Exam 10: The Monetary System

How could the Bank of Canada decrease the money supply?

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange, even though the ruble was legal tender. The cigarettes provide an example of fiat money.

How does currency contribute to the money supply?

What does the text mean by, and how does it answer the question, "Where is all the currency?"

A bank has (in millions): $400 assets, $280 deposits, and $80 debt. If the bank's assets decrease by 10 percent, by how much does the bank's capital change?

How does the Bank of Canada conduct open-market transactions?

A bank has (in millions): $40 reserves, $160 loans, $80 securities, $240 deposits, and $20 debt. Calculate the bank's reserve ratio, assets, liabilities, capital, and leverage ratio.

Which statement best describes the consequences of open-market sales conducted by the Bank of Canada?

-Refer to Table 10-3. Assume that all other banks hold only the required 5 percent of deposits as reserves and people hold only deposits and no currency. If the Bank of Kamloops decides to hold exactly 5 percent in reserves, by how much would the economy's money supply increase?

If the reserve ratio is 25 percent, how much money can be created from $100 of reserves? Show your work.

-Refer to Table 10-1. If $1000 is deposited into the First Bank of Dawson City, what will happen?

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

At one time, the country of Freedonia had no banks, but had currency of $40 million. Then a banking system was established with a reserve requirement of one-third. The people of Freedonia now keep half their money in the form of currency and half in the form of bank deposits. If banks do not hold excess reserves, how much currency do the people of Freedonia now hold?

When the Bank of Canada conducts open-market purchases, how do commercial banks' assets most likely change?

What characterizes commodity money?

In the nineteenth century, when there were often bank runs caused by crop failures, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, which action should the banks have taken?

If the Bank of Canada increases reserve requirements, the money supply will increase.

Which of the following does M1+ include?

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

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.