversely related to the price level.
C)directly related to the price level.
D)directly related with the cost of living.
E)directly related to the level of aggregate demand.

Question 12

Historically,when gold and silver coins were used as money,their debasement resulted in

A)deflation.
B)an increase in the supply of money.
C)an increase in the amount of gold bullion.
D)an increase in the desire to store wealth by holding coins.
E)a decrease in the money supply.

Question 13

When you are estimating your monthly income and expenses,money is being used as

A)a medium of exchange.
B)a store of value.
C)a unit of account.
D)a standard unit of deferred payment.
E)a money substitute.

Question 14

If a majority of Canadian households and businesses refused to accept Canadian dollars in exchange for goods and services,the value of the Canadian dollar would

A)fall.
B)rise since less would be in circulation.
C)stay constant since the value does not depend on its acceptability by people.
D)stay constant since its value is determined only by the Bank of Canada.
E)stay constant since its value is determined only by the Government of Canada.

Question 15

Other things being equal,a rise in the price level will

A)increase the value of money.
B)decrease the purchasing power of money.
C)stabilize the value of money.
D)increase the purchasing power of money.
E)have no effect on the value of money.

Question 16

When metal coins,such as gold and silver,were used as money,a technique which helped to prevent the reduction of their value through clipping was

A)basing.
B)re-minting.
C)milling.
D)debasement.
E)sweating.

Question 17

Doug is saving money in order to purchase a new snowboard next winter.This represents using money as

A)a medium of exchange.
B)a store of value.
C)a unit of account.
D)a medium of deferred payment.
E)method of barter.

Question 18

The major advantage of using money rather than barter is that

A)in the barter system there is no way to express values of commodities.
B)money is the only convenient way to store oneʹs wealth.
C)money has more value than real goods.
D)money stays where you put it,whereas a cow often has to be fenced in.
E)the use of money significantly reduces transactions costs.

Question 19

Which of the following is consistent with the predictions of Greshamʹs law?

A)An increase in the money supply will be followed by inflation.
B)The increased circulation of U.S.coins in Canada during periods when the Canadian dollar is worth significantly less than the U.S.dollar.
C)Debasement of a metallic money will be followed by inflation.
D)Increases in the money supply led to the hyperinflation of the 1920s in Germany.
E)The disappearance of U.S.coins circulating in Canada during periods when the Canadian dollar is worth less than the U.S.dollar.

Question 20

The major problem of a currency that is fractionally backed and convertible into a precious metal is that of

A)clipping,which debases the metal coins.
B)counterfeiting.
C)maintaining its convertability into the metal.
D)paper money being less durable than gold.
E)perennial shortages of paper currency.

Question 21

The largest component of the liabilities of the Bank of Canada is

A)Government of Canada securities.
B)Government of Canada deposits.
C)Canadian currency in circulation.
D)deposits of commercial banks and other financial institutions.
E)loans to private individuals.

Question 22

Which of the following statements about deposit money is true?

A)The quantity of fiat money in the Canadian economy far exceeds the quantity of deposit money.
B)Deposit money can legally be created solely by the Bank of Canada.
C)Deposit money is the paper money or coinage that is decreed by the government to be accepted as legal tender.
D)Deposit money is recorded as an asset on the balance sheet of a commercial bank.
E)The quantity of deposit money in the Canadian economy far exceeds the quantity of fiat money in circulation.

Question 23

Commercial banks in Canada are prohibited by law from

A)accepting demand deposits.
B)issuing paper currency.
C)lending money to households and firms.
D)accepting term deposits.
E)settling inter-bank debts through a clearinghouse.

Question 24

In the event of a sudden loss in confidence in the ability of the commercial banks to redeem deposits,the Bank of Canada would probably

A)take over the operation of any banks in severe difficulties.
B)lend reserves to the commercial banks.
C)offer to sell government bonds to the chartered banks.
D)suspend operation of the banking system until the panic subsided.
E)impose severe financial penalties on the commercial banks by charging them interest at higher than the Bank rate.

Question 25

An example of ʺinterbank activitiesʺ in the Canadian banking system is

A)banks pooling their money together to fund the operations of the Bank of Canada.
B)banks lending money to each other in order to meet daily cash requirements.
C)the joint regulation of financial markets.
D)the joint regulation of the money supply.
E)lender of last resort to the banking system.

Question 26

Which of the following entries would appear on the liabilities side of the Bank of Canadaʹs balance sheet?

A)deposit money held in accounts at Canadaʹs commercial banks
B)Government of Canada securities
C)foreign currency reserves
D)paper notes in circulation
E)Canadian corporate securities

Question 27

For a country to be on a ʺgold standard,ʺ it must

A)use gold coins as money.
B)use gold coins as money and promise never to debase its coins.
C)use gold as money,but not necessarily in the form of gold coins.
D)make its currency convertible into gold at a fixed rate of exchange.
E)use gold as fiat money.

Question 28

The currency that is in circulation in Canada today is

A)fully backed by gold held at the central bank.
B)backed by the U.S.dollar.
C)backed by the euro.
D)fractionally backed by gold.
E)not officially backed by anything.

Question 29

The Canada Deposit Insurance Corporation (CDIC)was set up to protect

A)member financial institutions in case of non-payment of loans from borrowers.
B)member financial institutions in case of non payment of loans from the government.
C)depositors with Canadian dollar accounts in member institutions for up to a maximum of $100 000 per eligible deposit.
D)depositors with Canadian dollar accounts in any Canadian financial institution for up to a maximum of $100 000 per institution.
E)depositors of any currency in any Canadian financial institution for up to a maximum of $100 000 per institution.

Question 30

The financial crisis that occurred in 2007 and 2008 highlighted one of the crucial functions of commercial banks and other financial institutions in developed economies.A crucial function that ceased to work smoothly during this time,and contributed to the global recession that began in 2008,was

A)the acceptance of deposits from firms and households.
B)the joint regulation of financial markets.
C)the provision of credit to firms,households and other banks.
D)cheque clearing and collection.
E)the clearing of electronic transfers.

Question 31

Which of the following entries would appear on the liabilities side of a commercial bankʹs balance sheet?

A)mortgage loans
B)Government of Canada securities
C)cash reserves
D)foreign currency reserves
E)demand deposits

Question 32

Which of the following statements best describes the relationship between the Bank of Canada and the Government of Canada?

A)The Bank of Canada has the same status as the Department of Finance and is directly responsible to Parliament for its day-to-day operations of monetary policy.
B)The Bank of Canada is a wholly owned entity of the government but is given independence in the day-to-day operations of monetary policy.
C)The Bank of Canada is a central-banking institution that is completely independent of the government and is fully autonomous in its conduct of monetary policy.
D)The Bank of Canada is a privately owned banking institution that is overseen by a Board of Directors with a mandate to act in the best interests of the citizens of Canada.
E)The governor of the Bank of Canada and the minister of finance have joint responsibility for both fiscal and monetary policy.

Question 33

If most individuals accept paper currency in transactions,and paper currency is convertible into gold,then banks can safely issue

A)no more paper currency than the value of the gold they hold.
B)more paper currency than the value of the gold they hold.
C)as much paper currency as they please.
D)paper currency equal to a fraction of the gold they hold.
E)paper currency equal to the bankʹs commercial debt divided by their gold reserves.

Question 34

In recent years,the use of debit cards issued by commercial banks has skyrocketed.When you pay for a purchase at a store using a debit card,you are

A)authorizing the transfer of cash from your bank account to the merchantʹs bank account.
B)creating an electronic debt to the merchant.
C)authorizing an electronic transfer of a money substitute from you to the merchant.
D)authorizing an electronic transfer of deposit money from you to the merchant.
E)authorizing the transfer of bank notes from you to the merchant.

Question 35

Fiat money has value because it

A)can be manufactured at will by the issuing government.
B)has intrinsic value equal to its face value.
C)is fully backed by gold at a fixed ratio.
D)is only fractionally backed by gold.
E)is generally accepted.

Question 36

Which of the following entries would appear on the liabilities side of the Bank of Canadaʹs balance sheet?

A)Government of Canada securities
B)deposits of commercial banks
C)advances to commercial banks
D)savings deposits
E)shareholdersʹ equity

Question 37

Which of the following entries would appear on the assets side of a commercial bankʹs balance sheet?

A)Government of Canada securities
B)chequable deposits
C)Government of Canada deposits
D)savings deposits
E)shareholdersʹ equity

Question 38

Which of the following illustrates the use of fiat money?

A)exchanging Canadian dollars for a T-shirt
B)exchanging money-market funds for gold
C)exchanging money-market funds for insurance
D)keeping gold as a hedge against inflation
E)bartering goods for services

Question 39

Suppose the rare event occurs that a major Canadian commercial bank is on the verge of insolvency and collapse due to volatile world credit markets.The likely initial response is

A)a bankruptcy filing overseen by the Superintendent of Financial Institutions.
B)the adoption of all of the bankʹs liabilities by the Bank of Canada as the ʺlender of last resort.ʺ
C)the sale of the bankʹs assets to the remaining commercial banks.
D)the provision of funds by the World Bank as the ʺlender of last resort.ʺ
E)the provision of funds by the Bank of Canada as the ʺlender of last resort.ʺ

Question 40

Debit cards that are issued by commercial banks can be characterized as

A)an example of near money.
B)an electronic version of a cheque.
C)deposit money.
D)fiat money.
E)a store of value.

Question 41

The Canadian banking system is a

A)gold-reserve system.
B)fractional-reserve system.
C)target-reserve system.
D)asset-backed reserve system.
E)treasury-bill reserve system.

Question 42

Consider a new deposit of $10 000 to the Canadian banking system.The bank that initially receives this deposit will find itself with

A)no excess reserves if there is no reserve requirement.
B)$1000 of excess cash reserves if its target reserve ratio is 10%.
C)$2000 of excess cash reserves if its target reserve ratio is 10%.
D)$8000 of excess cash reserves if its target reserve ratio is 20%.
E)$10 000 of excess cash reserves if its target reserve ratio is 100%.

Question 43

Suppose Bank ABC has a target reserve ratio of 2%.If Bank ABC receives a new deposit of $50 million it will immediately find itself with

A)no excess cash reserves.
B)excess cash reserves of $1 million.
C)excess cash reserves of $10 million.
D)excess cash reserves of $49 million.
E)excess cash reserves of $49.5 million.

Question 44

Which of the following statements about reserve ratios at Canadian commercial banks is true? Commercial banks in Canada

A)are required by the Bank Act to hold required reserves.
B)have a reserve ratio of zero.
C)have a reserve ratio of 100%.
D)have a positive reserve ratio.
E)never have excess reserves.

Question 45

Suppose a commercial bank has a level of target reserves of $500 million and actual reserves of $575 million.This bankʹs ________ is/are $75 million.

A)profits
B)fractional reserves
C)excess reserves
D)reserve ratio
E)cash drain

Question 46

Why is the possibility of a bank run extremely small in Canada today?

A)The Bank of Canada guarantees the deposits at all commercial banks in Canada,eliminating the danger of a rush of withdrawals.
B)The Department of Finance guarantees the deposits at all commercial banks in Canada,eliminating the danger of a rush of withdrawals.
C)The Canadian Deposit Insurance Corporation provides deposit insurance on eligible deposits,so most depositors would not feel the need to withdraw all of their money in a panic.
D)The Office of the Superintendent of Financial Institutions provides deposit insurance on eligible deposits,so most depositors would not feel the need to withdraw all of their money in a panic.
E)Industry Canada guarantees the deposits at all commercial banks in Canada,eliminating the danger of a rush of withdrawals.

Question 47

Suppose the Canadian banking system jointly has $20 million in reserves (cash and deposits at the Bank of Canada),all banks have a target reserve ratio of 20%,and there are no excess reserves.What is the amount of deposits in the banking system?

A)$4 million
B)$40 million
C)$80 million
D)$100 million
E)$120 million

Question 48

ʺExcess reservesʺ for a commercial bank refer to

A)any surplus in the bankʹs supply of gold.
B)any surplus of chequable deposits.
C)any reserves (cash or deposits with the Bank of Canada)that the bank holds over and above its desired reserves.
D)reserves (cash or deposits with the Bank of Canada)that the Bank of Canada requires the bank to hold.
E)excess demand for money from that bank.

Question 49

Without a central bank, commercial banks in Canada would probably hold ________ reserves than they do now, resulting in a ________ money supply than at present.

A)the same; the same
B)more; larger
C)more; smaller
D)less; smaller
E)less; larger

Question 50

A bank run is unlikely to occur in Canada today because

A)if necessary,the central bank can provide all the reserves that are necessary to avoid this situation.
B)the commercial banks are required by law to maintain 100% of their deposits in cash.
C)there is relatively little demand for cash at present.
D)banking is done mostly electronically.
E)the commercial banks hold enough government securities that are convertible into cash.

Question 51

Consider the following list of entries that might appear on the balance sheet of a commercial bank.All figures are millions of dollars. TABLE 26-1
Refer to Table 26-1.What are the total liabilities on the balance sheet of this commercial bank?

A)2410
B)2520
C)2810
D)2960
E)3160

Question 52

Canadian commercial banks maintain their reserves in the form of

A)cash in their bank vaults and deposits at the Bank of Canada.
B)cash in their bank vaults.
C)gold in their bank vaults.
D)deposits at other commercial banks that are immediately accessible.
E)cash and foreign currency at the Bank of Canada.

Question 53

Suppose a commercial bank has a target reserve ratio of 1%,but has an actual reserve ratio of 0.8%.This bank will likely

A)expand its portfolio of loans.
B)contract its portfolio of loans.
C)maintain its new,higher reserve ratio because it is more profitable.
D)buy government securities from the Bank of Canada.
E)allow fewer cash withdrawals by the bankʹs customers.

Question 54

A commercial bankʹs target reserve ratio is the

A)fraction of its deposit liabilities that it wishes to holds as reserves,either as cash or as deposits with the Bank of Canada.
B)fraction of its deposit liabilities that it actually holds as cash in its own vaults.
C)fraction of its deposit liabilities that are backed by gold.
D)ratio of Canadian dollars to foreign currencies that the bank holds on its books.
E)ratio of chequable deposits to term deposits that the bank holds on its books.

Question 55

Suppose Bank ABC has a target reserve ratio of 10%.If Bank ABC receives a new deposit of $100 000 it will immediately find itself with

A)no excess cash reserves.
B)excess cash reserves of $10 000.
C)excess cash reserves of $90 000.
D)excess cash reserves of $100 000.
E)excess cash reserves equal to 10% of its deposits.

Question 56

A commercial bankʹs actual reserve ratio is the

A)fraction of its deposit liabilities that it actually holds as gold,other precious metal or cash in its own vaults.
B)fraction of its deposit liabilities that are backed by gold.
C)ratio of Canadian dollars to foreign currencies that it holds on its books.
D)ratio of chequable deposits to term deposits that it holds on its books.
E)fraction of its deposit liabilities that it actually holds as reserves,either as cash or as deposits with the Bank of Canada.

Question 57

What is a bank run?

A)A situation where a commercial bank is holding zero reserves.
B)A panic situation where many depositors rush simultaneously to withdraw their deposit money in the form of cash.
C)A situation where all commercial banks in the system are simultaneously short of reserves.
D)The collapse of a non-commercial bank as a result of non-payment of loans.
E)The collapse of a commercial banks as a result of the devaluation of their assets.

Question 58

Consider the following list of entries that might appear on the balance sheet of a commercial bank.All figures are millions of dollars. TABLE 26-1
Refer to Table 26-1.What are the total assets on the balance sheet of this commercial bank?

A)2410
B)2520
C)2810
D)2960
E)3160

Question 59

Commercial banks hold a fraction of their deposits in cash in their vaults (or as deposits with the central bank).This fraction is known as

A)the required reserve.
B)the excess reserve ratio.
C)the fractional reserve.
D)the reserve ratio.
E)the target reserve.

Question 60

If all the commercial banks in the banking system collectively have $300 million in cash reserves and are satisfying their target reserve ratio of 20%,what is the amount of deposits they have?

A)$0
B)$60 million
C)$600 million
D)$1500 million
E)$2000 million

Question 61

Assume that Bank ABC has a target reserve ratio of 10%.If Bank ABC receives a new deposit of $100 000,the largest new loan this bank could initially make,and maintain its target reserve ratio,is

A)$1000.
B)$10 000.
C)$90 000.
D)$100 000.
E)$900 000.

Question 62

Suppose the excess reserves in Toronto Dominion Bank increase by $700.Given a desired reserve ratio of 2.5% and no cash drain,the maximum change in deposits for the entire banking system would be

A)$682.50.
B)$700.00.
C)$17 500.00.
D)$28 000.00.
E)$70 000.00.

Question 63

Suppose you found a $100 bill that was lost for many years under your grandmotherʹs mattress and you decided to deposit this money in a commercial bank.If the target reserve ratio were 20% and all excess reserves were lent out,your new deposit of $100 would lead to an eventual expansion of the money supply of

A)$120.
B)$200.
C)$500.
D)$1200.
E)$2000.

Question 64

Northern Bank: Balance Sheet

Table 26-6
Refer to Table 26-6.Northern Bank holds cash in its vault and has some deposits in its account at the central bank.Under which category on its balance sheet are these funds included?

A)reserves
B)loans
C)liabilities
D)deposits
E)capital

Question 65

Northern Bank: Balance Sheet

Table 26-6
Refer to Table 26-6.Assume that Northern Bankʹs target reserve ratio is 10%.What is its current level of excess reserves?

A)-$320
B)-$200
C)$0
D)$320
E)$200

Question 66

A desire by ________ has no effect on the ability of the banking system to create bank deposits,for a given amount of reserves in the banking system.

A)banks to delay making loans in expectation of higher future interest rates
B)households to increase the fraction of their money held in the form of currency
C)households to hold more money in safety-deposit boxes
D)the government to increase its level of spending
E)firms to reduce their desired level of borrowing from banks

Question 67

Northern Bank: Balance Sheet

Table 26-6
Refer to Table 26-6.Assume that Northern Bankʹs target reserve ratio is 10%.What is itʹs actual reserve ratio?

A)6.67%
B)7.1%
C)8.0%
D)9.1%
E)10.0%

Question 68

Consider a new deposit of $10 000 to the Canadian banking system.Assuming that all Canadian banks have a target reserve ratio of 2%,and that there is no cash drain,the banking system as a whole could create ________ as a result of this single new deposit.

A)$10 000 of new deposits
B)$50 000 of new deposits
C)$500 000 of new deposits
D)$980 000 of additional loans
E)$1 000 000 of additional loans

Question 69

Which of the following examples constitutes a new deposit to the Canadian commercial banking system?

A)an individual transfers money from ShipShape Credit Union to Scotiabank
B)an individual immigrates to Canada and deposits money from abroad
C)an individual puts cash in a safety-deposit box
D)the Bank of Canada sells government securities to an individual or a firm
E)the Bank of Canada buys foreign currency from abroad

Question 70

A central bank can ʺcreateʺ money by

A)selling some of its foreign-currency reserves for domestic currency.
B)selling government Treasury bills to the commercial banks.
C)increasing the rate of inflation.
D)issuing its own Central Bank bonds.
E)purchasing government securities on the open market.

Question 71

Which of the following examples constitutes a new deposit to the Canadian commercial banking system?

A)an individual transfers money from Ship Shape Credit Union to Scotiabank
B)an individual immigrates to Canada and maintains his existing deposits in a foreign bank
C)an individual puts cash in a safety-deposit box
D)the Bank of Canada buys government securities from a Canadian commercial bank
E)the Bank of Canada buys foreign currency from abroad

Question 72

Consider a new deposit of $10 000 to the Canadian banking system.The commercial bank that initially receives this deposit will find itself with

A)no excess reserves if there is no reserve requirement.
B)$1000 of excess cash reserves if its target reserve ratio is 10%.
C)$2000 of excess cash reserves if its target reserve ratio is 2%.
D)$9000 of excess cash reserves if its target reserve ratio is 10%.
E)$98 000 of excess cash reserves if its target reserve ratio is 2%.

Question 73

If all the banks in the banking system collectively have $500 million in cash reserves,and have a target reserve ratio of 5%,the maximum amount of deposits the banking system can support is

A)$10 million.
B)$100 million.
C)$25 billion.
D)$100 billion.
E)$10 billion.

Question 74

If all the banks in the banking system collectively have $20 million in cash reserves and have a target reserve ratio of 5%,the maximum amount of deposits the banking system can support is

A)$4 million.
B)$40 million.
C)$80 million.
D)$100 million.
E)$400 million.

Question 75

Northern Bank: Balance Sheet

Table 26-6
Refer to Table 26-6.Owners of Northern Bank contributed money to start the bank.Under which category of itʹs balance sheet do these funds fall?

A)Reserves
B)Loans
C)Assets
D)Deposits
E)Capital

Question 76

Northern Bank: Balance Sheet

Table 26-6
Refer to Table 26-6.Assume that Northern Bankʹs target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must ________ and ________.

A)increase its reserves by $200; decrease its deposits by $200
B)increase its reserves by $400; decrease its deposits by $400
C)not change its reserves; not change its deposits
D)increase its reserves by $200; decrease its loans by $200
E)increase its reserves by $400; increase its loans by $800

Question 77

Suppose you found a $100 bill that was lost for many years under your grandmotherʹs mattress.If the banking system has a cash drain of 5%,its target reserve ratio is 20%,and all excess reserves were lent out,your new deposit of the $100 bill would lead to an eventual expansion of the money supply of

A)$20.
B)$25.
C)$200.
D)$400.
E)$500.

Question 78

Suppose the excess reserves in Toronto Dominion Bank increase by $700.Given a target reserve ratio of 1.0% and no cash drain,the maximum change in deposits for the entire banking system would be

A)$682.50.
B)$700.00.
C)$17 500.00.
D)$28 000.00.
E)$70 000.00.

Question 79

Consider a new deposit of $100 000 to the Canadian banking system.The commercial bank that initially receives this deposit will find itself with

A)no excess reserves if there is no reserve requirement.
B)$1000 of excess cash reserves if its target reserve ratio is 10%.
C)$2000 of excess cash reserves if its target reserve ratio is 2%.
D)$10 000 of excess cash reserves if its target reserve ratio is 10%.
E)$98 000 of excess cash reserves if its target reserve ratio is 2%.

Question 80

Northern Bank: Balance Sheet

Table 26-6
Refer to Table 26-6.Northern Bank extends credit to its customers in the form of household mortgages and lines of credit.Under which category of the balance sheet do these fall?

A)Reserves
B)Loans
C)Liabilities
D)Deposits
E)Capital