Exam 15: The Money Supply Process

Assume that no banks hold excess reserves, and the public holds no currency. If a bank sells a $100 security to the Bank of Canada, explain what happens to this bank and two additional steps in the deposit expansion process, assuming a 10 percent reserve requirement. How much do deposits and loans increase for the banking system when the process is completed?

In the model of the money supply process, the bank's role in influencing the money supply process is represented by ________.

When the Bank of Canada extends a loan to a bank, the monetary base ________ and reserves ________.

Explain why the simple deposit multiplier overstates the true deposit multiplier.

If the desired reserve ratio is fifteen percent, currency in circulation is $400 billion, and chequable deposits are $1000 billion, then the money multiplier is approximately ________.

Explain two reasons why the Bank of Canada does not have complete control over the level of bank deposits and loans. Explain how a change in either factor affects the deposit expansion process.

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $1000 billion, and excess reserves total $1 billion, then the excess reserves-chequable deposit ratio is ________.

All else the same, when the Bank calls in a $100 loan previously extended to the First National Bank, reserves in the banking system ________.

The monetary base increased by 20 percent during the contraction of 1929-1933, but the money supply fell by 25 percent. Explain why this occurred. How can the money supply fall when the base increases?

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

The volume of loans that the Bank of Canada makes to banks is affected by the Bank's setting of the interest rate on these loans, called the ________.

If a member of the nonbank public purchases a government bond from the Bank of Canada in exchange for currency, the monetary base will ________, but reserves will ________.

Both ________ and ________ are Bank of Canada assets.

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $800 billion, and excess reserves total $0.8 billion, then the money supply is ________.

When the nonborrowed monetary base is equal to $200 billion, the borrowed reserves are equal to $100 billion, and the money supply is equal to $700 billion, the money multiplier is ________.

If a bank has excess reserves of $7000 and demand deposit liabilities of $100,000, and if the reserve requirement is 15 percent, then the bank has actual reserves of ________.

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

Everything else held constant, an increase in the required reserve ratio will mean ________ in the M2+ money multiplier and ________ in the M2+ money supply.

The relationship between advances to banks, the nonborrowed monetary base, and the monetary base is ________.

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