Question 1

When the nominal interest rate rises,the opportunity cost of holding money ________.

Accepted Answer

A) rises and people hold more money 
B) falls and people hold more money 
C) falls and people hold less money 
D) rises and people hold less money 
E) does not change 
A) rises and people hold more money 
B) falls and people hold more money 
C) falls and people hold less money 
D) rises and people hold less money 
E) does not change

Question 2

Use the information below to answer the following questions.
Fact 24.3.2
The Bank of Hobbiton has chosen the following initial balance sheet:
  
-Refer to Fact 24.3.2.Based on the Bank of Hobbiton's initial balance sheet,what is its desired reserve ratio?

Accepted Answer

A) 10 percent 
B) 100 percent 
C) 20 percent 
D) 5 percent 
E) not calculable with the available information 
A) 10 percent 
B) 100 percent 
C) 20 percent 
D) 5 percent 
E) not calculable with the available information

Question 3

Use the figure below to answer the following questions.
   
Figure 24.4.1
-Refer to Figure 24.4.1.Everything else remaining the same,which graph best shows a decrease in real GDP?

Accepted Answer

A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) (a)and (c) 
A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) (a)and (c)

Question 4

Using a credit card can best be likened to

Accepted Answer

A) taking out a loan. 
B) a barter exchange. 
C) using any other form of money, because you can immediately take the goods you purchase home. 
D) writing a cheque on your chequable deposit. 
E) withdrawing money from a savings account. 
A) taking out a loan. 
B) a barter exchange. 
C) using any other form of money, because you can immediately take the goods you purchase home. 
D) writing a cheque on your chequable deposit. 
E) withdrawing money from a savings account.

Question 5

The money multiplier will decrease if the currency drain ratio

Accepted Answer

A) increases or the desired reserve ratio increases. 
B) decreases or the desired reserve ratio decreases. 
C) decreases or the desired reserve ratio increases. 
D) increases or the desired reserve ratio decreases. 
E) decreases and the monetary base increases. 
A) increases or the desired reserve ratio increases. 
B) decreases or the desired reserve ratio decreases. 
C) decreases or the desired reserve ratio increases. 
D) increases or the desired reserve ratio decreases. 
E) decreases and the monetary base increases.

Question 6

Which of the following assets is the most liquid?

Accepted Answer

A) a Canada Savings Bond 
B) a credit card 
C) a house 
D) cash 
E) a line of credit 
A) a Canada Savings Bond 
B) a credit card 
C) a house 
D) cash 
E) a line of credit

Question 7

Money's function as a store of value can best be described as

Accepted Answer

A) an agreed measure for stating the prices of goods and services. 
B) a guarantee of a double coincidence of wants. 
C) an efficient means of writing contracts over a long time period. 
D) something that can be held and exchanged later for goods and services. 
E) a generally acceptable exchange system. 
A) an agreed measure for stating the prices of goods and services. 
B) a guarantee of a double coincidence of wants. 
C) an efficient means of writing contracts over a long time period. 
D) something that can be held and exchanged later for goods and services. 
E) a generally acceptable exchange system.

Question 8

Whenever desired reserves exceed actual reserves,the bank

Accepted Answer

A) can make new loans. 
B) will call in loans. 
C) will go out of business. 
D) is in a profit-making position. 
E) has excess reserves. 
A) can make new loans. 
B) will call in loans. 
C) will go out of business. 
D) is in a profit-making position. 
E) has excess reserves.

Question 9

Which one of the following is not a service of depository institutions?

Accepted Answer

A) Lowering the cost of borrowing. 
B) Providing a place for reserve account deposits. 
C) Pooling risk. 
D) Creating liquidity. 
E) Lowering the cost of monitoring borrowers. 
A) Lowering the cost of borrowing. 
B) Providing a place for reserve account deposits. 
C) Pooling risk. 
D) Creating liquidity. 
E) Lowering the cost of monitoring borrowers.

Question 10

Which of the following best fits the definition of money?

Accepted Answer

A) gold 
B) any commodity or token that is generally acceptable as a means of payment 
C) an obligation between the parties to a transaction 
D) any unit of account 
E) any medium of exchange 
A) gold 
B) any commodity or token that is generally acceptable as a means of payment 
C) an obligation between the parties to a transaction 
D) any unit of account 
E) any medium of exchange

Question 11

The ratio of currency to deposits is the

Accepted Answer

A) currency drain ratio. 
B) excess reserve ratio. 
C) monetary reserve ratio. 
D) reserve ratio. 
E) currency ratio. 
A) currency drain ratio. 
B) excess reserve ratio. 
C) monetary reserve ratio. 
D) reserve ratio. 
E) currency ratio.

Question 12

The opportunity cost of holding money increases when the

Accepted Answer

A) purchasing power of money increases. 
B) nominal interest rate rises. 
C) price of goods and services decrease. 
D) income of consumers increases. 
E) income of consumers decreases. 
A) purchasing power of money increases. 
B) nominal interest rate rises. 
C) price of goods and services decrease. 
D) income of consumers increases. 
E) income of consumers decreases.

Question 13

Which of the following is not considered money in Canada today?

Accepted Answer

A) deposits at credit unions 
B) bank of Canada notes 
C) deposits at banks 
D) coins 
E) debit cards 
A) deposits at credit unions 
B) bank of Canada notes 
C) deposits at banks 
D) coins 
E) debit cards

Question 14

The money creation process begins when

Accepted Answer

A) desired reserves increase because of an increase in deposits. 
B) the quantity of money increases. 
C) banks have excess reserves. 
D) bank deposits increase. 
E) banks lend reserves. 
A) desired reserves increase because of an increase in deposits. 
B) the quantity of money increases. 
C) banks have excess reserves. 
D) bank deposits increase. 
E) banks lend reserves.

Question 15

A private firm that takes deposits from households and firms and makes loans to other households and firms is

Accepted Answer

A) a usurer. 
B) a depository institution. 
C) a credit company. 
D) a stockbroker. 
E) an insurance company. 
A) a usurer. 
B) a depository institution. 
C) a credit company. 
D) a stockbroker. 
E) an insurance company.

Question 16

Suppose that people decide to hold more money as cash.Which statement best illustrates the impact of this action on the money multiplier? The money multiplier

Accepted Answer

A) decreases because of the decrease in the currency drain ratio. 
B) increases because of the decrease in the currency drain ratio. 
C) increases because of a decrease in deposits. 
D) increases because of the increase in the currency drain ratio. 
E) decreases because of the increase in the currency drain ratio. 
A) decreases because of the decrease in the currency drain ratio. 
B) increases because of the decrease in the currency drain ratio. 
C) increases because of a decrease in deposits. 
D) increases because of the increase in the currency drain ratio. 
E) decreases because of the increase in the currency drain ratio.

Question 17

If Wolfgang transfers $1,000 out of his non-chequable deposit account and places it in his chequable deposit account,

Accepted Answer

A) M1 and M2 fall. 
B) M1 falls and M2 rises. 
C) M1 falls and M3 rises. 
D) M1 falls and M2 remains the same. 
E) M1 rises and M2 remains the same. 
A) M1 and M2 fall. 
B) M1 falls and M2 rises. 
C) M1 falls and M3 rises. 
D) M1 falls and M2 remains the same. 
E) M1 rises and M2 remains the same.

Question 18

Suppose that the interest rate is greater than the equilibrium interest rate.Which of the following statements is true?
I.There is an excess quantity of money.
II.The quantity of money automatically increases.
III.The interest rate falls.

Accepted Answer

A) I only 
B) II only 
C) III only 
D) I and III only 
E) None of the above statements are true. 
A) I only 
B) II only 
C) III only 
D) I and III only 
E) None of the above statements are true.

Question 19

Which of the following does not affect the size of the monetary base?

Accepted Answer

A) the amount of notes issued by the Bank of Canada 
B) the amount of loans issued by chartered banks 
C) the amount of coins issued by the Canadian Mint 
D) the amount of chartered bank deposits at the Bank of Canada 
E) none of the above 
A) the amount of notes issued by the Bank of Canada 
B) the amount of loans issued by chartered banks 
C) the amount of coins issued by the Canadian Mint 
D) the amount of chartered bank deposits at the Bank of Canada 
E) none of the above

Question 20

Suppose that the desired reserve ratio is 0.25 and the currency drain ratio is 0.25.The money multiplier is

Accepted Answer

A) 1.71. 
B) 2.50. 
C) 2.40. 
D) 1.40. 
E) 2.08. 
A) 1.71. 
B) 2.50. 
C) 2.40. 
D) 1.40. 
E) 2.08.

Exam 24: Money, the Price Level, and Inflation

When the nominal interest rate rises,the opportunity cost of holding money ________.

Use the information below to answer the following questions. Fact 24.3.2 The Bank of Hobbiton has chosen the following initial balance sheet: -Refer to Fact 24.3.2.Based on the Bank of Hobbiton's initial balance sheet,what is its desired reserve ratio?

Use the figure below to answer the following questions. Figure 24.4.1 -Refer to Figure 24.4.1.Everything else remaining the same,which graph best shows a decrease in real GDP?

Using a credit card can best be likened to

The money multiplier will decrease if the currency drain ratio

Which of the following assets is the most liquid?

Money's function as a store of value can best be described as

Whenever desired reserves exceed actual reserves,the bank

Which one of the following is not a service of depository institutions?

Which of the following best fits the definition of money?

The ratio of currency to deposits is the

The opportunity cost of holding money increases when the

Which of the following is not considered money in Canada today?

The money creation process begins when

A private firm that takes deposits from households and firms and makes loans to other households and firms is

Suppose that people decide to hold more money as cash.Which statement best illustrates the impact of this action on the money multiplier? The money multiplier

If Wolfgang transfers $1,000 out of his non-chequable deposit account and places it in his chequable deposit account,

Suppose that the interest rate is greater than the equilibrium interest rate.Which of the following statements is true? I.There is an excess quantity of money. II.The quantity of money automatically increases. III.The interest rate falls.

Which of the following does not affect the size of the monetary base?

Suppose that the desired reserve ratio is 0.25 and the currency drain ratio is 0.25.The money multiplier is

What Is Economics?

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring GDP and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: The Keynesian Model

Canadian Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

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