Question 1

Are loans an asset or a liability for banks and borrowers?

Accepted Answer

A) They are liabilities of banks and their borrowers. 
B) They are assets of banks and their borrowers. 
C) They are assets of banks and liabilities of borrowers. 
D) They are liabilities of banks and assets of borrowers. 
A) They are liabilities of banks and their borrowers. 
B) They are assets of banks and their borrowers. 
C) They are assets of banks and liabilities of borrowers. 
D) They are liabilities of banks and assets of borrowers.

Question 2

Explain why gold and silver have historically been used as money.

Accepted Answer

Both are precious metals that

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 10 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 $700 000, and it could loan out $7 000 000. 
B) Excess reserves are $300 000, and it could loan out $3 000 000. 
C) Excess reserves are $700 000, and it could loan out $700 000. 
D) Excess reserves are $300 000, and it could loan out $300 000. 
A) Excess reserves are $700 000, and it could loan out $7 000 000. 
B) Excess reserves are $300 000, and it could loan out $3 000 000. 
C) Excess reserves are $700 000, and it could loan out $700 000. 
D) Excess reserves are $300 000, and it could loan out $300 000.

Question 4

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

Accepted Answer

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

Question 5

Can bankers create money?

Accepted Answer

A) No, they do not have this power. 
B) Yes, through multiple deposit creation. 
C) Yes, by printing cheques for customers. 
D) No, unless they have a special charter which permits it. 
A) No, they do not have this power. 
B) Yes, through multiple deposit creation. 
C) Yes, by printing cheques for customers. 
D) No, unless they have a special charter which permits it.

Question 6

Which of the following is NOT a correct statement about money?

Accepted Answer

A) Money serves as a medium of exchange. 
B) Money serves as a commodity. 
C) Money serves as a store of value. 
D) Money serves as a means of deferred payment. 
A) Money serves as a medium of exchange. 
B) Money serves as a commodity. 
C) Money serves as a store of value. 
D) Money serves as a means of deferred payment.

Question 7

What is the primary feature of money?

Accepted Answer

A) It serves as a barter value. 
B) It serves as a trade account. 
C) It serves as inherent value. 
D) It serves as a medium of exchange. 
A) It serves as a barter value. 
B) It serves as a trade account. 
C) It serves as inherent value. 
D) It serves as a medium of exchange.

Question 8

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

Accepted Answer

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

Question 9

What would a desired reserve ratio of 40 percent indicate about each dollar of reserves?

Accepted Answer

A) It could support $0.40 of demand deposits. 
B) It could support $1.60 of demand deposits. 
C) It could support $2.50 of demand deposits. 
D) It could support $4.00 of demand deposits. 
A) It could support $0.40 of demand deposits. 
B) It could support $1.60 of demand deposits. 
C) It could support $2.50 of demand deposits. 
D) It could support $4.00 of demand deposits.

Question 10

The First Imperial Bank of Timmins Ontario has the following items on its ledgers: (All numbers in millions.)
Notice deposits: $6000
Consumer loans: $6000
Cash in vault: $400
Ontario Provincial Bonds: $2000
Demand deposits: $10000
Loans to businesses: $2000
Miscellaneous liabilities: $1000
Deposits with the Bank of Canada: $1600
Government of Canada Bonds: $4000
a.Place them on the appropriate side of the balance sheet. Compute the bank's net worth.
b.If the desired reserve ratio is 15 percent on demand deposits, and 0 percent on notice deposits, what are the bank's desired reserves? What are its excess reserves?
c.By how much can this bank increase its loans? Explain.

Accepted Answer

a.The following are entered as Assets:
C

Question 11

If some banks choose not to lend all of their excess reserves,the total amount of money created by an initial cash deposit will be smaller.

Accepted Answer

A) True 
 B)False

Question 12

What limits a bank's ability to extend loans?

Accepted Answer

An individual bank can safely

Question 13

When is currency a poor store of value?

Accepted Answer

A) when the unemployment rate is high 
B) when the rate of inflation is very high 
C) when banks are failing at an abnormally high rate 
D) when gold can be purchased at bargain prices 
A) when the unemployment rate is high 
B) when the rate of inflation is very high 
C) when banks are failing at an abnormally high rate 
D) when gold can be purchased at bargain prices

Question 14

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 40 percent,what is the level of the bank's excess reserves?

Accepted Answer

A) Excess reserves are $500 000. 
B) Excess reserves are zero. 
C) The bank has insufficient reserves to meet its reserve requirements. 
D) Excess reserves are $200 000. 
A) Excess reserves are $500 000. 
B) Excess reserves are zero. 
C) The bank has insufficient reserves to meet its reserve requirements. 
D) Excess reserves are $200 000.

Question 15

If banks desired a 100 percent reserve ratio,what would the money multiplier be?

Accepted Answer

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

Question 16

What does a reserve ratio of 12.5 percent imply about a potential money deposit expansion multiplier?

Accepted Answer

A) It is 5. 
B) It is 8. 
C) It is 12.5. 
D) It is 112.5. 
A) It is 5. 
B) It is 8. 
C) It is 12.5. 
D) It is 112.5.

Question 17

What is one reason why gold and silver coins have historically served as money?

Accepted Answer

A) They can be produced for a low cost. 
B) They can be made to last. 
C) They can be easily melted down. 
D) They can be controlled by the government. 
A) They can be produced for a low cost. 
B) They can be made to last. 
C) They can be easily melted down. 
D) They can be controlled by the government.

Question 18

If a bank had $200 million in demand deposits and desired a 40 percent reserve ratio,how much would it hold as reserves?

Accepted Answer

A) $80 million 
B) $120 million 
C) $200 million 
D) $500 million 
A) $80 million 
B) $120 million 
C) $200 million 
D) $500 million

Question 19

If a bank gets a $100 000 new deposit,chooses to lend out $85 000,and increases its excess reserves by $5000 at the same time,what is the desired reserve ratio?

Accepted Answer

A) 10 percent 
B) 15 percent 
C) 20 percent 
D) 25 percent 
A) 10 percent 
B) 15 percent 
C) 20 percent 
D) 25 percent

Question 20

What is an important effect of fractional reserve banking?

Accepted Answer

A) Bankers always turn every dollar of excess reserves into loans. 
B) A new bank deposit allows a bank to extend loans of the same amount to borrowers. 
C) The commercial banking system has complete control over total reserves. 
D) Bankers' choices about how much to lend can affect the money supply. 
A) Bankers always turn every dollar of excess reserves into loans. 
B) A new bank deposit allows a bank to extend loans of the same amount to borrowers. 
C) The commercial banking system has complete control over total reserves. 
D) Bankers' choices about how much to lend can affect the money supply.

Are loans an asset or a liability for banks and borrowers?

Explain why gold and silver have historically been used as money.

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

Can bankers create money?

Which of the following is NOT a correct statement about money?

What is the primary feature of money?

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

What would a desired reserve ratio of 40 percent indicate about each dollar of reserves?

If some banks choose not to lend all of their excess reserves,the total amount of money created by an initial cash deposit will be smaller.

What limits a bank's ability to extend loans?

When is currency a poor store of value?

If banks desired a 100 percent reserve ratio,what would the money multiplier be?

What does a reserve ratio of 12.5 percent imply about a potential money deposit expansion multiplier?

What is one reason why gold and silver coins have historically served as money?

If a bank had $200 million in demand deposits and desired a 40 percent reserve ratio,how much would it hold as reserves?

If a bank gets a $100 000 new deposit,chooses to lend out $85 000,and increases its excess reserves by $5000 at the same time,what is the desired reserve ratio?

What is an important effect of fractional reserve banking?

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

Are loans an asset or a liability for banks and borrowers?

Explain why gold and silver have historically been used as money.

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

Can bankers create money?

Which of the following is NOT a correct statement about money?

What is the primary feature of money?

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

What would a desired reserve ratio of 40 percent indicate about each dollar of reserves?

If some banks choose not to lend all of their excess reserves,the total amount of money created by an initial cash deposit will be smaller.

What limits a bank's ability to extend loans?

When is currency a poor store of value?

If banks desired a 100 percent reserve ratio,what would the money multiplier be?

What does a reserve ratio of 12.5 percent imply about a potential money deposit expansion multiplier?

What is one reason why gold and silver coins have historically served as money?

If a bank had $200 million in demand deposits and desired a 40 percent reserve ratio,how much would it hold as reserves?

If a bank gets a $100 000 new deposit,chooses to lend out $85 000,and increases its excess reserves by $5000 at the same time,what is the desired reserve ratio?

What is an important effect of fractional reserve banking?

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