Question 1

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 E

Question 2

The quantity theory of money begins with the equation of exchange, MV = PY, and then adds the assumptions that

Accepted Answer

A) velocity varies inversely with the interest rate, and the price level is independent of the quantity of money. 
B) velocity and the price level are independent of the quantity of money. 
C) potential GDP and the quantity of money are independent of the price level. 
D) potential GDP and the price level are independent of the quantity of money. 
E) velocity and potential GDP are independent of the quantity of money. 
A) velocity varies inversely with the interest rate, and the price level is independent of the quantity of money. 
B) velocity and the price level are independent of the quantity of money. 
C) potential GDP and the quantity of money are independent of the price level. 
D) potential GDP and the price level are independent of the quantity of money. 
E) velocity and potential GDP are independent of the quantity of money. E

Question 3

Pooling risk

Accepted Answer

A) refers to a default contract made by a bank to other banks. 
B) refers to spreading the risk of loan default among all the depositors within the depository institution. 
C) is now illegal under the Nuisance Act of 2014. 
D) occurs when one person lends to an entire group or pool of borrowers. 
E) refers to the lower cost of obtaining funds from a depository institution. 
A) refers to a default contract made by a bank to other banks. 
B) refers to spreading the risk of loan default among all the depositors within the depository institution. 
C) is now illegal under the Nuisance Act of 2014. 
D) occurs when one person lends to an entire group or pool of borrowers. 
E) refers to the lower cost of obtaining funds from a depository institution. B

Question 4

The official definitions of money can include all of the following except

Accepted Answer

A) currency outside banks. 
B) personal chequable deposits. 
C) non-chequable deposits. 
D) deposits at trust and mortgage loan companies. 
E) cheques. 
A) currency outside banks. 
B) personal chequable deposits. 
C) non-chequable deposits. 
D) deposits at trust and mortgage loan companies. 
E) cheques.

Question 5

The higher and more unpredictable the changes in a monetary unit, the

Accepted Answer

A) more likely it will be used as a store of value. 
B) less likely it will be used as a store of value. 
C) more confidence people will have in holding it for the future. 
D) less likely contracts will be written to counterbalance the uncertainty of its value in the future. 
E) more likely it will be used as a standard of deferred payment. 
A) more likely it will be used as a store of value. 
B) less likely it will be used as a store of value. 
C) more confidence people will have in holding it for the future. 
D) less likely contracts will be written to counterbalance the uncertainty of its value in the future. 
E) more likely it will be used as a standard of deferred payment.

Question 6

Which of the following is a function of money?

Accepted Answer

A) a medium of exchange 
B) a measure of liquidity 
C) a means of pooling risk 
D) a store of exchange 
E) a means of reducing transactions costs 
A) a medium of exchange 
B) a measure of liquidity 
C) a means of pooling risk 
D) a store of exchange 
E) a means of reducing transactions costs

Question 7

Which one of the following is not a store of value?

Accepted Answer

A) credit cards 
B) personal chequable deposits 
C) fixed term deposits 
D) non-personal chequable deposits 
E) non-chequable deposits 
A) credit cards 
B) personal chequable deposits 
C) fixed term deposits 
D) non-personal chequable deposits 
E) non-chequable deposits

Question 8

You are given the following information about the economy of Nocoin: The banks have deposits of $300 billion. Their reserves are $15 billion, two thirds of which is in deposits with the central bank. Households and firms hold $30 billion in bank notes. There are no coins!
The banks have no excess reserves.
The Bank of Nocoin, the central bank, increases bank reserves by $0.5 billion.
The quantity of money ________.
The change in the quantity of money is not equal to the change in the monetary base because ________.
The money multiplier is ________.

Accepted Answer

A) increases; when bank reserves increase, banks loan out their excess reserves and a multiplier process ensues; 7.33 
B) decreases; money includes currency, but the monetary base does not include currency; 7.0 
C) decreases; an increase in monetary base brings about a decrease in the quantity of money; 7.33 
D) increases; the components of the monetary base are not the components of the quantity of money; 7.0 
E) increases; the monetary base includes bank deposits; 7.0 
A) increases; when bank reserves increase, banks loan out their excess reserves and a multiplier process ensues; 7.33 
B) decreases; money includes currency, but the monetary base does not include currency; 7.0 
C) decreases; an increase in monetary base brings about a decrease in the quantity of money; 7.33 
D) increases; the components of the monetary base are not the components of the quantity of money; 7.0 
E) increases; the monetary base includes bank deposits; 7.0

Question 9

If people decide to transfer their currency into their bank deposits then, all else constant, their decisions will

Accepted Answer

A) cause the quantity of money to decrease. 
B) cause lower inflation. 
C) cause higher real interest rates. 
D) cause the quantity of money to increase immediately. 
E) increase the actual reserves of banks. 
A) cause the quantity of money to decrease. 
B) cause lower inflation. 
C) cause higher real interest rates. 
D) cause the quantity of money to increase immediately. 
E) increase the actual reserves of banks.

Question 10

Real money is equal to

Accepted Answer

A) nominal income divided by the velocity of circulation. 
B) nominal income divided by the price level. 
C) nominal money divided by the price level. 
D) the price level divided by nominal money. 
E) nominal money divided by nominal income. 
A) nominal income divided by the velocity of circulation. 
B) nominal income divided by the price level. 
C) nominal money divided by the price level. 
D) the price level divided by nominal money. 
E) nominal money divided by nominal income.

Question 11

The equation of exchange in terms of growth rate is

Accepted Answer

A) Money growth rate + Rate of velocity change = Inflation rate + Real GDP growth rate. 
B) Money growth rate - Rate of velocity change = Inflation rate + Real GDP growth rate. 
C) Money growth rate = Inflation rate - Real GDP growth rate. 
D) Inflation rate = Money growth rate + Rate of velocity change + Real GDP growth rate. 
E) Inflation rate = Real GDP growth rate. 
A) Money growth rate + Rate of velocity change = Inflation rate + Real GDP growth rate. 
B) Money growth rate - Rate of velocity change = Inflation rate + Real GDP growth rate. 
C) Money growth rate = Inflation rate - Real GDP growth rate. 
D) Inflation rate = Money growth rate + Rate of velocity change + Real GDP growth rate. 
E) Inflation rate = Real GDP growth rate.

Question 12

When the Bank of Canada sells government securities to a bank, how are the Bank of Canada's assets affected?

Accepted Answer

A) The bank's reserves held at the Bank of Canada increase. 
B) The bank's reserves held at the Bank of Canada decrease. 
C) Bank of Canada notes increase. 
D) The amount of the Bank of Canada's government securities increases. 
E) The amount of the Bank of Canada's government securities decreases. 
A) The bank's reserves held at the Bank of Canada increase. 
B) The bank's reserves held at the Bank of Canada decrease. 
C) Bank of Canada notes increase. 
D) The amount of the Bank of Canada's government securities increases. 
E) The amount of the Bank of Canada's government securities decreases.

Question 13

Nominal money is equal to real

Accepted Answer

A) money times the price level. 
B) GDP times the price level. 
C) GDP times the GDP deflator. 
D) money divided by the price level. 
E) GDP times real money. 
A) money times the price level. 
B) GDP times the price level. 
C) GDP times the GDP deflator. 
D) money divided by the price level. 
E) GDP times real money.

Question 14

Which one of the following is not a depository institution?

Accepted Answer

A) a trust and mortgage loan company 
B) a foreign-owned chartered bank 
C) a credit union 
D) a caisse populaire 
E) a car insurance company 
A) a trust and mortgage loan company 
B) a foreign-owned chartered bank 
C) a credit union 
D) a caisse populaire 
E) a car insurance company

Question 15

If the interest rate is below the equilibrium, how is equilibrium achieved in the money market?

Accepted Answer

A) People buy goods to get rid of their excess money, lowering the price of goods and raising the interest rate. 
B) People sell goods to get rid of their excess money, lowering the price of goods and raising the interest rate. 
C) People sell bonds to get rid of their excess money, lowering the price of bonds and raising the interest rate. 
D) People sell bonds to try and raise more money, lowering the price of bonds and raising the interest rate. 
E) People buy bonds to get rid of their excess money, raising the price of bonds and raising the interest rate. 
A) People buy goods to get rid of their excess money, lowering the price of goods and raising the interest rate. 
B) People sell goods to get rid of their excess money, lowering the price of goods and raising the interest rate. 
C) People sell bonds to get rid of their excess money, lowering the price of bonds and raising the interest rate. 
D) People sell bonds to try and raise more money, lowering the price of bonds and raising the interest rate. 
E) People buy bonds to get rid of their excess money, raising the price of bonds and raising the interest rate.

Question 16

Money can take the form of any one of the following except

Accepted Answer

A) a credit card. 
B) a chequing deposit. 
C) a savings deposit. 
D) Bank of Canada notes. 
E) coins. 
A) a credit card. 
B) a chequing deposit. 
C) a savings deposit. 
D) Bank of Canada notes. 
E) coins.

Question 17

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 18

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 19

Consider the following data from the economy of Adanac: ∙ Currency outside banks: $15 billion
∙ Personal and non-personal chequable deposits: $40 billion
∙ Personal non-chequable deposits: $50 billion
∙ Non-personal non-chequable deposits: $125 billion
∙ Fixed term deposits: $200 billion
The value of MI is $________ billion and the value of M2 is $________ billion.

Accepted Answer

A) 105; 230 
B) 110; 235 
C) 55; 430 
D) 55; 230 
E) 60; 430 
A) 105; 230 
B) 110; 235 
C) 55; 430 
D) 55; 230 
E) 60; 430

Question 20

Use the information below to answer the following questions.
Fact 24.1.2
In July 2011, currency held by individuals and businesses was $57 billion; chequable deposits owned by individuals and businesses were $211 billion; non-chequable personal deposits were $163 billion; non-chequable business deposits were $29 billion; and fixed term deposits were $303 billion.
-Consider Fact 24.1.2. M2 is

Accepted Answer

A) $57 billion. 
B) $268 billion. 
C) $431 billion 
D) $460 billion. 
E) $763 billion. 
A) $57 billion. 
B) $268 billion. 
C) $431 billion 
D) $460 billion. 
E) $763 billion.

Exam 24: Money, the Price Level, and Inflation

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

The quantity theory of money begins with the equation of exchange, MV = PY, and then adds the assumptions that

Pooling risk

The official definitions of money can include all of the following except

The higher and more unpredictable the changes in a monetary unit, the

Which of the following is a function of money?

Which one of the following is not a store of value?

If people decide to transfer their currency into their bank deposits then, all else constant, their decisions will

Real money is equal to

The equation of exchange in terms of growth rate is

When the Bank of Canada sells government securities to a bank, how are the Bank of Canada's assets affected?

Nominal money is equal to real

Which one of the following is not a depository institution?

If the interest rate is below the equilibrium, how is equilibrium achieved in the money market?

Money can take the form of any one of the following except

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

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

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments 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 Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

Macro Only: International Trade Policy

Filters