Question 1

The CDIC fee system encourages depository institutions to

Accepted Answer

A) make riskier loans than they would have otherwise. 
B) reject loans that probably would have been profitable. 
C) seek only a modest rate of return. 
D) operate their institutions in too conservative a fashion. 
A) make riskier loans than they would have otherwise. 
B) reject loans that probably would have been profitable. 
C) seek only a modest rate of return. 
D) operate their institutions in too conservative a fashion.

Question 2

What is the difference between adverse selection and moral hazard?

Accepted Answer

Adverse selection arises when there is a

Question 3

The actual change in the money supply equals

Accepted Answer

A) the actual change in excess reserves. 
B) the change in excess reserves times the money multiplier. 
C) the change in required reserves times the money multiplier. 
D) the change in reserves times the reserve requirement ratio. 
A) the actual change in excess reserves. 
B) the change in excess reserves times the money multiplier. 
C) the change in required reserves times the money multiplier. 
D) the change in reserves times the reserve requirement ratio.

Question 4

Bank runs are a possibility because

Accepted Answer

A) the CDIC is inefficient. 
B) bankers are often poor business people. 
C) in difficult times people want currency instead of demand deposits. 
D) banks do not keep enough reserves to cover all their depository liabilities. 
A) the CDIC is inefficient. 
B) bankers are often poor business people. 
C) in difficult times people want currency instead of demand deposits. 
D) banks do not keep enough reserves to cover all their depository liabilities.

Question 5

If all banks have zero excess reserves,the desired reserve ratio is 10 percent,and a cheque for $1 million on Bank XYZ is deposited in Bank ABC,then excess reserves now equal

Accepted Answer

A) $1 million. 
B) $900,000. 
C) $450,000. 
D) 0) 
A) $1 million. 
B) $900,000. 
C) $450,000. 
D) 0)

Question 6

Table 13-2
  
-In Table 13-2,if desired reserves are $150,000,the desired reserve ratio for XYZ Bank is

Accepted Answer

A) 15 percent. 
B) 1)5 percent. 
C) 20 percent. 
D) 25 percent. 
A) 15 percent. 
B) 1)5 percent. 
C) 20 percent. 
D) 25 percent.

Question 7

Other things equal,a higher interest rate on loans would encourage banks to

Accepted Answer

A) borrow less from the federal funds market. 
B) ask for an increase in the desired reserve ratio. 
C) hold fewer excess reserves. 
D) hold more total reserves. 
A) borrow less from the federal funds market. 
B) ask for an increase in the desired reserve ratio. 
C) hold fewer excess reserves. 
D) hold more total reserves.

Question 8

When the desired reserve ratio is 20 percent,a withdrawal of $500 can ultimately lead to a maximum reduction in the money supply of

Accepted Answer

A) $100. 
B) $500. 
C) $2,500. 
D) $5,000. 
A) $100. 
B) $500. 
C) $2,500. 
D) $5,000.

Question 9

The manner in which CDIC deposit insurance is set up in Canada encourages banks to

Accepted Answer

A) be too conservative in their lending practices. 
B) maintain excess reserves that are too great. 
C) make riskier loans than they otherwise would. 
D) reject some loans that probably would be profitable. 
A) be too conservative in their lending practices. 
B) maintain excess reserves that are too great. 
C) make riskier loans than they otherwise would. 
D) reject some loans that probably would be profitable.

Question 10

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

Accepted Answer

A) government spending. 
B) planned investment. 
C) the Toronto stock exchange. 
D) inflation. 
A) government spending. 
B) planned investment. 
C) the Toronto stock exchange. 
D) inflation.

Question 11

If banks have zero excess reserves,then the net effect of any check writing and depositing on the money supply is

Accepted Answer

A) positive since the required reserve ratio is less than one. 
B) positive as long as no one takes cash out of the system. 
C) zero,since the gain in excess reserves at one bank are exactly offset by a reduction in excess reserves at another bank. 
D) negative since one bank loses more in total reserves than the other bank gets in excess reserves. 
A) positive since the required reserve ratio is less than one. 
B) positive as long as no one takes cash out of the system. 
C) zero,since the gain in excess reserves at one bank are exactly offset by a reduction in excess reserves at another bank. 
D) negative since one bank loses more in total reserves than the other bank gets in excess reserves.

Question 12

Which of the following would reduce the money multiplier?

Accepted Answer

A) reducing the desired reserve ratio 
B) bond purchases by the Bank of Canada 
C) cash drains from banks 
D) bank reductions in excess reserve holdings 
A) reducing the desired reserve ratio 
B) bond purchases by the Bank of Canada 
C) cash drains from banks 
D) bank reductions in excess reserve holdings

Question 13

How do excess reserves increase the money supply?

Accepted Answer

When excess reserves are created,the mon

Question 14

Lenders generally want borrowers to agree to invest prudently,yet once a loan is made borrowers may use the money in a highly risky fashion.This leads to the problem of

Accepted Answer

A) critical mass. 
B) deposit insurance. 
C) investor selection. 
D) moral hazard. 
A) critical mass. 
B) deposit insurance. 
C) investor selection. 
D) moral hazard.

Question 15

The money multiplier gives us

Accepted Answer

A) the growth in real national income when the money supply increases. 
B) the growth in the money supply when real national income increases. 
C) the maximum potential change in total deposits due to a change in reserves. 
D) the maximum potential change in the money supply due to a change in real national income. 
A) the growth in real national income when the money supply increases. 
B) the growth in the money supply when real national income increases. 
C) the maximum potential change in total deposits due to a change in reserves. 
D) the maximum potential change in the money supply due to a change in real national income.

Question 16

The CDIC was created because

Accepted Answer

A) banks failed to create money the way the Bank of Canada wanted them to. 
B) people worried about bank failures after World War I,even though very few banks actually failed. 
C) of bank runs. 
D) the Bank of Canada kept the desired reserve ratio too low. 
A) banks failed to create money the way the Bank of Canada wanted them to. 
B) people worried about bank failures after World War I,even though very few banks actually failed. 
C) of bank runs. 
D) the Bank of Canada kept the desired reserve ratio too low.

Question 17

With a desired reserve ratio of 10 percent,the maximum money multiplier is

Accepted Answer

A) 1) 
B) 5) 
C) 10. 
D) 100. 
A) 1) 
B) 5) 
C) 10. 
D) 100.

Question 18

If a bank's deposits at the Bank of Canada increase by $10 million,then

Accepted Answer

A) both the bank's assets and the Bank of Canada's assets increase by $10 million. 
B) both the bank's liabilities and the Bank of Canada's liabilities increase by $10 million. 
C) the bank's assets increase by $10 million and the Bank of Canada's liabilities increase by $10 million. 
D) the bank's assets increase by $10 million,but there is no change at the Bank of Canada since it doesn't really have assets or liabilities. 
A) both the bank's assets and the Bank of Canada's assets increase by $10 million. 
B) both the bank's liabilities and the Bank of Canada's liabilities increase by $10 million. 
C) the bank's assets increase by $10 million and the Bank of Canada's liabilities increase by $10 million. 
D) the bank's assets increase by $10 million,but there is no change at the Bank of Canada since it doesn't really have assets or liabilities.

Question 19

If the Bank of Canada decreases the reserve requirement ratio from 20 percent to 10 percent,the money multiplier

Accepted Answer

A) increases from 10 to 20. 
B) increases from 5 to 10. 
C) decreases from 20 to 10. 
D) decreases from 10 to 5. 
A) increases from 10 to 20. 
B) increases from 5 to 10. 
C) decreases from 20 to 10. 
D) decreases from 10 to 5.

Question 20

A bank holding only deposits of $800 and loans of $1000 would have a net worth of

Accepted Answer

A) -$200. 
B) $200. 
C) $1,000. 
D) $1,800. 
A) -$200. 
B) $200. 
C) $1,000. 
D) $1,800.

The CDIC fee system encourages depository institutions to

What is the difference between adverse selection and moral hazard?

The actual change in the money supply equals

Bank runs are a possibility because

If all banks have zero excess reserves,the desired reserve ratio is 10 percent,and a cheque for $1 million on Bank XYZ is deposited in Bank ABC,then excess reserves now equal

Table 13-2 -In Table 13-2,if desired reserves are $150,000,the desired reserve ratio for XYZ Bank is

Other things equal,a higher interest rate on loans would encourage banks to

When the desired reserve ratio is 20 percent,a withdrawal of $500 can ultimately lead to a maximum reduction in the money supply of

The manner in which CDIC deposit insurance is set up in Canada encourages banks to

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

If banks have zero excess reserves,then the net effect of any check writing and depositing on the money supply is

Which of the following would reduce the money multiplier?

How do excess reserves increase the money supply?

Lenders generally want borrowers to agree to invest prudently,yet once a loan is made borrowers may use the money in a highly risky fashion.This leads to the problem of

The money multiplier gives us

The CDIC was created because

With a desired reserve ratio of 10 percent,the maximum money multiplier is

If a bank's deposits at the Bank of Canada increase by $10 million,then

If the Bank of Canada decreases the reserve requirement ratio from 20 percent to 10 percent,the money multiplier

A bank holding only deposits of $800 and loans of $1000 would have a net worth of

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

Filters

Exam 13: Money Creation and Deposit Insurance

The CDIC fee system encourages depository institutions to

What is the difference between adverse selection and moral hazard?

The actual change in the money supply equals

Bank runs are a possibility because

If all banks have zero excess reserves,the desired reserve ratio is 10 percent,and a cheque for $1 million on Bank XYZ is deposited in Bank ABC,then excess reserves now equal

Table 13-2 -In Table 13-2,if desired reserves are $150,000,the desired reserve ratio for XYZ Bank is

Other things equal,a higher interest rate on loans would encourage banks to

When the desired reserve ratio is 20 percent,a withdrawal of $500 can ultimately lead to a maximum reduction in the money supply of

The manner in which CDIC deposit insurance is set up in Canada encourages banks to

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

If banks have zero excess reserves,then the net effect of any check writing and depositing on the money supply is

Which of the following would reduce the money multiplier?

How do excess reserves increase the money supply?

Lenders generally want borrowers to agree to invest prudently,yet once a loan is made borrowers may use the money in a highly risky fashion.This leads to the problem of

The money multiplier gives us

The CDIC was created because

With a desired reserve ratio of 10 percent,the maximum money multiplier is

If a bank's deposits at the Bank of Canada increase by $10 million,then

If the Bank of Canada decreases the reserve requirement ratio from 20 percent to 10 percent,the money multiplier

A bank holding only deposits of $800 and loans of $1000 would have a net worth of

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

Filters