Question 1

Both ________ and ________ are monetary liabilities of the Bank.

Accepted Answer

A)  government securities; advances to banks 
B)  notes in circulation; reserves 
C)  government securities; reserves 
D)  notes in circulation; advances to banks 
A)  government securities; advances to banks 
B)  notes in circulation; reserves 
C)  government securities; reserves 
D)  notes in circulation; advances to banks

Question 2

A decrease in ________ leads to an equal ________ in the monetary base in the long run.

Accepted Answer

A)  float; increase 
B)  float; decrease 
C)  securities; increase 
D)  securities; decrease 
A)  float; increase 
B)  float; decrease 
C)  securities; increase 
D)  securities; decrease

Question 3

The formula linking the money supply to the monetary base is ________.

Accepted Answer

A)  M = m/MB 
B)  M = m × MB 
C)  m = M × MB 
D)  MB = M × m 
A)  M = m/MB 
B)  M = m × MB 
C)  m = M × MB 
D)  MB = M × m

Question 4

The monetary base consists of ________.

Accepted Answer

A)  notes in circulation and Canada bonds 
B)  notes in circulation and securities 
C)  notes in circulation and reserves 
D)  reserves and Canada bonds 
A)  notes in circulation and Canada bonds 
B)  notes in circulation and securities 
C)  notes in circulation and reserves 
D)  reserves and Canada bonds

Question 5

If reserves in the banking system increase by $200, then chequable deposits will increase by $500 in the simple model of deposit creation when the desired reserve ratio is ________.

Accepted Answer

A)  0.04 
B)  0.25 
C)  0.40 
D)  0.50 
A)  0.04 
B)  0.25 
C)  0.40 
D)  0.50

Question 6

The monetary base minus reserves equals ________.

Accepted Answer

A)  currency in circulation 
B)  the borrowed base 
C)  the nonborrowed base 
D)  advances to banks 
A)  currency in circulation 
B)  the borrowed base 
C)  the nonborrowed base 
D)  advances to banks

Question 7

Which of the following are not assets on the Bank of Canada's balance sheet?

Accepted Answer

A)  Advances to banks 
B)  Government of Canada deposits 
C)  Securities 
D)  Foreign deposits 
A)  Advances to banks 
B)  Government of Canada deposits 
C)  Securities 
D)  Foreign deposits

Question 8

Explain the complete formula for the money supply, and explain how changes in desired reserves, excess reserves, the currency ratio, the nonborrowed base, and Bank of Canada lending affect the money supply.

Accepted Answer

The formula is indicates that the money

Question 9

If the desired reserve ratio is one-third, currency in circulation is $300 billion, and chequable deposits are $900 billion, then the money multiplier is approximately ________.

Accepted Answer

A)  2.5 
B)  2.8 
C)  2.0 
D)  0.67 
A)  2.5 
B)  2.8 
C)  2.0 
D)  0.67

Question 10

Decisions by depositors to increase their holdings of ________, or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts.

Accepted Answer

A)  deposits; smaller 
B)  deposits; larger 
C)  currency; smaller 
D)  currency; larger 
A)  deposits; smaller 
B)  deposits; larger 
C)  currency; smaller 
D)  currency; larger

Question 11

A simple deposit multiplier equal to two implies a desired reserve ratio equal to ________.

Accepted Answer

A)  100 percent 
B)  50 percent 
C)  25 percent 
D)  0 percent 
A)  100 percent 
B)  50 percent 
C)  25 percent 
D)  0 percent

Question 12

If a bank has excess reserves of $7000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then the bank has actual reserves of ________.

Accepted Answer

A)  $14000 
B)  $17000 
C)  $22000 
D)  $27000 
A)  $14000 
B)  $17000 
C)  $22000 
D)  $27000

Question 13

The money supply is ________ related to the level of borrowed reserves.

Accepted Answer

A)  negatively 
B)  not 
C)  positively 
D)  sometimes 
A)  negatively 
B)  not 
C)  positively 
D)  sometimes

Question 14

The monetary base minus currency in circulation equals ________.

Accepted Answer

A)  reserves 
B)  the borrowed base 
C)  the nonborrowed base 
D)  advances to banks 
A)  reserves 
B)  the borrowed base 
C)  the nonborrowed base 
D)  advances to banks

Question 15

A bank has excess reserves of $6000 and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bank's excess reserves will be ________.

Accepted Answer

A)  -$5000 
B)  -$1000 
C)  $1000 
D)  $5000 
A)  -$5000 
B)  -$1000 
C)  $1000 
D)  $5000

Question 16

If the desired reserve ratio is fifteen percent, currency in circulation is $400 billion, and chequable deposits are $800 billion, then the money multiplier is approximately ________.

Accepted Answer

A)  2.5 
B)  1.67 
C)  2.3 
D)  0.651 
A)  2.5 
B)  1.67 
C)  2.3 
D)  0.651

Question 17

When a member of the nonbank public withdraws currency from her bank account, ________.

Accepted Answer

A)  both the monetary base and bank reserves fall 
B)  both the monetary base and bank reserves rise 
C)  the monetary base falls, but bank reserves remain unchanged 
D)  bank reserves fall, but the monetary base remains unchanged 
A)  both the monetary base and bank reserves fall 
B)  both the monetary base and bank reserves rise 
C)  the monetary base falls, but bank reserves remain unchanged 
D)  bank reserves fall, but the monetary base remains unchanged

Question 18

There are two ways in which the Bank can provide additional reserves to the banking system: it can ________ government bonds or it can ________ advances to banks to commercial banks.

Accepted Answer

A)  sell; extend 
B)  sell; call in 
C)  purchase; extend 
D)  purchase; call in 
A)  sell; extend 
B)  sell; call in 
C)  purchase; extend 
D)  purchase; call in

Question 19

A simple deposit multiplier equal to one implies a desired reserve ratio equal to ________.

Accepted Answer

A)  100 percent 
B)  50 percent 
C)  25 percent 
D)  0 percent 
A)  100 percent 
B)  50 percent 
C)  25 percent 
D)  0 percent

Question 20

When the monetary base is equal to $200 billion, the desired reserve ratio is 0.10 and the currency ratio is equal to 0.20, the money supply is equal to ________.

Accepted Answer

A)  $800 billion 
B)  $600 billion 
C)  $500 billion 
D)  $300 billion 
A)  $800 billion 
B)  $600 billion 
C)  $500 billion 
D)  $300 billion

Exam 15: The Money Supply Process

Both ________ and ________ are monetary liabilities of the Bank.

A decrease in ________ leads to an equal ________ in the monetary base in the long run.

The formula linking the money supply to the monetary base is ________.

The monetary base consists of ________.

If reserves in the banking system increase by $200, then chequable deposits will increase by $500 in the simple model of deposit creation when the desired reserve ratio is ________.

The monetary base minus reserves equals ________.

Which of the following are not assets on the Bank of Canada's balance sheet?

Explain the complete formula for the money supply, and explain how changes in desired reserves, excess reserves, the currency ratio, the nonborrowed base, and Bank of Canada lending affect the money supply.

If the desired reserve ratio is one-third, currency in circulation is $300 billion, and chequable deposits are $900 billion, then the money multiplier is approximately ________.

Decisions by depositors to increase their holdings of ________, or of banks to hold excess reserves will result in a ________ expansion of deposits than the simple model predicts.

A simple deposit multiplier equal to two implies a desired reserve ratio equal to ________.

If a bank has excess reserves of $7000 and demand deposit liabilities of $100,000, and if the reserve requirement is 10 percent, then the bank has actual reserves of ________.

The money supply is ________ related to the level of borrowed reserves.

The monetary base minus currency in circulation equals ________.

A bank has excess reserves of $6000 and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bank's excess reserves will be ________.

If the desired reserve ratio is fifteen percent, currency in circulation is $400 billion, and chequable deposits are $800 billion, then the money multiplier is approximately ________.

When a member of the nonbank public withdraws currency from her bank account, ________.

There are two ways in which the Bank can provide additional reserves to the banking system: it can ________ government bonds or it can ________ advances to banks to commercial banks.

A simple deposit multiplier equal to one implies a desired reserve ratio equal to ________.

When the monetary base is equal to $200 billion, the desired reserve ratio is 0.10 and the currency ratio is equal to 0.20, the money supply is equal to ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Filters

Both and are monetary liabilities of the Bank.

A decrease in leads to an equal in the monetary base in the long run.

Decisions by depositors to increase their holdings of , or of banks to hold excess reserves will result in a expansion of deposits than the simple model predicts.

There are two ways in which the Bank can provide additional reserves to the banking system: it can government bonds or it can advances to banks to commercial banks.