Question 1

New loans create money directly,but they also create excess reserves in other banks,which leads to still further increases in both loans and the supply of money.

Accepted Answer

A) True 
 B)False

Question 2

On a certain date,the banking system had $2 billion in excess reserves.The desired reserve ratio was 12.5 percent.If these funds were fully loaned out,how much could the banking system as a whole potentially increase the money supply by?

Accepted Answer

A) a maximum of $2 billion 
B) a maximum of $2.5 billion 
C) a maximum of $12.5 billion 
D) a maximum $16 billion 
A) a maximum of $2 billion 
B) a maximum of $2.5 billion 
C) a maximum of $12.5 billion 
D) a maximum $16 billion

Question 3

Suppose you found $2000 hidden in your mattress and deposited it in a demand deposit account at your bank.If the desired reserve ratio was 25 percent,how much would the deposit directly create in excess reserves?

Accepted Answer

A) $2500 
B) $2000 
C) $1500 
D) $500 
A) $2500 
B) $2000 
C) $1500 
D) $500

Question 4

In general,a bank that held excess reserves would earn lower profits as a result.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following changes would clearly increase 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) 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 
C) 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 
D) 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 
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) 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 
C) 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 
D) 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

Question 6

Suppose the desired reserve ratio is 10 percent and you pay back a loan of $40 000.What is the impact of this on the bank's reserves and,once the banking system has completed its adjustments to the repayment,the money supply?

Accepted Answer

A) You add $40 000 in reserves, which adds $400 000 to the money supply. 
B) You eliminate $40 000 in reserves, which eliminates $400 000 from the money supply. 
C) You eliminate $4000 in reserves, which eliminates $40 000 from the money supply. 
D) You add $4000 in reserves, which adds $40 000 to the money supply. 
A) You add $40 000 in reserves, which adds $400 000 to the money supply. 
B) You eliminate $40 000 in reserves, which eliminates $400 000 from the money supply. 
C) You eliminate $4000 in reserves, which eliminates $40 000 from the money supply. 
D) You add $4000 in reserves, which adds $40 000 to the money supply.

Question 7

Under which of the following circumstances is the size of the effect of a given deposit of cash into a demand deposit account on the money supply smaller?

Accepted Answer

A) the greater the fraction of money people want to hold as currency, and the greater the fraction of deposits banks want to hold as reserves 
B) the greater the fraction of money people want to hold as currency, and the smaller the fraction of deposits banks want to hold as reserves 
C) the smaller the fraction of money people want to hold as currency, and the greater the fraction of deposits banks want to hold as reserves 
D) the smaller the fraction of money people want to hold as currency, and the smaller the fraction of deposits banks want to hold as reserves 
A) the greater the fraction of money people want to hold as currency, and the greater the fraction of deposits banks want to hold as reserves 
B) the greater the fraction of money people want to hold as currency, and the smaller the fraction of deposits banks want to hold as reserves 
C) the smaller the fraction of money people want to hold as currency, and the greater the fraction of deposits banks want to hold as reserves 
D) the smaller the fraction of money people want to hold as currency, and the smaller the fraction of deposits banks want to hold as reserves

Question 8

Suppose you found $5000 hidden in your closet and deposited it in a demand deposit account at your bank.If the desired reserve ratio was 10 percent,how much would the deposit directly create in excess reserves?

Accepted Answer

A) $500 
B) $1500 
C) $4500 
D) $5500 
A) $500 
B) $1500 
C) $4500 
D) $5500

Question 9

If the desired reserve ratio were increased,what impact would this have on the money supply and bank loans?

Accepted Answer

A) The money supply would tend to increase, but the outstanding loans of banks would tend to decrease. 
B) Both the money supply and the outstanding loans of banks would tend to decrease. 
C) Both the money supply and the outstanding loans of banks would tend to increase. 
D) The money supply would tend to decrease, but the outstanding loans of banks would tend to increase. 
A) The money supply would tend to increase, but the outstanding loans of banks would tend to decrease. 
B) Both the money supply and the outstanding loans of banks would tend to decrease. 
C) Both the money supply and the outstanding loans of banks would tend to increase. 
D) The money supply would tend to decrease, but the outstanding loans of banks would tend to increase.

Question 10

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

Accepted Answer

A) It eliminates $20 000 in money. 
B) It adds $2000 in money. 
C) It adds $20 000 in money. 
D) It eliminates $2000 in money. 
A) It eliminates $20 000 in money. 
B) It adds $2000 in money. 
C) It adds $20 000 in money. 
D) It eliminates $2000 in money.

Question 11

In what sense can it be said that money is a social invention? How does barter as a form of trade relate to the invention of money?

Accepted Answer

Money is a social invention in the sense

Question 12

If a person buries his money in his backyard,he is using money as a medium of exchange.

Accepted Answer

A) True 
 B)False

Question 13

Other things being equal,if you took money out of your savings deposit account and put it in a demand deposit account,what would be the effect on M2?

Accepted Answer

A) M2+ would increase. 
B) M2 would decrease 
C) M2+ would decrease. 
D) M2+ would not change. 
A) M2+ would increase. 
B) M2 would decrease 
C) M2+ would decrease. 
D) M2+ would not change.

Question 14

How could the rumour of a bank failure actually turn into a bank failing? Is the bank really without assets?

Accepted Answer

Generally,individuals who hear a rumour

Question 15

Under which of the following circumstances is the size of the effect of a given deposit of cash into a demand deposit account on the money supply greater?

Accepted Answer

A) the smaller the fraction of money people want to hold as currency, and the greater the fraction of deposits banks want to hold as reserves 
B) the greater the fraction of money people want to hold as currency, and the greater the fraction of deposits banks want to hold as reserves 
C) the greater the fraction of money people want to hold as currency, and the smaller the fraction of deposits banks want to hold as reserves 
D) the smaller the fraction of money people want to hold as currency, and the smaller the fraction of deposits banks want to hold as reserves 
A) the smaller the fraction of money people want to hold as currency, and the greater the fraction of deposits banks want to hold as reserves 
B) the greater the fraction of money people want to hold as currency, and the greater the fraction of deposits banks want to hold as reserves 
C) the greater the fraction of money people want to hold as currency, and the smaller the fraction of deposits banks want to hold as reserves 
D) the smaller the fraction of money people want to hold as currency, and the smaller the fraction of deposits banks want to hold as reserves

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 10 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 $200 000 and could be used to create $2 000 000 in the banking system. 
B) Excess reserves are $300 000 and could be used to create $300 000 in the banking system. 
C) Excess reserves are $300 000 and could be used to create $3 000 000 in the banking system. 
D) Excess reserves are $200 000 and could be used to create $200 000 in the banking system. 
A) Excess reserves are $200 000 and could be used to create $2 000 000 in the banking system. 
B) Excess reserves are $300 000 and could be used to create $300 000 in the banking system. 
C) Excess reserves are $300 000 and could be used to create $3 000 000 in the banking system. 
D) Excess reserves are $200 000 and could be used to create $200 000 in the banking system.

Question 17

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 25 percent,what is the level of the bank's excess reserves and how much could it loan out as a result?

Accepted Answer

A) Excess reserves are $500 000, and it could loan out $2 000 000. 
B) Excess reserves are $500 000, and it could loan out $500 000. 
C) Excess reserves are zero, and it could not loan out any money. 
D) Excess reserves are $250 000, and it could loan out $1 000 000. 
A) Excess reserves are $500 000, and it could loan out $2 000 000. 
B) Excess reserves are $500 000, and it could loan out $500 000. 
C) Excess reserves are zero, and it could not loan out any money. 
D) Excess reserves are $250 000, and it could loan out $1 000 000.

Question 18

Which of the following events would tend to cause the money supply to fall?

Accepted Answer

A) Banks decide to keep more reserves, and people deposit currency in their demand deposit accounts. 
B) Banks decide to keep more reserves, and people convert more of their demand deposits to currency. 
C) Banks decide to keep fewer reserves, and people deposit currency in their demand deposit accounts. 
D) Banks decide to keep fewer reserves, and people convert more of their demand deposits to currency. 
A) Banks decide to keep more reserves, and people deposit currency in their demand deposit accounts. 
B) Banks decide to keep more reserves, and people convert more of their demand deposits to currency. 
C) Banks decide to keep fewer reserves, and people deposit currency in their demand deposit accounts. 
D) Banks decide to keep fewer reserves, and people convert more of their demand deposits to currency.

Question 19

With the invention of banking,what is one important aspect of money with regards to the money supply?

Accepted Answer

A) Banks have full control over the money supply. 
B) Banks have some discretion over the money supply. 
C) Individuals have no discretion over the money supply. 
D) Government lose all control over the money supply. 
A) Banks have full control over the money supply. 
B) Banks have some discretion over the money supply. 
C) Individuals have no discretion over the money supply. 
D) Government lose all control over the money supply.

Question 20

If a bank had a desired reserve ratio of 10 percent and excess reserves of $2000,what is the largest loan it could legally extend?

Accepted Answer

A) $200 
B) $1800 
C) $2000 
D) $20 000 
A) $200 
B) $1800 
C) $2000 
D) $20 000

New loans create money directly,but they also create excess reserves in other banks,which leads to still further increases in both loans and the supply of money.

On a certain date,the banking system had $2 billion in excess reserves.The desired reserve ratio was 12.5 percent.If these funds were fully loaned out,how much could the banking system as a whole potentially increase the money supply by?

Suppose you found $2000 hidden in your mattress and deposited it in a demand deposit account at your bank.If the desired reserve ratio was 25 percent,how much would the deposit directly create in excess reserves?

In general,a bank that held excess reserves would earn lower profits as a result.

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

Suppose the desired reserve ratio is 10 percent and you pay back a loan of $40 000.What is the impact of this on the bank's reserves and,once the banking system has completed its adjustments to the repayment,the money supply?

Under which of the following circumstances is the size of the effect of a given deposit of cash into a demand deposit account on the money supply smaller?

Suppose you found $5000 hidden in your closet and deposited it in a demand deposit account at your bank.If the desired reserve ratio was 10 percent,how much would the deposit directly create in excess reserves?

If the desired reserve ratio were increased,what impact would this have on the money supply and bank loans?

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

In what sense can it be said that money is a social invention? How does barter as a form of trade relate to the invention of money?

If a person buries his money in his backyard,he is using money as a medium of exchange.

Other things being equal,if you took money out of your savings deposit account and put it in a demand deposit account,what would be the effect on M2?

How could the rumour of a bank failure actually turn into a bank failing? Is the bank really without assets?

Under which of the following circumstances is the size of the effect of a given deposit of cash into a demand deposit account on the money supply greater?

Which of the following events would tend to cause the money supply to fall?

With the invention of banking,what is one important aspect of money with regards to the money supply?

If a bank had a desired reserve ratio of 10 percent and excess reserves of $2000,what is the largest loan it could legally extend?

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

New loans create money directly,but they also create excess reserves in other banks,which leads to still further increases in both loans and the supply of money.

On a certain date,the banking system had $2 billion in excess reserves.The desired reserve ratio was 12.5 percent.If these funds were fully loaned out,how much could the banking system as a whole potentially increase the money supply by?

Suppose you found $2000 hidden in your mattress and deposited it in a demand deposit account at your bank.If the desired reserve ratio was 25 percent,how much would the deposit directly create in excess reserves?

In general,a bank that held excess reserves would earn lower profits as a result.

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

Suppose the desired reserve ratio is 10 percent and you pay back a loan of $40 000.What is the impact of this on the bank's reserves and,once the banking system has completed its adjustments to the repayment,the money supply?

Under which of the following circumstances is the size of the effect of a given deposit of cash into a demand deposit account on the money supply smaller?

Suppose you found $5000 hidden in your closet and deposited it in a demand deposit account at your bank.If the desired reserve ratio was 10 percent,how much would the deposit directly create in excess reserves?

If the desired reserve ratio were increased,what impact would this have on the money supply and bank loans?

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

In what sense can it be said that money is a social invention? How does barter as a form of trade relate to the invention of money?

If a person buries his money in his backyard,he is using money as a medium of exchange.

Other things being equal,if you took money out of your savings deposit account and put it in a demand deposit account,what would be the effect on M2?

How could the rumour of a bank failure actually turn into a bank failing? Is the bank really without assets?

Under which of the following circumstances is the size of the effect of a given deposit of cash into a demand deposit account on the money supply greater?

Which of the following events would tend to cause the money supply to fall?

With the invention of banking,what is one important aspect of money with regards to the money supply?

If a bank had a desired reserve ratio of 10 percent and excess reserves of $2000,what is the largest loan it could legally extend?

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