Question 1

The amount that a chartered bank can lend is determined by its:

Accepted Answer

A) desired reserves. 
B) excess reserves. 
C) outstanding loans. 
D) outstanding demand deposits. 
A) desired reserves. 
B) excess reserves. 
C) outstanding loans. 
D) outstanding demand deposits.

Question 2

If the desired reserve ratio falls:

Accepted Answer

A) banks would be prompted to reduce their lending. 
B) the size of the money multiplier would increase. 
C) the actual reserves of banks would increase. 
D) none of the above would occur. 
A) banks would be prompted to reduce their lending. 
B) the size of the money multiplier would increase. 
C) the actual reserves of banks would increase. 
D) none of the above would occur.

Question 3

If the desired reserve ratio were 100 percent, the value of the money multiplier would be:

Accepted Answer

A) 0 
B) 1 
C) 10 
D) 100 
A) 0 
B) 1 
C) 10 
D) 100

Question 4

If the price index rises from 100 to 120, the value of the dollar:

Accepted Answer

A) may either rise or fall. 
B) will rise by 16.67 percent. 
C) will fall by 16.67 percent. 
D) will rise by 20 percent. 
A) may either rise or fall. 
B) will rise by 16.67 percent. 
C) will fall by 16.67 percent. 
D) will rise by 20 percent.

Question 5

The following is information about a banking system: new currency deposited in the system = $40 billion; desired reserve ratio = 20%; excess reserves prior to the new currency deposit = $0.Refer to the above information.The banking system will be able to expand the money supply through loans by:

Accepted Answer

A) $160 billion. 
B) $200 billion. 
C) $40 billion. 
D) $128 billion. 
A) $160 billion. 
B) $200 billion. 
C) $40 billion. 
D) $128 billion.

Question 6

When a bank loan is repaid the supply of money:

Accepted Answer

A) is constant, but its composition will have changed. 
B) is decreased. 
C) is increased. 
D) may either increase or decrease. 
A) is constant, but its composition will have changed. 
B) is decreased. 
C) is increased. 
D) may either increase or decrease.

Question 7

Balance sheets always balance because assets must always equal liabilities plus net worth.

Accepted Answer

A) True 
 B)False

Question 8

When chartered banks retire outstanding loans, the supply of money is increased.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following are all assets to a chartered bank?

Accepted Answer

A) demand deposits, stock shares, and reserves 
B) vault cash, property, and reserves 
C) vault cash, property, and stock shares 
D) vault cash, stock shares, and demand deposits 
A) demand deposits, stock shares, and reserves 
B) vault cash, property, and reserves 
C) vault cash, property, and stock shares 
D) vault cash, stock shares, and demand deposits

Question 10

The amount of money reported as M2:

Accepted Answer

A) is smaller than the amount reported as M1. 
B) is larger than the amount reported as M1. 
C) excludes coins and currency. 
D) includes nonpersonal fixed-term deposits of residents booked in Canada. 
A) is smaller than the amount reported as M1. 
B) is larger than the amount reported as M1. 
C) excludes coins and currency. 
D) includes nonpersonal fixed-term deposits of residents booked in Canada.

Question 11

A chartered bank has demand-deposit liabilities of $500,000, cash reserves of $150,000, and a desired reserve ratio of 20 percent.The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

Accepted Answer

A) $30,000 and $150,000. 
B) $50,000 and $250,000. 
C) $50,000 and $500,000. 
D) $100,000 and $500,000. 
A) $30,000 and $150,000. 
B) $50,000 and $250,000. 
C) $50,000 and $500,000. 
D) $100,000 and $500,000.

Question 12

Henry Trudeau deposits $2,000 in currency in the First Street Bank.Later that same day Jane Harris negotiates a loan for $5,400 at the same bank.This loan alone will:

Accepted Answer

A) increase the supply of money by $2,100. 
B) increase the supply of money by $3,300. 
C) increase the supply of money by $5,400. 
D) decrease the supply of money by $3,300. 
A) increase the supply of money by $2,100. 
B) increase the supply of money by $3,300. 
C) increase the supply of money by $5,400. 
D) decrease the supply of money by $3,300.

Question 13

Demand deposits are also called:

Accepted Answer

A) chequing accounts. 
B) high-powered money. 
C) savings balances. 
D) Bank of Canada notes. 
A) chequing accounts. 
B) high-powered money. 
C) savings balances. 
D) Bank of Canada notes.

Question 14

If you are estimating your total expenses for school next semester, you are using money as:

Accepted Answer

A) a medium of exchange. 
B) a store of value. 
C) a unit of account. 
D) all of the above. 
A) a medium of exchange. 
B) a store of value. 
C) a unit of account. 
D) all of the above.

Question 15

A cheque for $10,000 drawn on Bank A by a depositor and deposited in Bank B will increase the excess reserves in Bank B by $10,000.

Accepted Answer

A) True 
 B)False

Question 16

Refer to the information below.The M1 definition of money comprises item(s): 1.Foreign currency deposits of residents booked in Canada
2)Personal savings deposits
3)Currency (coins and paper money)
4)Demand deposits
5)Government securities
6)Nonpersonal notice deposits

Accepted Answer

A) 3 only. 
B) 2, 3, and 6. 
C) 3 and 4. 
D) 3, 4, and 6. 
A) 3 only. 
B) 2, 3, and 6. 
C) 3 and 4. 
D) 3, 4, and 6.

Question 17

Banks create money when they:

Accepted Answer

A) add to their reserves in the Bank of Canada. 
B) accept deposits of cash. 
C) sell government bonds. 
D) exchange demand deposits for the IOUs of businesses and individuals. 
A) add to their reserves in the Bank of Canada. 
B) accept deposits of cash. 
C) sell government bonds. 
D) exchange demand deposits for the IOUs of businesses and individuals.

Question 18

What is one significant characteristic of fractional reserve banking?

Accepted Answer

A) Banks are not subject to "panics" or "runs." 
B) Banks use deposit insurance for loans to customers. 
C) Bank loans will be equal to the amount of gold on deposit. 
D) Banks can create money through lending their reserves. 
A) Banks are not subject to "panics" or "runs." 
B) Banks use deposit insurance for loans to customers. 
C) Bank loans will be equal to the amount of gold on deposit. 
D) Banks can create money through lending their reserves.

Question 19

The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent.   Refer to the above data.If a cheque for $14,000 is drawn and cleared against this bank, its reserves and demand deposits will be, respectively:

Accepted Answer

A) $50,000 and $120,000. 
B) $50,000 and $106,000. 
C) $36,000 and $120,000. 
D) $36,000 and $106,000. 
A) $50,000 and $120,000. 
B) $50,000 and $106,000. 
C) $36,000 and $120,000. 
D) $36,000 and $106,000.

Question 20

If we let P equal the price level expressed as an index number and D equal the value of the dollar, then we can say that:

Accepted Answer

A) P = D - 1. 
B) D = 1/P. 
C) 1 = D/P. 
D) D = P - 1. 
A) P = D - 1. 
B) D = 1/P. 
C) 1 = D/P. 
D) D = P - 1.

Exam 14: B: Money, Banking, and Money Creation

The amount that a chartered bank can lend is determined by its:

If the desired reserve ratio falls:

If the desired reserve ratio were 100 percent, the value of the money multiplier would be:

If the price index rises from 100 to 120, the value of the dollar:

The following is information about a banking system: new currency deposited in the system = $40 billion; desired reserve ratio = 20%; excess reserves prior to the new currency deposit = $0.Refer to the above information.The banking system will be able to expand the money supply through loans by:

When a bank loan is repaid the supply of money:

Balance sheets always balance because assets must always equal liabilities plus net worth.

When chartered banks retire outstanding loans, the supply of money is increased.

Which of the following are all assets to a chartered bank?

The amount of money reported as M2:

A chartered bank has demand-deposit liabilities of $500,000, cash reserves of $150,000, and a desired reserve ratio of 20 percent.The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

Henry Trudeau deposits $2,000 in currency in the First Street Bank.Later that same day Jane Harris negotiates a loan for $5,400 at the same bank.This loan alone will:

Demand deposits are also called:

If you are estimating your total expenses for school next semester, you are using money as:

A cheque for $10,000 drawn on Bank A by a depositor and deposited in Bank B will increase the excess reserves in Bank B by $10,000.

Refer to the information below.The M1 definition of money comprises item(s): 1.Foreign currency deposits of residents booked in Canada 2)Personal savings deposits 3)Currency (coins and paper money) 4)Demand deposits 5)Government securities 6)Nonpersonal notice deposits

Banks create money when they:

What is one significant characteristic of fractional reserve banking?

The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent. Refer to the above data.If a cheque for $14,000 is drawn and cleared against this bank, its reserves and demand deposits will be, respectively:

If we let P equal the price level expressed as an index number and D equal the value of the dollar, then we can say that:

B: Limits, Alternatives, and Choices

A: - Limits, Alternatives, and Choices

B: The Market System and the Circular Flow

A: - The Market System and the Circular Flow

B: Demand, Supply, and Market Equilibrium

A: - Demand, Supply, and Market Equilibrium

B: Market Failures: Public Goods and Externalities

A: - Market Failures: Public Goods and Externalities

B: Governments Role and Government Failure

A: Governments Role and Government Failure

B: an Introduction to Macroeconomics

A: an Introduction to Macroeconomics

B: Measuring the Economys Output

A: Measuring the Economys Output

B: Economic Growth

A: Economic Growth

B: Business Cycles, Unemployment, and Inflation

A: Business Cycles, Unemployment, and Inflation

B: Basic Macroeconomic Relationships

A: Basic Macroeconomic Relationships

B: The Aggregate Expenditures Model

A: The Aggregate Expenditures Model

B: Aggregate Demand and Aggregate Supply

A: Aggregate Demand and Aggregate Supply

B: Fiscal Policy, Deficits, Surpluses, and Debt

A: Fiscal Policy, Deficits, Surpluses, and Debt

A: Money, Banking, and Money Creation

B: Interest Rates and Monetary Policy

A: Interest Rates and Monetary Policy

C: Financial Economics

A: Long-Run Macroeconomic Adjustments

B: Long-Run Macroeconomic Adjustments

A: International Trade

B: International Trade

A: The Balance of Payments and Exchange Rates

B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

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