Question 1

Whenever actual reserves exceed desired reserves, the bank

Accepted Answer

A) can make new loans. 
B) will go out of business. 
C) needs to call in loans. 
D) will borrow funds from another bank. 
E) will raise the interest rate on its loans. 
A) can make new loans. 
B) will go out of business. 
C) needs to call in loans. 
D) will borrow funds from another bank. 
E) will raise the interest rate on its loans.

Question 2

If the desired reserve ratio is 3 percent and deposits totaled $5.75 billion, banks hold

Accepted Answer

A) $172.5 million in reserves. 
B) $0.1725 million in reserves. 
C) $172.5 million in excess reserves. 
D) $0.1725 million in excess reserves. 
E) $192 million in reserves. 
A) $172.5 million in reserves. 
B) $0.1725 million in reserves. 
C) $172.5 million in excess reserves. 
D) $0.1725 million in excess reserves. 
E) $192 million in reserves.

Question 3

Use the information below to answer the following question.
Fact 24.7.1
The Bank of Speedy Creek has chosen the following initial balance sheet:
  
-Refer to Fact 24.7.1. Suppose all the banks in the banking system have the same desired reserve ratio as the Bank of Speedy Creek. If the currency drain ratio is 32 percent, what is the size of the money multiplier?

Accepted Answer

A) 3.3 
B) 1.25 
C) 5.0 
D) 4.0 
E) 2.7 
A) 3.3 
B) 1.25 
C) 5.0 
D) 4.0 
E) 2.7

Question 4

The Canadian money multiplier is calculated as the

Accepted Answer

A) change in monetary base divided by the change in deposits. 
B) change in quantity of bank notes divided by the change in monetary base. 
C) change in monetary base divided by the change in monetary holdings of households. 
D) change in the quantity of money divided by the change in the monetary base. 
E) change in monetary base divided by the change in quantity of money. 
A) change in monetary base divided by the change in deposits. 
B) change in quantity of bank notes divided by the change in monetary base. 
C) change in monetary base divided by the change in monetary holdings of households. 
D) change in the quantity of money divided by the change in the monetary base. 
E) change in monetary base divided by the change in quantity of money.

Question 5

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 6

________ is the interest rate that the Bank of Canada charges on short-term loans that it makes to major depository institutions when the banking system is temporarily short of reserves.

Accepted Answer

A) Bank rate 
B) The overnight loans rate 
C) The Treasury bill rate 
D) Prime 
E) The federal funds rate 
A) Bank rate 
B) The overnight loans rate 
C) The Treasury bill rate 
D) Prime 
E) The federal funds rate

Question 7

Suppose that a country has $50 billion in bank reserves, $100 billion in currency held by the public, and $500 billion in bank deposits. The currency drain ratio is

Accepted Answer

A) 18%. 
B) 50%. 
C) 30%. 
D) 10%. 
E) 20%. 
A) 18%. 
B) 50%. 
C) 30%. 
D) 10%. 
E) 20%.

Question 8

Liquidity is

Accepted Answer

A) the property of being easily convertible into a means of payment without loss in value. 
B) the degree of certainty of the price of an asset. 
C) a high-risk asset. 
D) the net flow of gold into the Bank of Canada. 
E) the same as currency. 
A) the property of being easily convertible into a means of payment without loss in value. 
B) the degree of certainty of the price of an asset. 
C) a high-risk asset. 
D) the net flow of gold into the Bank of Canada. 
E) the same as currency.

Question 9

Which of the following is an asset of the Bank of Canada?

Accepted Answer

A) loans to depository institutions 
B) Bank of Canada notes 
C) depository institution deposits 
D) deposits of private Canadian citizens 
E) loans to private Canadian citizens 
A) loans to depository institutions 
B) Bank of Canada notes 
C) depository institution deposits 
D) deposits of private Canadian citizens 
E) loans to private Canadian citizens

Question 10

During a period of severe inflation, which function of money is most seriously affected?

Accepted Answer

A) store of value 
B) unit of account 
C) medium of exchange 
D) means of payment 
E) barter 
A) store of value 
B) unit of account 
C) medium of exchange 
D) means of payment 
E) barter

Question 11

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 12

According to the quantity theory of money, in the long run

Accepted Answer

A) V/M is constant. 
B) Y/M is constant. 
C) Y/P is constant. 
D) M/P is constant. 
E) M/V is constant. 
A) V/M is constant. 
B) Y/M is constant. 
C) Y/P is constant. 
D) M/P is constant. 
E) M/V is constant.

Question 13

The Bank of Canada is the lender of last resort. This means banks may borrow money from the Bank of Canada

Accepted Answer

A) whenever they are short of reserves. 
B) overnight. 
C) if they have sufficient securities to support the loan. 
D) if the banking system as a whole is short of reserves. 
E) to finance a sudden and dramatic increase in overseas reserves. 
A) whenever they are short of reserves. 
B) overnight. 
C) if they have sufficient securities to support the loan. 
D) if the banking system as a whole is short of reserves. 
E) to finance a sudden and dramatic increase in overseas reserves.

Question 14

International evidence shows us that

Accepted Answer

A) there is a general tendency for money growth and inflation to be correlated, but the quantity theory does not predict inflation precisely. 
B) in the long run a 1 percent increase in the growth rate of money causes a 1 percent increase in inflation. 
C) there is a general tendency for money growth and inflation to be inversely related, and the quantity theory is a poor predictor of inflation. 
D) money growth and inflation are always rising, and the quantity theory predicts inflation accurately. 
E) there is a general tendency for money growth and inflation to be correlated, and the quantity theory predicts inflation precisely. 
A) there is a general tendency for money growth and inflation to be correlated, but the quantity theory does not predict inflation precisely. 
B) in the long run a 1 percent increase in the growth rate of money causes a 1 percent increase in inflation. 
C) there is a general tendency for money growth and inflation to be inversely related, and the quantity theory is a poor predictor of inflation. 
D) money growth and inflation are always rising, and the quantity theory predicts inflation accurately. 
E) there is a general tendency for money growth and inflation to be correlated, and the quantity theory predicts inflation precisely.

Question 15

Choose the correct statement.

Accepted Answer

A) The quantity of money measured in constant dollars is nominal money. 
B) The quantity of money measured in dollars is nominal money. 
C) The quantity of nominal money demanded is inversely related to the price level. 
D) As real GDP increases, the quantity of nominal money demanded decreases. 
E) As the interest rate rises, the quantity of real money demanded increases. 
A) The quantity of money measured in constant dollars is nominal money. 
B) The quantity of money measured in dollars is nominal money. 
C) The quantity of nominal money demanded is inversely related to the price level. 
D) As real GDP increases, the quantity of nominal money demanded decreases. 
E) As the interest rate rises, the quantity of real money demanded increases.

Question 16

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 17

GDP is $2,000 billion, the GDP deflator is 100 (a price level of 1), and the velocity of circulation is 5. The quantity of money is

Accepted Answer

A) $10,000 billion. 
B) $2,000 billion. 
C) $400 billion. 
D) $20 billion. 
E) $500 billion. 
A) $10,000 billion. 
B) $2,000 billion. 
C) $400 billion. 
D) $20 billion. 
E) $500 billion.

Question 18

If Wolfgang transfers $1,000 out of his chequable deposit account and places it in his non-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 19

Use the figure below to answer the following questions.
   
Figure 24.5.2
-Refer to Figure 24.5.2. Which one of the following best describes the response to a decrease in the market price of bonds?

Accepted Answer

A) A movement from A to B 
B) A movement from A to C 
C) A movement from A to F 
D) A movement from A to E 
E) A movement from E to A 
A) A movement from A to B 
B) A movement from A to C 
C) A movement from A to F 
D) A movement from A to E 
E) A movement from E to A

Question 20

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.

Exam 24: Money, the Price Level, and Inflation

Whenever actual reserves exceed desired reserves, the bank

If the desired reserve ratio is 3 percent and deposits totaled $5.75 billion, banks hold

The Canadian money multiplier is calculated as the

Which of the following assets is the most liquid?

________ is the interest rate that the Bank of Canada charges on short-term loans that it makes to major depository institutions when the banking system is temporarily short of reserves.

Suppose that a country has $50 billion in bank reserves, $100 billion in currency held by the public, and $500 billion in bank deposits. The currency drain ratio is

Liquidity is

Which of the following is an asset of the Bank of Canada?

During a period of severe inflation, which function of money is most seriously affected?

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

According to the quantity theory of money, in the long run

The Bank of Canada is the lender of last resort. This means banks may borrow money from the Bank of Canada

International evidence shows us that

Choose the correct statement.

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.

GDP is $2,000 billion, the GDP deflator is 100 (a price level of 1), and the velocity of circulation is 5. The quantity of money is

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

Use the figure below to answer the following questions. Figure 24.5.2 -Refer to Figure 24.5.2. Which one of the following best describes the response to a decrease in the market price of bonds?

Using a credit card can best be likened to

What Is Economics

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