Exam 10: The Monetary System

Jeremiah deposits in a bank an amount of $5000 that he had been holding at home in a jar for a long time. a. If the banking system is 100 percent reserve, how does the money supply change? b. If the reserve requirement is 20 percent and the bank holds no excess reserves, how does the money supply change? c. If the reserve requirement is 20 percent and the bank holds an excess reserve of 2 percent, how does the money supply change?

Which statement best describes the outcome of a decrease in the bank rate?

If a bank uses $500 of excess reserves to make a new loan when the reserve ratio is 20 percent, what happens to the money supply in the very short term?

If you deposit $5000 into First Hawkeye Bank, what will the bank most likely do?

Which list contains only actions that decrease the money supply?

Credit cards are not a medium of exchange and so are not important for analyzing the monetary system.

-Refer to Table 10-1. What is the reserve ratio?

For how long is the governor of the Bank of Canada appointed?

Which statement best defines barter?

Which of the following is included in M1+?

Which statement best describes the outcomes of a decrease in reserve requirements?

-Refer to Table 10-2. If the reserve requirement is 10 percent and then someone deposits $50,000 into the bank, what is the bank's reserve position?

The Bank of Canada is run by the Board of Directors, which is appointed by the Minister of Finance.

Suppose that the reserve ratio is 9 percent and that a bank has $3000 in deposits. What are its required reserves?

Suppose the value of bank notes issued by the Bank of Canada last year was $56 billion, while the money supply (M2+) was about $1.3 trillion. a. Assuming that half of the bank note value is in the hands of the population and the other half is in banks' reserves, what must have been the money multiplier? b. What is the average bank reserve ratio corresponding to the money multiplier calculated in part a? c. Now, let us assume that people hold one-tenth of their money (cash plus deposits) in cash and nine-tenths in bank deposits. With the reserve ratio calculated above, what is the value of the bank notes in the banks' reserves? d. What is the value of the bank notes in circulation if the bank reserves are equal to the number you calculated in part c?

-Refer to Table 10-3. Assume that the Bank of Kamloops is holding the required percent of deposits as reserves. Also, assume all other banks hold only the required percent of deposits as reserves, and that people hold only deposits and no currency. What is the money multiplier?

If the reserve ratio is 5 percent, how much is the money multiplier?

When the Bank of Canada wants to change the money supply, what does it most frequently do?

On average, Americans have almost twice as much currency as Canadians. What is the most plausible reason for this?

Which of the following is included in M2?