Question 1

The cause of the skyrocketing mortgage default rates was:

Accepted Answer

A) government programs that encouraged and subsidized home ownership for renters. 
B) declining real estate values. 
C) bad incentives provided by mortgage-backed bonds. 
D) all of the above. 
A) government programs that encouraged and subsidized home ownership for renters. 
B) declining real estate values. 
C) bad incentives provided by mortgage-backed bonds. 
D) all of the above.

Question 2

The money multiplier formula is:

Accepted Answer

A) 1/Desired reserve ratio. 
B) 1/Excess cash reserves. 
C) 1/Bank deposits. 
D) 1/Money supply. 
A) 1/Desired reserve ratio. 
B) 1/Excess cash reserves. 
C) 1/Bank deposits. 
D) 1/Money supply.

Question 3

Most modern banking systems are based on:

Accepted Answer

A) money of intrinsic value. 
B) commodity money. 
C) 100 percent reserves. 
D) fractional reserves. 
A) money of intrinsic value. 
B) commodity money. 
C) 100 percent reserves. 
D) fractional reserves.

Question 4

Near-monies are important:

Accepted Answer

A) because they are likely to affect the level of consumer spending. 
B) because they can be converted into chequable deposits and thereby affect macroeconomic stability. 
C) because they complicate defining money and therefore complicate the formulation of monetary policy. 
D) for all of the above reasons. 
A) because they are likely to affect the level of consumer spending. 
B) because they can be converted into chequable deposits and thereby affect macroeconomic stability. 
C) because they complicate defining money and therefore complicate the formulation of monetary policy. 
D) for all of the above reasons.

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 total demand deposit after the expansion of the money supply through loans is:

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

Demand deposits are:

Accepted Answer

A) debts of chartered banks and other financial institutions. 
B) debts of the Bank of Canada. 
C) credits of the Bank of Canada. 
D) credits of chartered banks and other financial institutions. 
A) debts of chartered banks and other financial institutions. 
B) debts of the Bank of Canada. 
C) credits of the Bank of Canada. 
D) credits of chartered banks and other financial institutions.

Question 7

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 $20,000 is drawn and cleared against this bank, it will have excess reserves of:

Accepted Answer

A) $15,000 
B) $20,000 
C) $25,000 
D) $30,000 
A) $15,000 
B) $20,000 
C) $25,000 
D) $30,000

Question 8

Fiat money refers to "near-monies."

Accepted Answer

A) True 
 B)False

Question 9

A bank is in the position to make loans when desired reserve:

Accepted Answer

A) equal cash actual reserves. 
B) equal excess reserves. 
C) are less than actual cash reserves. 
D) are greater than actual cash reserves. 
A) equal cash actual reserves. 
B) equal excess reserves. 
C) are less than actual cash reserves. 
D) are greater than actual cash reserves.

Question 10

Other things equal, we would expect an excessive increase in the supply of money to:

Accepted Answer

A) increase the purchasing power of each dollar. 
B) decrease the purchasing power of each dollar. 
C) have no impact upon the purchasing power of the dollar. 
D) cause the price level to fall. 
A) increase the purchasing power of each dollar. 
B) decrease the purchasing power of each dollar. 
C) have no impact upon the purchasing power of the dollar. 
D) cause the price level to fall.

Question 11

If you deposit a $50 bill in a chartered bank that has a 10 percent desired reserve ratio, the bank will:

Accepted Answer

A) have $45 of additional excess reserves. 
B) be capable of lending an additional $500. 
C) be capable of lending an additional $50. 
D) have $50 of desired reserves. 
A) have $45 of additional excess reserves. 
B) be capable of lending an additional $500. 
C) be capable of lending an additional $50. 
D) have $50 of desired reserves.

Question 12

Banks create money when they:

Accepted Answer

A) allow loans to mature. 
B) accept deposits of cash. 
C) sell government bonds from households. 
D) buy government bonds from households. 
A) allow loans to mature. 
B) accept deposits of cash. 
C) sell government bonds from households. 
D) buy government bonds from households.

Question 13

The currency owned by chartered banks is included in the money supply.

Accepted Answer

A) True 
 B)False

Question 14

One major advantage of the medium of exchange function of money is that it allows society to:

Accepted Answer

A) transfer purchasing power from the present to the future. 
B) measure the relative worth of products. 
C) escape the complications of barter. 
D) use credit cards instead of currency. 
A) transfer purchasing power from the present to the future. 
B) measure the relative worth of products. 
C) escape the complications of barter. 
D) use credit cards instead of currency.

Question 15

The relative importance of various asset items on a chartered bank's balance sheet reflects a bank's pursuit of which two conflicting goals?

Accepted Answer

A) profits and risk 
B) liquidity and profits 
C) assets and liabilities 
D) buying and selling government securities 
A) profits and risk 
B) liquidity and profits 
C) assets and liabilities 
D) buying and selling government securities

Question 16

Refer to the information below.When the desired reserve ratio is 10 percent, the money creating potential of this single bank is:

Accepted Answer

A) zero dollars. 
B) $6,000 
C) $30,000 
D) $60,000 
A) zero dollars. 
B) $6,000 
C) $30,000 
D) $60,000

Question 17

When we say that money serves as a medium of exchange, 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 18

Coins and paper money are:

Accepted Answer

A) debts of Chartered banks and savings institutions. 
B) debts of the Bank of Canada. 
C) credits of the Bank of Canada. 
D) credits of chartered banks and savings institutions. 
A) debts of Chartered banks and savings institutions. 
B) debts of the Bank of Canada. 
C) credits of the Bank of Canada. 
D) credits of chartered banks and savings institutions.

Question 19

Chartered banks create money in the form of chequable deposits when they make loans.

Accepted Answer

A) True 
 B)False

Question 20

A chartered bank's desired reserve can be calculated by:

Accepted Answer

A) dividing its excess reserves by its desired reserve. 
B) dividing its desired reserve by its excess reserves. 
C) multiplying its demand-deposit liabilities by the reserve ratio. 
D) multiplying its demand-deposit liabilities by its excess reserves. 
A) dividing its excess reserves by its desired reserve. 
B) dividing its desired reserve by its excess reserves. 
C) multiplying its demand-deposit liabilities by the reserve ratio. 
D) multiplying its demand-deposit liabilities by its excess reserves.

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

The cause of the skyrocketing mortgage default rates was:

The money multiplier formula is:

Most modern banking systems are based on:

Near-monies are important:

Demand deposits are:

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 $20,000 is drawn and cleared against this bank, it will have excess reserves of:

Fiat money refers to "near-monies."

A bank is in the position to make loans when desired reserve:

Other things equal, we would expect an excessive increase in the supply of money to:

If you deposit a $50 bill in a chartered bank that has a 10 percent desired reserve ratio, the bank will:

Banks create money when they:

The currency owned by chartered banks is included in the money supply.

One major advantage of the medium of exchange function of money is that it allows society to:

The relative importance of various asset items on a chartered bank's balance sheet reflects a bank's pursuit of which two conflicting goals?

Refer to the information below.When the desired reserve ratio is 10 percent, the money creating potential of this single bank is:

When we say that money serves as a medium of exchange, we mean that it is:

Coins and paper money are:

Chartered banks create money in the form of chequable deposits when they make loans.

A chartered bank's desired reserve can be calculated by:

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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