Question 1

High-powered money minus reserves equals ________.

Accepted Answer

A) reserves 
B) currency in circulation 
C) the monetary base 
D) the nonborrowed base 
A) reserves 
B) currency in circulation 
C) the monetary base 
D) the nonborrowed base

Question 2

Explain why the simple deposit multiplier overstates the true deposit multiplier.

Accepted Answer

The simple model ignores the role banks

Question 3

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $800 billion, and excess reserves total $0.8 billion, then the currency ratio is ________.

Accepted Answer

A) .25 
B) .50 
C) .40 
D) .05 
A) .25 
B) .50 
C) .40 
D) .05

Question 4

A bank has excess reserves of $1000 and demand deposit liabilities of $80000 when the reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent, the bank's excess reserves will be ________.

Accepted Answer

A) $1000 
B) $5000 
C) $8000 
D) $9000 
A) $1000 
B) $5000 
C) $8000 
D) $9000

Question 5

Everything else held constant, a decrease in the desired reserve ratio will mean ________.

Accepted Answer

A) a decrease in the money supply 
B) an increase in the money supply 
C) a decrease in chequable deposits 
D) an increase in advances to banks 
A) a decrease in the money supply 
B) an increase in the money supply 
C) a decrease in chequable deposits 
D) an increase in advances to banks

Question 6

A bank has no excess reserves and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bank's excess reserves will now be ________.

Accepted Answer

A) -$5000 
B) -$1000 
C) $1000 
D) $5000 
A) -$5000 
B) -$1000 
C) $1000 
D) $5000

Question 7

When an individual sells a $100 bond to the Bank, she may either deposit the cheque she receives or cash it for currency. In both cases ________.

Accepted Answer

A) reserves increase 
B) high-powered money increases 
C) reserves decrease 
D) high-powered money decreases 
A) reserves increase 
B) high-powered money increases 
C) reserves decrease 
D) high-powered money decreases

Question 8

Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply.

Accepted Answer

A) borrowers; depositors 
B) banks; depositors 
C) depositors; borrowers 
D) depositors; banks 
A) borrowers; depositors 
B) banks; depositors 
C) depositors; borrowers 
D) depositors; banks

Question 9

The equation linking the monetary base to the levels of chequable deposits and currency is ________.

Accepted Answer

A) MB = (r × 
D)  + C 
B) MB = (r + 
D)  + ER + C 
C) MB = (r/
D)  + ER + C 
D) MB = (r - 
D) + ER - C 
A) MB = (r × 
D)  + C 
B) MB = (r + 
D)  + ER + C 
C) MB = (r/
D)  + ER + C 
D) MB = (r - 
D) + ER - C

Question 10

The Bank does not tightly control the monetary base because it does not completely control ________.

Accepted Answer

A) open market purchases 
B) open market sales 
C) borrowed reserves 
D) the rate 
A) open market purchases 
B) open market sales 
C) borrowed reserves 
D) the rate

Question 11

During the bank panics of the Great Depression the excess reserve ratio ________.

Accepted Answer

A) increased sharply 
B) decreased sharply 
C) increased slightly 
D) decreased slightly 
A) increased sharply 
B) decreased sharply 
C) increased slightly 
D) decreased slightly

Question 12

When the Bank of Canada purchases a government bond from a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant.

Accepted Answer

A) increase; increases 
B) increase; decreases 
C) decrease; increases 
D) decrease; decreases 
A) increase; increases 
B) increase; decreases 
C) decrease; increases 
D) decrease; decreases

Question 13

The relationship between advances to banks, the nonborrowed monetary base, and the monetary base is ________.

Accepted Answer

A) MB = MB ₙ - BR 
B) BR = MB ₙ - MB 
C) BR = MB - MB ₙ 
D) MB = BR - MB ₙ 
A) MB = MB ₙ - BR 
B) BR = MB ₙ - MB 
C) BR = MB - MB ₙ 
D) MB = BR - MB ₙ

Question 14

When a bank buys a government bond from the Bank of Canada, reserves in the banking system ________ and the monetary base ________, everything else held constant.

Accepted Answer

A) increase; increases 
B) increase; decreases 
C) decrease; increases 
D) decrease; decreases 
A) increase; increases 
B) increase; decreases 
C) decrease; increases 
D) decrease; decreases

Question 15

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

Accepted Answer

A) 2)5 
B) 2)8 
C) 2)0 
D) 0)67 
A) 2)5 
B) 2)8 
C) 2)0 
D) 0)67

Question 16

When a bank sells a government bond to the Bank of Canada, reserves in the banking system ________ and the monetary base ________, everything else held constant.

Accepted Answer

A) increase; increases 
B) increase; decreases 
C) decrease; increases 
D) decrease; decreases 
A) increase; increases 
B) increase; decreases 
C) decrease; increases 
D) decrease; decreases

Question 17

When the Bank of Canada purchases artwork to decorate its conference room ________.

Accepted Answer

A) reserves rise 
B) reserves fall 
C) bank notes in circulation falls 
D) Bank of Canada assets rise 
A) reserves rise 
B) reserves fall 
C) bank notes in circulation falls 
D) Bank of Canada assets rise

Question 18

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, and chequable deposits are $1000 billion, then the money multiplier is approximately ________.

Accepted Answer

A) 2)5 
B) 2)8 
C) 2)0 
D) 0)7 
A) 2)5 
B) 2)8 
C) 2)0 
D) 0)7

Question 19

When the nonborrowed monetary base is equal to $200 billion, the borrowed reserves are equal to $100 billion, and the money supply is equal to $700 billion, the money multiplier is ________.

Accepted Answer

A) 2)33 
B) 2)67 
C) 2)23 
D) 2)16 
A) 2)33 
B) 2)67 
C) 2)23 
D) 2)16

Question 20

A bank has excess reserves of $1000 and demand deposit liabilities of $80000 when the reserve requirement is 20 percent. If the reserve requirement is lowered to 10 percent, the bank's excess reserves will be ________.

Accepted Answer

A) $1000 
B) $8000 
C) $9000 
D) $17000 
A) $1000 
B) $8000 
C) $9000 
D) $17000

Exam 15: The Money Supply Process

High-powered money minus reserves equals ________.

Explain why the simple deposit multiplier overstates the true deposit multiplier.

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $800 billion, and excess reserves total $0.8 billion, then the currency ratio is ________.

A bank has excess reserves of $1000 and demand deposit liabilities of $80000 when the reserve requirement is 25 percent. If the reserve requirement is lowered to 20 percent, the bank's excess reserves will be ________.

Everything else held constant, a decrease in the desired reserve ratio will mean ________.

A bank has no excess reserves and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bank's excess reserves will now be ________.

When an individual sells a $100 bond to the Bank, she may either deposit the cheque she receives or cash it for currency. In both cases ________.

Decisions by ________ about their holdings of currency and by ________ about their holdings of excess reserves affect the money supply.

The equation linking the monetary base to the levels of chequable deposits and currency is ________.

The Bank does not tightly control the monetary base because it does not completely control ________.

During the bank panics of the Great Depression the excess reserve ratio ________.

When the Bank of Canada purchases a government bond from a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant.

The relationship between advances to banks, the nonborrowed monetary base, and the monetary base is ________.

When a bank buys a government bond from the Bank of Canada, reserves in the banking system ________ and the monetary base ________, everything else held constant.

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

When a bank sells a government bond to the Bank of Canada, reserves in the banking system ________ and the monetary base ________, everything else held constant.

When the Bank of Canada purchases artwork to decorate its conference room ________.

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, and chequable deposits are $1000 billion, then the money multiplier is approximately ________.

When the nonborrowed monetary base is equal to $200 billion, the borrowed reserves are equal to $100 billion, and the money supply is equal to $700 billion, the money multiplier is ________.

A bank has excess reserves of $1000 and demand deposit liabilities of $80000 when the reserve requirement is 20 percent. If the reserve requirement is lowered to 10 percent, the bank's excess reserves will be ________.

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

Decisions by about their holdings of currency and by about their holdings of excess reserves affect the money supply.

When the Bank of Canada purchases a government bond from a bank, reserves in the banking system and the monetary base , everything else held constant.

When a bank buys a government bond from the Bank of Canada, reserves in the banking system and the monetary base , everything else held constant.

When a bank sells a government bond to the Bank of Canada, reserves in the banking system and the monetary base , everything else held constant.