Question 1

The multiple by which the chartered banking system can expand the supply of money on the basis of excess reserves:

Accepted Answer

A) is larger the smaller the desired reserve ratio. 
B) is the reciprocal of the bank's actual reserves. 
C) is directly or positively related to the size of the desired reserve ratio. 
D) will be zero when the desired reserve ratio is 50 percent. 
A) is larger the smaller the desired reserve ratio. 
B) is the reciprocal of the bank's actual reserves. 
C) is directly or positively related to the size of the desired reserve ratio. 
D) will be zero when the desired reserve ratio is 50 percent.

Question 2

The following is a consolidated balance sheet for the chartered banking system.All figures are in billions.Assume that the desired reserve ratio is 20 percent.   Refer to the above information.The amount of excess reserves is:

Accepted Answer

A) $20 billion. 
B) $60 billion. 
C) $120 billion. 
D) $600 billion. 
A) $20 billion. 
B) $60 billion. 
C) $120 billion. 
D) $600 billion.

Question 3

The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent.   Refer to the above information.This bank can safely expand its loans by a maximum of:

Accepted Answer

A) $7,000 
B) $25,000 
C) $12,000 
D) $5,000 
A) $7,000 
B) $25,000 
C) $12,000 
D) $5,000

Question 4

Which of the following statements is not correct?

Accepted Answer

A) The actual cash reserves of a chartered bank equal its excess plus its desired reserves. 
B) A bank's assets plus its net worth equal its liabilities. 
C) When borrowers repay bank loans, the supply of money is reduced. 
D) A single chartered bank can safely lend an amount equal to its excess reserves. 
A) The actual cash reserves of a chartered bank equal its excess plus its desired reserves. 
B) A bank's assets plus its net worth equal its liabilities. 
C) When borrowers repay bank loans, the supply of money is reduced. 
D) A single chartered bank can safely lend an amount equal to its excess reserves.

Question 5

Mortgage-backed securities are:

Accepted Answer

A) stocks backed by mortgage payments. 
B) bonds backed by mortgage payments. 
C) homes that are backed by mortgage payments. 
D) mortgages that are backed by the government. 
A) stocks backed by mortgage payments. 
B) bonds backed by mortgage payments. 
C) homes that are backed by mortgage payments. 
D) mortgages that are backed by the government.

Question 6

The basic reason why the chartered banking system can increase its demand deposits by a multiple of its excess reserves is that:

Accepted Answer

A) reserves lost by any particular bank will be gained by some other bank. 
B) the central banks follow policies that prevent reserves from falling below the level required by law. 
C) the MPC of borrowers is greater than zero, but less than 1. 
D) the banking system must keep reserves equal to 100 percent of its demand-deposit liabilities. 
A) reserves lost by any particular bank will be gained by some other bank. 
B) the central banks follow policies that prevent reserves from falling below the level required by law. 
C) the MPC of borrowers is greater than zero, but less than 1. 
D) the banking system must keep reserves equal to 100 percent of its demand-deposit liabilities.

Question 7

If the desired reserve ratio were 15 percent, the value of the monetary multiplier would be:

Accepted Answer

A) 5.50. 
B) 6.67. 
C) 7.32. 
D) 8.54. 
A) 5.50. 
B) 6.67. 
C) 7.32. 
D) 8.54.

Question 8

If you write a cheque on a bank in Saskatoon to purchase a new Nissan Murano, you are employing 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 9

When we say that money serves as a store of value, we mean that it is:

Accepted Answer

A) a way to keep some of our wealth in a readily spendable form for future use. 
B) a means of payment. 
C) a monetary unit for measuring and comparing the relative values of goods. 
D) declared as legal tender by the government. 
A) a way to keep some of our wealth in a readily spendable form for future use. 
B) a means of payment. 
C) a monetary unit for measuring and comparing the relative values of goods. 
D) declared as legal tender by the government.

Question 10

Assume that Smith deposits $600 in currency in the XYZ Bank.Later that same day Jones negotiates a loan for $1,200 at the same bank.In what direction and by what amount has this single transaction changed the supply of money?

Accepted Answer

A) decreased by $1,200 
B) increased by $1,200 
C) increased by $600 
D) increased by $1,800 
A) decreased by $1,200 
B) increased by $1,200 
C) increased by $600 
D) increased by $1,800

Question 11

Suppose a chartered bank has demand deposits of $500,000 and the desired reserve ratio is 10 percent.If the institution has excess reserves of $4,000, then its actual cash reserves are:

Accepted Answer

A) $46,000 
B) $50,000 
C) $4,000 
D) $54,000 
A) $46,000 
B) $50,000 
C) $4,000 
D) $54,000

Question 12

Refer to the above information.The value of the dollar in year 2 is:

Accepted Answer

A) $1.25. 
B) $1.33. 
C) $.80. 
D) $1.00. 
A) $1.25. 
B) $1.33. 
C) $.80. 
D) $1.00.

Question 13

When a borrower repays a loan of $4000, either in cash or by cheque, the supply of money is reduced by $4000.

Accepted Answer

A) True 
 B)False

Question 14

Refer to the above information for a single chartered bank.When the desired reserve ratio is 30 percent, the money multiplier is:

Accepted Answer

A) 5. 
B) 4. 
C) 3.33. 
D) 2.5. 
A) 5. 
B) 4. 
C) 3.33. 
D) 2.5.

Question 15

The paper money used in Canada is:

Accepted Answer

A) National Bank notes. 
B) Treasury notes of 1890. 
C) Canada notes. 
D) Bank of Canada notes. 
A) National Bank notes. 
B) Treasury notes of 1890. 
C) Canada notes. 
D) Bank of Canada notes.

Question 16

Which of the following describes the fundamental identity embodied in a balance sheet?

Accepted Answer

A) Net Worth plus Assets equal Liabilities 
B) Assets plus Liabilities equal Net Worth 
C) Assets equal Liabilities plus Net Worth 
D) Assets plus Reserves equal Net Worth 
A) Net Worth plus Assets equal Liabilities 
B) Assets plus Liabilities equal Net Worth 
C) Assets equal Liabilities plus Net Worth 
D) Assets plus Reserves equal Net Worth

Question 17

The goldsmith's ability to create money was based on the fact that:

Accepted Answer

A) withdrawals of gold tended to exceed deposits of gold in any given time period. 
B) consumers and merchants preferred to use gold for transactions, rather than paper money. 
C) the goldsmith was required to keep 100 percent gold reserves. 
D) paper money was rarely redeemed for gold. 
A) withdrawals of gold tended to exceed deposits of gold in any given time period. 
B) consumers and merchants preferred to use gold for transactions, rather than paper money. 
C) the goldsmith was required to keep 100 percent gold reserves. 
D) paper money was rarely redeemed for gold.

Question 18

The two basic functions of the Canadian chartered banks and saving institutions are:

Accepted Answer

A) making loans to the public and the federal government. 
B) holding the money deposits of businesses and households, and making loans to the public. 
C) holding the money deposits of businesses and households, and lending to the federal government. 
D) creating money and lending to the federal government. 
A) making loans to the public and the federal government. 
B) holding the money deposits of businesses and households, and making loans to the public. 
C) holding the money deposits of businesses and households, and lending to the federal government. 
D) creating money and lending to the federal government.

Question 19

When we say that money serves as a unit of account, we mean that it is:

Accepted Answer

A) a way to keep some of our wealth in a readily spendable form for future use. 
B) a means of payment. 
C) a monetary unit for measuring and comparing the relative values of goods. 
D) declared as legal tender by the government. 
A) a way to keep some of our wealth in a readily spendable form for future use. 
B) a means of payment. 
C) a monetary unit for measuring and comparing the relative values of goods. 
D) declared as legal tender by the government.

Question 20

A single chartered bank has a desired reserve ratio of 25 percent.If the bank has no excess reserves initially and $5,000 cash is deposited in the bank, it can increase its loans by a maximum of:

Accepted Answer

A) $1,250 
B) $120,000 
C) $5,000 
D) $3,750 
A) $1,250 
B) $120,000 
C) $5,000 
D) $3,750

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

The multiple by which the chartered banking system can expand the supply of money on the basis of excess reserves:

The following is a consolidated balance sheet for the chartered banking system.All figures are in billions.Assume that the desired reserve ratio is 20 percent. Refer to the above information.The amount of excess reserves is:

The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent. Refer to the above information.This bank can safely expand its loans by a maximum of:

Which of the following statements is not correct?

Mortgage-backed securities are:

The basic reason why the chartered banking system can increase its demand deposits by a multiple of its excess reserves is that:

If the desired reserve ratio were 15 percent, the value of the monetary multiplier would be:

If you write a cheque on a bank in Saskatoon to purchase a new Nissan Murano, you are employing money as:

When we say that money serves as a store of value, we mean that it is:

Assume that Smith deposits $600 in currency in the XYZ Bank.Later that same day Jones negotiates a loan for $1,200 at the same bank.In what direction and by what amount has this single transaction changed the supply of money?

Suppose a chartered bank has demand deposits of $500,000 and the desired reserve ratio is 10 percent.If the institution has excess reserves of $4,000, then its actual cash reserves are:

Refer to the above information.The value of the dollar in year 2 is:

When a borrower repays a loan of $4000, either in cash or by cheque, the supply of money is reduced by $4000.

Refer to the above information for a single chartered bank.When the desired reserve ratio is 30 percent, the money multiplier is:

The paper money used in Canada is:

Which of the following describes the fundamental identity embodied in a balance sheet?

The goldsmith's ability to create money was based on the fact that:

The two basic functions of the Canadian chartered banks and saving institutions are:

When we say that money serves as a unit of account, we mean that it is:

A single chartered bank has a desired reserve ratio of 25 percent.If the bank has no excess reserves initially and $5,000 cash is deposited in the bank, it can increase its loans by a maximum of:

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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