Question 1

What essential factor enables chartered banks to create money?

Accepted Answer

A)  desired reserves 
B)  excess reserves 
C)  provincial and local government securities 
D)  net worth

Question 2

What is the overnight rate?

Accepted Answer

A)  the interest rate paid when taxpayers pay overdue taxes 
B)  the interest rate paid when one bank borrows reserves from another bank 
C)  the interest rate paid when banks make loans to the federal government 
D)  the interest rate paid when the federal debt is refinanced

Question 3

Consider the Bank of Canada's sale of Canadian government securities in its open market operations.What type of policy is this?

Accepted Answer

A)  It is a contractionary policy because it lowers the amount of total reserves in the banking system. 
B)  It is a contractionary policy because it lowers the amount of required reserves in the banking system. 
C)  It is an expansionary policy because it raises the amount of total and excess reserves in the banking system. 
D)  It is an expansionary policy because it raises the amount of excess reserves and lowers the amount of required reserves in the banking system.

Question 4

Suppose the desired reserve ratio is 10 percent, and the Bank of Canada buys a $5,000 security from a depository institution.How is the money supply affected, using the simple multiplier?

Accepted Answer

A)  The money supply increases by $5,000. 
B)  The money supply decreases by $5,000. 
C)  The money supply increases by $50,000. 
D)  The money supply decreases by $50,000.

Exam 14: Banking and the Money Supply

What essential factor enables chartered banks to create money?

What is the overnight rate?

Consider the Bank of Canada's sale of Canadian government securities in its open market operations.What type of policy is this?

Suppose the desired reserve ratio is 10 percent, and the Bank of Canada buys a $5,000 security from a depository institution.How is the money supply affected, using the simple multiplier?