Question 1

An increase in the nonborrowed monetary base, everything else held constant, will cause ________.

Accepted Answer

A) the money supply to fall 
B) the money supply to rise 
C) no change in the money supply 
D) demand deposits to fall 
A) the money supply to fall 
B) the money supply to rise 
C) no change in the money supply 
D) demand deposits to fall

Question 2

For which of the following is the change in reserves necessarily different from the change in the monetary base?

Accepted Answer

A) Open market purchases from a bank 
B) Open market purchases from an individual who deposits the cheque in a bank 
C) Open market purchases from an individual who cashes the cheque 
D) Open market sale to a bank 
A) Open market purchases from a bank 
B) Open market purchases from an individual who deposits the cheque in a bank 
C) Open market purchases from an individual who cashes the cheque 
D) Open market sale to a bank

Question 3

In the simple deposit expansion model, if the Bank of Canada purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by ________.

Accepted Answer

A) $10 
B) $100 
C) $100 times the reciprocal of the desired reserve ratio 
D) $100 times the desired reserve ratio 
A) $10 
B) $100 
C) $100 times the reciprocal of the desired reserve ratio 
D) $100 times the desired reserve ratio

Question 4

In the simple deposit expansion model, if the desired reserve ratio is 20 percent and the Bank of Canada increases reserves by $100, chequable deposits can potentially expand by ________.

Accepted Answer

A) $100 
B) $250 
C) $500 
D) $1000 
A) $100 
B) $250 
C) $500 
D) $1000

Question 5

The monetary base minus currency in circulation equals ________.

Accepted Answer

A) reserves 
B) the borrowed base 
C) the nonborrowed base 
D) advances to banks 
A) reserves 
B) the borrowed base 
C) the nonborrowed base 
D) advances to banks

Question 6

Both ________ and ________ are monetary liabilities of the Bank.

Accepted Answer

A) government securities; advances to banks 
B) notes in circulation; reserves 
C) government securities; reserves 
D) notes in circulation; advances to banks 
A) government securities; advances to banks 
B) notes in circulation; reserves 
C) government securities; reserves 
D) notes in circulation; advances to banks

Question 7

If a bank has excess reserves of $7000 and demand deposit liabilities of $100,000, and if the reserve requirement is 15 percent, then the bank has actual reserves of ________.

Accepted Answer

A) $17000 
B) $22000 
C) $27000 
D) $29000 
A) $17000 
B) $22000 
C) $27000 
D) $29000

Question 8

Everything else held constant, an increase in the currency ratio will mean ________ in the M2+ money multiplier and ________ in the M2+ money supply.

Accepted Answer

A) an increase; an increase 
B) an increase; a decrease 
C) a decrease; an increase 
D) a decrease; a decrease 
A) an increase; an increase 
B) an increase; a decrease 
C) a decrease; an increase 
D) a decrease; a decrease

Question 9

In the simple deposit expansion model, if the desired reserve ratio is 10 percent and the Bank of Canada increases reserves by $100, chequable deposits can potentially expand by ________.

Accepted Answer

A) $100 
B) $250 
C) $500 
D) $1000 
A) $100 
B) $250 
C) $500 
D) $1000

Question 10

If the desired reserve ratio is one-third, currency in circulation is $300 billion, and chequable deposits are $900 billion, then the money supply is ________.

Accepted Answer

A) $2700 
B) $3000 
C) $1200 
D) $1800 
A) $2700 
B) $3000 
C) $1200 
D) $1800

Question 11

If a bank has excess reserves of $10000 and demand deposit liabilities of $80000, and if the reserve requirement is 20 percent, then the bank has actual reserves of ________.

Accepted Answer

A) $16000 
B) $20000 
C) $26000 
D) $36000 
A) $16000 
B) $20000 
C) $26000 
D) $36000

Question 12

In the model of the money supply process, the depositor's role in influencing the money supply is represented by ________.

Accepted Answer

A) only the currency holdings 
B) both the currency holdings and desired reserves 
C) the currency holdings, desired reserves, and borrowed reserves 
D) only desired reserves 
A) only the currency holdings 
B) both the currency holdings and desired reserves 
C) the currency holdings, desired reserves, and borrowed reserves 
D) only desired reserves

Question 13

A simple deposit multiplier equal to two implies a desired reserve ratio equal to ________.

Accepted Answer

A) 100 percent 
B) 50 percent 
C) 25 percent 
D) 0 percent 
A) 100 percent 
B) 50 percent 
C) 25 percent 
D) 0 percent

Question 14

When the Bank extends a $100 loan to the First National Bank, reserves in the banking system ________.

Accepted Answer

A) increase by $100 
B) increase by more than $100 
C) decrease by $100 
D) decrease by more than $100 
A) increase by $100 
B) increase by more than $100 
C) decrease by $100 
D) decrease by more than $100

Question 15

There are two ways in which the Bank can provide additional reserves to the banking system: it can ________ government bonds or it can ________ advances to banks to commercial banks.

Accepted Answer

A) sell; extend 
B) sell; call in 
C) purchase; extend 
D) purchase; call in 
A) sell; extend 
B) sell; call in 
C) purchase; extend 
D) purchase; call in

Question 16

If reserves in the banking system increase by $100, then chequable deposits will increase by $1000 in the simple model of deposit creation when the desired reserve ratio is ________.

Accepted Answer

A) 0)01 
B) 0)10 
C) 0)05 
D) 0)20 
A) 0)01 
B) 0)10 
C) 0)05 
D) 0)20

Question 17

If the money supply is equal to $500 billion and the monetary base is equal to $250 billion, the money multiplier is equal to ________.

Accepted Answer

A) 2 
B) 0)5 
C) 5 
D) cannot be determined 
A) 2 
B) 0)5 
C) 5 
D) cannot be determined

Question 18

Recognizing the distinction between advances to banks and the nonborrowed monetary base, the money supply model is specified as ________.

Accepted Answer

A) M = m × (MB ₙ - BR) 
B) M = m × (MB ₙ + BR) 
C) M = m + (MB ₙ - BR) 
D) M = m - (MB ₙ + BR) 
A) M = m × (MB ₙ - BR) 
B) M = m × (MB ₙ + BR) 
C) M = m + (MB ₙ - BR) 
D) M = m - (MB ₙ + BR)

Question 19

The simple deposit multiplier can be expressed as the ratio of the ________.

Accepted Answer

A) change in reserves in the banking system divided by the change in deposits 
B) change in deposits divided by the change in reserves in the banking system 
C) desired reserve ratio divided by the change in reserves in the banking system 
D) change in deposits divided by the desired reserve ratio 
A) change in reserves in the banking system divided by the change in deposits 
B) change in deposits divided by the change in reserves in the banking system 
C) desired reserve ratio divided by the change in reserves in the banking system 
D) change in deposits divided by the desired reserve ratio

Question 20

When the monetary base is equal to $200 billion, the desired reserve ratio is 0.10 and the currency ratio is equal to 0.20, the money multiplier is equal to ________ and the money supply is equal to ________.

Accepted Answer

A) 4; $800 billion 
B) 3)67; $734 billion 
C) 4; $734 billion 
D) 3)67; $800 billion 
A) 4; $800 billion 
B) 3)67; $734 billion 
C) 4; $734 billion 
D) 3)67; $800 billion

Exam 15: The Money Supply Process

An increase in the nonborrowed monetary base, everything else held constant, will cause ________.

For which of the following is the change in reserves necessarily different from the change in the monetary base?

In the simple deposit expansion model, if the Bank of Canada purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by ________.

In the simple deposit expansion model, if the desired reserve ratio is 20 percent and the Bank of Canada increases reserves by $100, chequable deposits can potentially expand by ________.

The monetary base minus currency in circulation equals ________.

Both ________ and ________ are monetary liabilities of the Bank.

If a bank has excess reserves of $7000 and demand deposit liabilities of $100,000, and if the reserve requirement is 15 percent, then the bank has actual reserves of ________.

Everything else held constant, an increase in the currency ratio will mean ________ in the M2+ money multiplier and ________ in the M2+ money supply.

In the simple deposit expansion model, if the desired reserve ratio is 10 percent and the Bank of Canada increases reserves by $100, chequable deposits can potentially expand by ________.

If the desired reserve ratio is one-third, currency in circulation is $300 billion, and chequable deposits are $900 billion, then the money supply is ________.

If a bank has excess reserves of $10000 and demand deposit liabilities of $80000, and if the reserve requirement is 20 percent, then the bank has actual reserves of ________.

In the model of the money supply process, the depositor's role in influencing the money supply is represented by ________.

A simple deposit multiplier equal to two implies a desired reserve ratio equal to ________.

When the Bank extends a $100 loan to the First National Bank, reserves in the banking system ________.

There are two ways in which the Bank can provide additional reserves to the banking system: it can ________ government bonds or it can ________ advances to banks to commercial banks.

If reserves in the banking system increase by $100, then chequable deposits will increase by $1000 in the simple model of deposit creation when the desired reserve ratio is ________.

If the money supply is equal to $500 billion and the monetary base is equal to $250 billion, the money multiplier is equal to ________.

Recognizing the distinction between advances to banks and the nonborrowed monetary base, the money supply model is specified as ________.

The simple deposit multiplier can be expressed as the ratio of the ________.

When the monetary base is equal to $200 billion, the desired reserve ratio is 0.10 and the currency ratio is equal to 0.20, the money multiplier is equal to ________ and the money supply is equal to ________.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Is Curve

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Financial Crises in Emerging Markets

The ISLM Model

Non-Bank Finance

Filters

Both and are monetary liabilities of the Bank.

Everything else held constant, an increase in the currency ratio will mean in the M2+ money multiplier and in the M2+ money supply.

There are two ways in which the Bank can provide additional reserves to the banking system: it can government bonds or it can advances to banks to commercial banks.

When the monetary base is equal to $200 billion, the desired reserve ratio is 0.10 and the currency ratio is equal to 0.20, the money multiplier is equal to and the money supply is equal to .