Question 1

Using T-accounts,create an example of your own to show how banks create deposits and thus increase the money supply.

Accepted Answer

A complete example with the T-

Question 2

When banks have positive excess reserves,this indicates that

Accepted Answer

A) banks can expand their loans. 
B) banks must contract their deposits. 
C) nothing will happen since banks will always try to keep large amounts of excess reserves. 
D) a run on the bank is impossible. 
A) banks can expand their loans. 
B) banks must contract their deposits. 
C) nothing will happen since banks will always try to keep large amounts of excess reserves. 
D) a run on the bank is impossible.

Question 3

When banks have excess reserves,their reserve holdings exceed

Accepted Answer

A) their desired holdings. 
B) legal reserves. 
C) desired reserves. 
D) chequable deposits. 
A) their desired holdings. 
B) legal reserves. 
C) desired reserves. 
D) chequable deposits.

Question 4

Economists generally agree that there is a longstanding relationship between the rate of growth of the money supply and

Accepted Answer

A) government spending. 
B) planned investment. 
C) the value of the Canadian dollar. 
D) economic growth. 
A) government spending. 
B) planned investment. 
C) the value of the Canadian dollar. 
D) economic growth.

Question 5

Suppose a bank is exactly meeting its desired reserve ratio of 10 percent and a new deposit of $75,000 is made.Immediately after the deposit is made,the excess reserves will equal

Accepted Answer

A) zero. 
B) $7,500. 
C) $67,500. 
D) impossible to determine given the limited information. 
A) zero. 
B) $7,500. 
C) $67,500. 
D) impossible to determine given the limited information.

Question 6

The larger the desired reserve ratio,

Accepted Answer

A) the greater the increase in the money supply for an increase in bank deposits. 
B) the more apt there will be currency drains. 
C) the smaller the maximum money multiplier. 
D) the more difficult for the Bank of Canada to control the money supply. 
A) the greater the increase in the money supply for an increase in bank deposits. 
B) the more apt there will be currency drains. 
C) the smaller the maximum money multiplier. 
D) the more difficult for the Bank of Canada to control the money supply.

Question 7

A commercial bank with negative excess reserves

Accepted Answer

A) cannot legally make additional loans. 
B) has deposited too much money at the Bank of Canada. 
C) should loan reserves to other banks. 
D) is technically bankrupt. 
A) cannot legally make additional loans. 
B) has deposited too much money at the Bank of Canada. 
C) should loan reserves to other banks. 
D) is technically bankrupt.

Question 8

The fact that individuals whose credit-worthiness is less than it appears to be are those who are most willing to borrow money at any given interest rate is an example of

Accepted Answer

A) adverse selection. 
B) symmetric information. 
C) moral bonuses. 
D) diverse origins. 
A) adverse selection. 
B) symmetric information. 
C) moral bonuses. 
D) diverse origins.

Question 9

Deposit insurance shields depositors from the adverse effects of risky decisions,and thus

Accepted Answer

A) encourages riskier behaviour on the part of managers of depository institutions. 
B) encourages depositors to monitor the managers of depository institutions more closely. 
C) encourages moral hazard on the part of depositors. 
D) generates a more efficient banking system. 
A) encourages riskier behaviour on the part of managers of depository institutions. 
B) encourages depositors to monitor the managers of depository institutions more closely. 
C) encourages moral hazard on the part of depositors. 
D) generates a more efficient banking system.

Question 10

A bank with $100 million in deposits has $6 million in vault cash,$6 million on deposit with the Bank of Canada,and $6 million in government securities.The reserve requirement is 20 percent.A person deposits a check for $10 million drawn on another bank.The maximum loan this bank can now make is

Accepted Answer

A) 0) 
B) $6 million. 
C) $8 million. 
D) $10 million. 
A) 0) 
B) $6 million. 
C) $8 million. 
D) $10 million.

Question 11

If banks have zero excess reserves,then the net effect on the money supply of any cheque writing from one commercial bank to another is

Accepted Answer

A) positive since the desired reserve ratio is always less than one. 
B) zero since the gain in excess reserves at one bank is offset by a reduction in excess reserves of the same amount at another bank. 
C) negative since the loss in excess reserves at one bank is always greater than the gain in excess reserves at another bank. 
D) positive as long as the person who makes a deposit does not take out cash. 
A) positive since the desired reserve ratio is always less than one. 
B) zero since the gain in excess reserves at one bank is offset by a reduction in excess reserves of the same amount at another bank. 
C) negative since the loss in excess reserves at one bank is always greater than the gain in excess reserves at another bank. 
D) positive as long as the person who makes a deposit does not take out cash.

Question 12

A bank with deposits of $500 million has $75 million in cash on hand,$50 million in deposits with the Bank of Canada,and $80 million in government securities.If the reserve requirement is 15 percent,the bank has excess reserves of

Accepted Answer

A) 0) 
B) $5 million. 
C) $50 million. 
D) $130 million. 
A) 0) 
B) $5 million. 
C) $50 million. 
D) $130 million.

Question 13

To reach the maximum money multiplier,it is assumed that

Accepted Answer

A) commercial banks keep excess reserves. 
B) all loans get redeposited in a chequing account. 
C) there is insufficient loan demand. 
D) loans are diverted into circulating currency. 
A) commercial banks keep excess reserves. 
B) all loans get redeposited in a chequing account. 
C) there is insufficient loan demand. 
D) loans are diverted into circulating currency.

Question 14

Why did the federal government set up CDIC?

Accepted Answer

In 1967 the federal government set up th

Question 15

If a bank has zero excess reserves,the required reserve ratio is 20 percent,and a check for $100,000 is deposited in Bank ABC,excess reserves for Bank ABC now equal

Accepted Answer

A) 0) 
B) $20,000. 
C) $80,000. 
D) $100,000. 
A) 0) 
B) $20,000. 
C) $80,000. 
D) $100,000.

Question 16

A bank has a withdrawal of $1,000.If the bank has no excess reserves and if there is a 15 percent reserve requirement,

Accepted Answer

A) it must reduce its loans by $1,000. 
B) it must reduce its loans by $850. 
C) it must reduce its loans by $150. 
D) it need not reduce its loans. 
A) it must reduce its loans by $1,000. 
B) it must reduce its loans by $850. 
C) it must reduce its loans by $150. 
D) it need not reduce its loans.

Question 17

The actual money multiplier is less than the potential money multiplier because

Accepted Answer

A) some banks may decide to keep excess reserves. 
B) some loans may earn more interest than others. 
C) banks keep some of their required reserves as vault cash. 
D) banks keep some of their reserves as government securities. 
A) some banks may decide to keep excess reserves. 
B) some loans may earn more interest than others. 
C) banks keep some of their required reserves as vault cash. 
D) banks keep some of their reserves as government securities.

Question 18

The desired reserve ratio is 10 percent.A bank with $100 million in deposits has $5 million in vault cash,$6 million on deposit with the Bank of Canada,government securities of $9 million,and other assets of $80 million.If someone deposits a cheque for $1 million in the bank,the maximum loan the bank can now make is

Accepted Answer

A) $1 million. 
B) $2 million. 
C) $1.9 million. 
D) $900,000. 
A) $1 million. 
B) $2 million. 
C) $1.9 million. 
D) $900,000.

Question 19

If there are $5 million in excess reserves in the Canadian banking system and the required reserve ratio is 20 percent,then the most the money supply can increase is

Accepted Answer

A) 0) 
B) $5 million. 
C) $20 million. 
D) $25 million. 
A) 0) 
B) $5 million. 
C) $20 million. 
D) $25 million.

Question 20

Suppose that the desired reserve ratio is 20 percent and that a bank is just meeting that requirement when $10,000 in cash is withdrawn from a demand deposit.The bank must now

Accepted Answer

A) decrease its reserves by $2,000. 
B) increase its reserves by $8,000. 
C) make $200,000 in new loans. 
D) do nothing since both its assets and liabilities are affected equally. 
A) decrease its reserves by $2,000. 
B) increase its reserves by $8,000. 
C) make $200,000 in new loans. 
D) do nothing since both its assets and liabilities are affected equally.

Using T-accounts,create an example of your own to show how banks create deposits and thus increase the money supply.

When banks have positive excess reserves,this indicates that

When banks have excess reserves,their reserve holdings exceed

Economists generally agree that there is a longstanding relationship between the rate of growth of the money supply and

Suppose a bank is exactly meeting its desired reserve ratio of 10 percent and a new deposit of $75,000 is made.Immediately after the deposit is made,the excess reserves will equal

The larger the desired reserve ratio,

A commercial bank with negative excess reserves

The fact that individuals whose credit-worthiness is less than it appears to be are those who are most willing to borrow money at any given interest rate is an example of

Deposit insurance shields depositors from the adverse effects of risky decisions,and thus

A bank with $100 million in deposits has $6 million in vault cash,$6 million on deposit with the Bank of Canada,and $6 million in government securities.The reserve requirement is 20 percent.A person deposits a check for $10 million drawn on another bank.The maximum loan this bank can now make is

If banks have zero excess reserves,then the net effect on the money supply of any cheque writing from one commercial bank to another is

A bank with deposits of $500 million has $75 million in cash on hand,$50 million in deposits with the Bank of Canada,and $80 million in government securities.If the reserve requirement is 15 percent,the bank has excess reserves of

To reach the maximum money multiplier,it is assumed that

Why did the federal government set up CDIC?

If a bank has zero excess reserves,the required reserve ratio is 20 percent,and a check for $100,000 is deposited in Bank ABC,excess reserves for Bank ABC now equal

A bank has a withdrawal of $1,000.If the bank has no excess reserves and if there is a 15 percent reserve requirement,

The actual money multiplier is less than the potential money multiplier because

If there are $5 million in excess reserves in the Canadian banking system and the required reserve ratio is 20 percent,then the most the money supply can increase is

Suppose that the desired reserve ratio is 20 percent and that a bank is just meeting that requirement when $10,000 in cash is withdrawn from a demand deposit.The bank must now

The Nature of Economics

Production Possibilities and Economic Systems

Demand and Supply

Introduction to Macroeconomics

Measuring the Economys Performance

Modelling Real Gdp and the Price Level in the Long Run

Economic Growth and Development

Modelling Real Gdp and the Price Level in the Short Run

Consumption, investment, and the Multiplier

The Public Sector

Fiscal Policy and the Public Debt

Money and the Banking System

The Bank of Canada and Monetary Policy

Issues in Stabilization Policy

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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Exam 13: Money Creation and Deposit Insurance

Using T-accounts,create an example of your own to show how banks create deposits and thus increase the money supply.

When banks have positive excess reserves,this indicates that

When banks have excess reserves,their reserve holdings exceed

Economists generally agree that there is a longstanding relationship between the rate of growth of the money supply and

Suppose a bank is exactly meeting its desired reserve ratio of 10 percent and a new deposit of $75,000 is made.Immediately after the deposit is made,the excess reserves will equal

The larger the desired reserve ratio,

A commercial bank with negative excess reserves

The fact that individuals whose credit-worthiness is less than it appears to be are those who are most willing to borrow money at any given interest rate is an example of

Deposit insurance shields depositors from the adverse effects of risky decisions,and thus

A bank with $100 million in deposits has $6 million in vault cash,$6 million on deposit with the Bank of Canada,and $6 million in government securities.The reserve requirement is 20 percent.A person deposits a check for $10 million drawn on another bank.The maximum loan this bank can now make is

If banks have zero excess reserves,then the net effect on the money supply of any cheque writing from one commercial bank to another is

A bank with deposits of $500 million has $75 million in cash on hand,$50 million in deposits with the Bank of Canada,and $80 million in government securities.If the reserve requirement is 15 percent,the bank has excess reserves of

To reach the maximum money multiplier,it is assumed that

Why did the federal government set up CDIC?

If a bank has zero excess reserves,the required reserve ratio is 20 percent,and a check for $100,000 is deposited in Bank ABC,excess reserves for Bank ABC now equal

A bank has a withdrawal of $1,000.If the bank has no excess reserves and if there is a 15 percent reserve requirement,

The actual money multiplier is less than the potential money multiplier because

If there are $5 million in excess reserves in the Canadian banking system and the required reserve ratio is 20 percent,then the most the money supply can increase is

Suppose that the desired reserve ratio is 20 percent and that a bank is just meeting that requirement when $10,000 in cash is withdrawn from a demand deposit.The bank must now

The Nature of Economics

Production Possibilities and Economic Systems

Demand and Supply

Introduction to Macroeconomics

Measuring the Economys Performance

Modelling Real Gdp and the Price Level in the Long Run

Economic Growth and Development

Modelling Real Gdp and the Price Level in the Short Run

Consumption, investment, and the Multiplier

The Public Sector

Fiscal Policy and the Public Debt

Money and the Banking System

The Bank of Canada and Monetary Policy

Issues in Stabilization Policy

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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