Question 1

Say the desired reserve ratio is 20 percent.What is the effect of paying back a bank loan of $10 000?

Accepted Answer

A) It eliminates $2000 in money. 
B) It adds $2000 in money. 
C) It adds $10 000 in money. 
D) It eliminates $10 000 in money. 
A) It eliminates $2000 in money. 
B) It adds $2000 in money. 
C) It adds $10 000 in money. 
D) It eliminates $10 000 in money.

Question 2

Assume that Loans R Us receives a new cash deposit of $100 000.With a 10 percent desired reserve ratio,this creates $10 000 of desired reserves and $90 000 of excess reserves.

Accepted Answer

A) True 
 B)False

Question 3

Scenario 11-2
A bank's assets consist of $1 000 000 in total reserves, $2 100 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $3 000 000 in demand deposits and $1 300 000 in capital.
-Refer to Scenario 11-2.If the desired reserve ratio is 20 percent,what is the level of the bank's excess reserves and how much money could the excess reserves be used to create in the banking system as a result?

Accepted Answer

A) Excess reserves are $400 000 and could be used to create $400 000 in the banking system. 
B) Excess reserves are $600 000 and could be used to create $3 000 000 in the banking system. 
C) Excess reserves are $400 000 and could be used to create $2 000 000 in the banking system. 
D) Excess reserves are $600 000 and could be used to create $600 000 in the banking system. 
A) Excess reserves are $400 000 and could be used to create $400 000 in the banking system. 
B) Excess reserves are $600 000 and could be used to create $3 000 000 in the banking system. 
C) Excess reserves are $400 000 and could be used to create $2 000 000 in the banking system. 
D) Excess reserves are $600 000 and could be used to create $600 000 in the banking system.

Question 4

Scenario 11-1
A bank's assets consist of $500 000 in total reserves, $1 600 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $2 000 000 in demand deposits and $1 300 000 in capital.
-Refer to Scenario 11-1.If the desired reserve ratio is 30 percent,what is the level of the bank's excess reserves?

Accepted Answer

A) Excess reserves are $500 000. 
B) Excess reserves are $50 000. 
C) Excess reserves are zero. 
D) The bank has insufficient reserves to meet its desired reserve requirements. 
A) Excess reserves are $500 000. 
B) Excess reserves are $50 000. 
C) Excess reserves are zero. 
D) The bank has insufficient reserves to meet its desired reserve requirements.

Question 5

If banks desired a 100 percent reserve ratio,how many times total reserves in the system equals the money supply?

Accepted Answer

A) 0.01 
B) 0.1 
C) 1 
D) 10 
A) 0.01 
B) 0.1 
C) 1 
D) 10

Question 6

What is a fractional reserve system?

Accepted Answer

In order for banks to continue to do bus

Question 7

What impact would an increase in the reserves banks want to hold,together with people depositing currency into their demand deposit accounts,have on the money supply?

Accepted Answer

A) It would increase the money supply. 
B) It would leave the money supply unchanged. 
C) It would have an indeterminate effect on the money supply. 
D) It would decrease the money supply. 
A) It would increase the money supply. 
B) It would leave the money supply unchanged. 
C) It would have an indeterminate effect on the money supply. 
D) It would decrease the money supply.

Question 8

Which of the following changes would clearly decrease the supply of money in the banking system?

Accepted Answer

A) an increase in the percentage of money people want to hold as currency, and an increase in the fraction of deposits banks want to hold as reserves 
B) a decrease in the percentage of money people want to hold as currency, and a decrease in the fraction of deposits banks want to hold as reserves 
C) a decrease in the percentage of money people want to hold as currency, and an increase in the fraction of deposits banks want to hold as reserves 
D) an increase in the percentage of money people want to hold as currency, and a decrease in the fraction of deposits banks want to hold as reserves 
A) an increase in the percentage of money people want to hold as currency, and an increase in the fraction of deposits banks want to hold as reserves 
B) a decrease in the percentage of money people want to hold as currency, and a decrease in the fraction of deposits banks want to hold as reserves 
C) a decrease in the percentage of money people want to hold as currency, and an increase in the fraction of deposits banks want to hold as reserves 
D) an increase in the percentage of money people want to hold as currency, and a decrease in the fraction of deposits banks want to hold as reserves

Question 9

Which of the following actions will lead to an increase in the money supply?

Accepted Answer

A) You pay $10 000 in cash for a new motorcycle. 
B) Your bank gives you a $10 000 loan by adding $10 000 to your chequing account. 
C) You put $10 000 in cash in a safety deposit box. 
D) You pay back a $10 000 loan that you owe to your bank. 
A) You pay $10 000 in cash for a new motorcycle. 
B) Your bank gives you a $10 000 loan by adding $10 000 to your chequing account. 
C) You put $10 000 in cash in a safety deposit box. 
D) You pay back a $10 000 loan that you owe to your bank.

Question 10

Why might a bank choose to hold secondary reserves,such as Canadian Treasury bills?

Accepted Answer

A) They pay lower interest rates than deposits at the Bank of Canada and are hard to convert into cash assets. 
B) They pay higher interest rates than deposits at the Bank of Canada, even though they are hard to convert into assets. 
C) They pay lower interest rates than deposits at the Bank of Canada, but are more easily converted into cash assets. 
D) They pay higher interest rates than deposits at the Bank of Canada and are easily converted into cash assets. 
A) They pay lower interest rates than deposits at the Bank of Canada and are hard to convert into cash assets. 
B) They pay higher interest rates than deposits at the Bank of Canada, even though they are hard to convert into assets. 
C) They pay lower interest rates than deposits at the Bank of Canada, but are more easily converted into cash assets. 
D) They pay higher interest rates than deposits at the Bank of Canada and are easily converted into cash assets.

Question 11

How is money destroyed in the banking system?

Accepted Answer

The process of money creation can be rev

Question 12

People continue to value money because they have confidence in its convertibility into goods and services.

Accepted Answer

A) True 
 B)False

Question 13

Assume that the desired reserve ratio is 20 percent.First National Bank has vault cash and deposits with the Bank of Canada of $80 million,loans and securities of $320 million,and demand deposits of $400 million.Which of the following statements about First National is the most accurate?

Accepted Answer

A) It could extend a maximum of $40 million of additional loans. 
B) It could extend a maximum of $20 million of additional loans. 
C) It could extend a maximum of $10 million of additional loans. 
D) It is not in a position to extend additional loans. 
A) It could extend a maximum of $40 million of additional loans. 
B) It could extend a maximum of $20 million of additional loans. 
C) It could extend a maximum of $10 million of additional loans. 
D) It is not in a position to extend additional loans.

Question 14

The higher the interest rate paid on term deposit and other nontransaction deposits,other things being equal,the less people would be expected to hold in demand deposits.

Accepted Answer

A) True 
 B)False

Question 15

A chartered bank has $1 000 000 of outstanding demand deposits and actual reserves of $300 000.If the desired reserve ratio is 20 percent,what is the maximum loan the bank can extend?

Accepted Answer

A) $100 000 
B) $150 000 
C) $300 000 
D) $500 000 
A) $100 000 
B) $150 000 
C) $300 000 
D) $500 000

Question 16

Scenario 11-1
A bank's assets consist of $500 000 in total reserves, $1 600 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $2 000 000 in demand deposits and $1 300 000 in capital.
-Refer to Scenario 11-1.If the desired reserve ratio is 20 percent,what is the level of the bank's excess reserves and how much money could the excess reserves be used to create in the banking system as a result?

Accepted Answer

A) Excess reserves are $100 000, leading to the creation of $100 000 in the banking system. 
B) Excess reserves are $400 000, leading to the creation of $400 000 in the banking system. 
C) Excess reserves are $100 000, leading to the creation of $500 000 in the banking system. 
D) Excess reserves are $400 000, leading to the creation of $2 000 000 in the banking system. 
A) Excess reserves are $100 000, leading to the creation of $100 000 in the banking system. 
B) Excess reserves are $400 000, leading to the creation of $400 000 in the banking system. 
C) Excess reserves are $100 000, leading to the creation of $500 000 in the banking system. 
D) Excess reserves are $400 000, leading to the creation of $2 000 000 in the banking system.

Question 17

If a bank had demand deposits of $80 million and it desired a 25 percent reserve ratio,what is the maximum amount of dollars' worth of loans it would be able to have?

Accepted Answer

A) $20 million 
B) $40 million 
C) $60 million 
D) $80 million 
A) $20 million 
B) $40 million 
C) $60 million 
D) $80 million

Question 18

If a bank had demand deposits of $50 million and it desired a 25 percent reserve ratio,how much would it hold in reserve?

Accepted Answer

A) $12.5 million 
B) $25 million 
C) $37.5 million 
D) $50 million 
A) $12.5 million 
B) $25 million 
C) $37.5 million 
D) $50 million

Question 19

What effect would an increase in demand deposits combined with an equal decrease in currency in circulation have?

Accepted Answer

A) It would have no direct effect on M2 or M2+. 
B) It would decrease M2 and increase M2+. 
C) It would increase M2 and decrease M2+. 
D) It would increase both M2 and M2+. 
A) It would have no direct effect on M2 or M2+. 
B) It would decrease M2 and increase M2+. 
C) It would increase M2 and decrease M2+. 
D) It would increase both M2 and M2+.

Question 20

What is money?

Accepted Answer

A) a highly illiquid asset 
B) a widely used means of exchange in a barter economy 
C) an object to be consumed 
D) whatever is generally accepted in exchange for goods and services 
A) a highly illiquid asset 
B) a widely used means of exchange in a barter economy 
C) an object to be consumed 
D) whatever is generally accepted in exchange for goods and services

Say the desired reserve ratio is 20 percent.What is the effect of paying back a bank loan of $10 000?

Assume that Loans R Us receives a new cash deposit of $100 000.With a 10 percent desired reserve ratio,this creates $10 000 of desired reserves and $90 000 of excess reserves.

If banks desired a 100 percent reserve ratio,how many times total reserves in the system equals the money supply?

What is a fractional reserve system?

What impact would an increase in the reserves banks want to hold,together with people depositing currency into their demand deposit accounts,have on the money supply?

Which of the following changes would clearly decrease the supply of money in the banking system?

Which of the following actions will lead to an increase in the money supply?

Why might a bank choose to hold secondary reserves,such as Canadian Treasury bills?

How is money destroyed in the banking system?

People continue to value money because they have confidence in its convertibility into goods and services.

Assume that the desired reserve ratio is 20 percent.First National Bank has vault cash and deposits with the Bank of Canada of $80 million,loans and securities of $320 million,and demand deposits of $400 million.Which of the following statements about First National is the most accurate?

The higher the interest rate paid on term deposit and other nontransaction deposits,other things being equal,the less people would be expected to hold in demand deposits.

A chartered bank has $1 000 000 of outstanding demand deposits and actual reserves of $300 000.If the desired reserve ratio is 20 percent,what is the maximum loan the bank can extend?

If a bank had demand deposits of $80 million and it desired a 25 percent reserve ratio,what is the maximum amount of dollars' worth of loans it would be able to have?

If a bank had demand deposits of $50 million and it desired a 25 percent reserve ratio,how much would it hold in reserve?

What effect would an increase in demand deposits combined with an equal decrease in currency in circulation have?

What is money?

The Role and Method of Economics

Scarcity, trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Introduction to the Macroeconomy

Measuring Economic Performance

Economic Growth in the Global Economy

Aggregate Demand

Aggregate Supply and Macroeconomic Equilibrium

Fiscal Policy

The Bank of Canada

Monetary Policy

International Trade

International Finance

Filters

Exam 11: Money and the Banking System

Say the desired reserve ratio is 20 percent.What is the effect of paying back a bank loan of $10 000?

Assume that Loans R Us receives a new cash deposit of $100 000.With a 10 percent desired reserve ratio,this creates $10 000 of desired reserves and $90 000 of excess reserves.

If banks desired a 100 percent reserve ratio,how many times total reserves in the system equals the money supply?

What is a fractional reserve system?

What impact would an increase in the reserves banks want to hold,together with people depositing currency into their demand deposit accounts,have on the money supply?

Which of the following changes would clearly decrease the supply of money in the banking system?

Which of the following actions will lead to an increase in the money supply?

Why might a bank choose to hold secondary reserves,such as Canadian Treasury bills?

How is money destroyed in the banking system?

People continue to value money because they have confidence in its convertibility into goods and services.

Assume that the desired reserve ratio is 20 percent.First National Bank has vault cash and deposits with the Bank of Canada of $80 million,loans and securities of $320 million,and demand deposits of $400 million.Which of the following statements about First National is the most accurate?

The higher the interest rate paid on term deposit and other nontransaction deposits,other things being equal,the less people would be expected to hold in demand deposits.

A chartered bank has $1 000 000 of outstanding demand deposits and actual reserves of $300 000.If the desired reserve ratio is 20 percent,what is the maximum loan the bank can extend?

If a bank had demand deposits of $80 million and it desired a 25 percent reserve ratio,what is the maximum amount of dollars' worth of loans it would be able to have?

If a bank had demand deposits of $50 million and it desired a 25 percent reserve ratio,how much would it hold in reserve?

What effect would an increase in demand deposits combined with an equal decrease in currency in circulation have?

What is money?

The Role and Method of Economics

Scarcity, trade-Offs, and Production Possibilities

Supply and Demand

Bringing Supply and Demand Together

Introduction to the Macroeconomy

Measuring Economic Performance

Economic Growth in the Global Economy

Aggregate Demand

Aggregate Supply and Macroeconomic Equilibrium

Fiscal Policy

The Bank of Canada

Monetary Policy

International Trade

International Finance

Filters