Question 1

If a bank receiving a new deposit of $200 000 would be able,as a result,to increase its lending by,at most,$120 000,what is the desired reserve ratio?

Accepted Answer

A) 4 percent 
B) 25 percent 
C) 40 percent 
D) 50 percent 
A) 4 percent 
B) 25 percent 
C) 40 percent 
D) 50 percent

Question 2

Which of the following statements about paper money in Canada is most accurate?

Accepted Answer

A) It is fiat money. 
B) It is more than half of M2. 
C) It is convertible into specie (gold or silver) at the holder's request. 
D) It is partially backed by gold and silver at the Bank of Canada. 
A) It is fiat money. 
B) It is more than half of M2. 
C) It is convertible into specie (gold or silver) at the holder's request. 
D) It is partially backed by gold and silver at the Bank of Canada.

Question 3

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 could it loan out as a result?

Accepted Answer

A) Excess reserves are $100 000, and it could loan out $400 000. 
B) Excess reserves are $400 000, and it could loan out $2 000 000. 
C) Excess reserves are $100 000, and it could loan out $100 000. 
D) Excess reserves are $400 000, and it could loan out $500 000. 
A) Excess reserves are $100 000, and it could loan out $400 000. 
B) Excess reserves are $400 000, and it could loan out $2 000 000. 
C) Excess reserves are $100 000, and it could loan out $100 000. 
D) Excess reserves are $400 000, and it could loan out $500 000.

Question 4

What does the idea behind money as a measure of value illustrate about the use of money?

Accepted Answer

A) It allows persons to hold spending power for some period of time. 
B) It allows receipt of income to be separated from spending. 
C) It allows prices to be quoted in money terms. 
D) It allows double-entry bookkeeping. 
A) It allows persons to hold spending power for some period of time. 
B) It allows receipt of income to be separated from spending. 
C) It allows prices to be quoted in money terms. 
D) It allows double-entry bookkeeping.

Question 5

Does rapid inflation make holding a large amount of money a wise decision?

Accepted Answer

A) No, because the opportunity cost of holding liquid assets is high. 
B) Yes, because you will generally need more and more to buy the goods and services you want. 
C) No, because someone might steal it or it might be destroyed. 
D) Yes, because the opportunity cost of holding liquid assets is high. 
A) No, because the opportunity cost of holding liquid assets is high. 
B) Yes, because you will generally need more and more to buy the goods and services you want. 
C) No, because someone might steal it or it might be destroyed. 
D) Yes, because the opportunity cost of holding liquid assets is high.

Question 6

What does the expression "money is liquid" mean?

Accepted Answer

A) Money overcomes the inherent problems faced in the barter system. 
B) Money results in lower transaction costs. 
C) Money can be easily converted into another asset or goods and services. 
D) Money can be used as a store of value. 
A) Money overcomes the inherent problems faced in the barter system. 
B) Money results in lower transaction costs. 
C) Money can be easily converted into another asset or goods and services. 
D) Money can be used as a store of value.

Question 7

What would a desired reserve ratio of 25 percent indicate about each dollar of reserves?

Accepted Answer

A) It could support $0.25 of demand deposits. 
B) It could support $0.75 of demand deposits. 
C) It could support $1.33 of demand deposits. 
D) It could support $4.00 of demand deposits. 
A) It could support $0.25 of demand deposits. 
B) It could support $0.75 of demand deposits. 
C) It could support $1.33 of demand deposits. 
D) It could support $4.00 of demand deposits.

Question 8

If a bank gets a $100 000 new deposit,chooses to lend out $75 000,and increases its excess reserves by $5000 at the same time,what is the desired reserve ratio?

Accepted Answer

A) 5 percent 
B) 20 percent 
C) 25 percent 
D) 30 percent 
A) 5 percent 
B) 20 percent 
C) 25 percent 
D) 30 percent

Question 9

Money makes it easier to borrow and repay loans.What is this function of money referred to as?

Accepted Answer

A) a standard of value 
B) a means of deferred payment 
C) a unit of account 
D) a store of value 
A) a standard of value 
B) a means of deferred payment 
C) a unit of account 
D) a store of value

Question 10

If many people were to suddenly deposit into their chequing accounts large sums of cash previously kept in their wallets,what would this result in?

Accepted Answer

A) a reduction in the money supply 
B) an increase in reserves of banks and therefore an increase in the money supply 
C) an increase in interest rates and therefore a decrease in the money supply 
D) a decrease in M1 but an increase M2+ 
A) a reduction in the money supply 
B) an increase in reserves of banks and therefore an increase in the money supply 
C) an increase in interest rates and therefore a decrease in the money supply 
D) a decrease in M1 but an increase M2+

Question 11

If a bank has a reserve ratio of 50 percent,what is the money multiplier?

Accepted Answer

A) 1.50 
B) 2 
C) 5 
D) 20 
A) 1.50 
B) 2 
C) 5 
D) 20

Question 12

Which of the following combinations would have an indeterminate effect on the size of the money supply?

Accepted Answer

A) 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 
B) a decrease in the percentage of money people want to hold as currency, and no change in the fraction of deposits banks want to hold as reserves 
C) 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 
D) 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 
A) 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 
B) a decrease in the percentage of money people want to hold as currency, and no change in the fraction of deposits banks want to hold as reserves 
C) 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 
D) 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

Question 13

Why does fiat money have value?

Accepted Answer

A) because it is has been decreed by the government 
B) because it is divisible 
C) because it is backed by gold 
D) because it can be exchanged for the commodity backing it 
A) because it is has been decreed by the government 
B) because it is divisible 
C) because it is backed by gold 
D) because it can be exchanged for the commodity backing it

Question 14

Why is using money as a store of value preferable to using wheat?

Accepted Answer

A) It is both safer and less expensive. 
B) It is less expensive. 
C) It is much more portable. 
D) It is safer. 
A) It is both safer and less expensive. 
B) It is less expensive. 
C) It is much more portable. 
D) It is safer.

Question 15

The money supply is significantly larger than the amount of currency in circulation.Approximately how much of M2 is made up of currency?

Accepted Answer

A) 1 percent 
B) 6 percent 
C) 18 percent 
D) 27 percent 
A) 1 percent 
B) 6 percent 
C) 18 percent 
D) 27 percent

Question 16

If the National Bank of Uptown desires to hold 10 percent reserves and has excess reserves of $20 000,what is the maximum amount of additional loans that the bank can extend?

Accepted Answer

A) $2000 
B) $18 000 
C) $20 000 
D) $200 000 
A) $2000 
B) $18 000 
C) $20 000 
D) $200 000

Question 17

In defining the money supply as M2,on what grounds do economists include savings deposits?

Accepted Answer

A) on the grounds that savings deposits are liabilities of chartered banks, whereas chequable deposits are assets of the banks 
B) on the grounds that savings deposits are a form of investment and thus a better store of value than currency 
C) on the grounds that savings deposits can be used as a means of payment 
D) on the grounds that the purchasing power of savings deposits is much more stable than that of demand deposits and currency 
A) on the grounds that savings deposits are liabilities of chartered banks, whereas chequable deposits are assets of the banks 
B) on the grounds that savings deposits are a form of investment and thus a better store of value than currency 
C) on the grounds that savings deposits can be used as a means of payment 
D) on the grounds that the purchasing power of savings deposits is much more stable than that of demand deposits and currency

Question 18

What impact would a decrease 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 19

If banks desired a 100 percent reserve ratio,what would a decrease in banking reserves of $4 million do?

Accepted Answer

A) increase the money supply by $4 million 
B) increase the money supply by $400 million 
C) decrease the money supply by $4 million 
D) decrease the money supply by $400 million 
A) increase the money supply by $4 million 
B) increase the money supply by $400 million 
C) decrease the money supply by $4 million 
D) decrease the money supply by $400 million

Question 20

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 could it loan out as a result?

Accepted Answer

A) Excess reserves are $400 000, and it could loan out $2 000 000. 
B) Excess reserves are $600 000, and it could loan out $600 000. 
C) Excess reserves are $400 000, and it could loan out $400 000. 
D) Excess reserves are $600 000, and it could loan out $3 000 000. 
A) Excess reserves are $400 000, and it could loan out $2 000 000. 
B) Excess reserves are $600 000, and it could loan out $600 000. 
C) Excess reserves are $400 000, and it could loan out $400 000. 
D) Excess reserves are $600 000, and it could loan out $3 000 000.

If a bank receiving a new deposit of $200 000 would be able,as a result,to increase its lending by,at most,$120 000,what is the desired reserve ratio?

Which of the following statements about paper money in Canada is most accurate?

What does the idea behind money as a measure of value illustrate about the use of money?

Does rapid inflation make holding a large amount of money a wise decision?

What does the expression "money is liquid" mean?

What would a desired reserve ratio of 25 percent indicate about each dollar of reserves?

If a bank gets a $100 000 new deposit,chooses to lend out $75 000,and increases its excess reserves by $5000 at the same time,what is the desired reserve ratio?

Money makes it easier to borrow and repay loans.What is this function of money referred to as?

If many people were to suddenly deposit into their chequing accounts large sums of cash previously kept in their wallets,what would this result in?

If a bank has a reserve ratio of 50 percent,what is the money multiplier?

Which of the following combinations would have an indeterminate effect on the size of the money supply?

Why does fiat money have value?

Why is using money as a store of value preferable to using wheat?

The money supply is significantly larger than the amount of currency in circulation.Approximately how much of M2 is made up of currency?

If the National Bank of Uptown desires to hold 10 percent reserves and has excess reserves of $20 000,what is the maximum amount of additional loans that the bank can extend?

In defining the money supply as M2,on what grounds do economists include savings deposits?

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

If banks desired a 100 percent reserve ratio,what would a decrease in banking reserves of $4 million do?

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

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Exam 11: Money and the Banking System

If a bank receiving a new deposit of $200 000 would be able,as a result,to increase its lending by,at most,$120 000,what is the desired reserve ratio?

Which of the following statements about paper money in Canada is most accurate?

What does the idea behind money as a measure of value illustrate about the use of money?

Does rapid inflation make holding a large amount of money a wise decision?

What does the expression "money is liquid" mean?

What would a desired reserve ratio of 25 percent indicate about each dollar of reserves?

If a bank gets a $100 000 new deposit,chooses to lend out $75 000,and increases its excess reserves by $5000 at the same time,what is the desired reserve ratio?

Money makes it easier to borrow and repay loans.What is this function of money referred to as?

If many people were to suddenly deposit into their chequing accounts large sums of cash previously kept in their wallets,what would this result in?

If a bank has a reserve ratio of 50 percent,what is the money multiplier?

Which of the following combinations would have an indeterminate effect on the size of the money supply?

Why does fiat money have value?

Why is using money as a store of value preferable to using wheat?

The money supply is significantly larger than the amount of currency in circulation.Approximately how much of M2 is made up of currency?

If the National Bank of Uptown desires to hold 10 percent reserves and has excess reserves of $20 000,what is the maximum amount of additional loans that the bank can extend?

In defining the money supply as M2,on what grounds do economists include savings deposits?

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

If banks desired a 100 percent reserve ratio,what would a decrease in banking reserves of $4 million do?

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