Question 1

Subtracting borrowed reserves from the monetary base obtains ________.

Accepted Answer

A)  reserves 
B)  high-powered money 
C)  the nonborrowed monetary base 
D)  the borrowed monetary base

Question 2

When banks borrow money from the Bank of Canada, these funds are called ________.

Accepted Answer

A)  Bank funds 
B)  borrowed reserves 
C)  Bank loans 
D)  overnight funds

Question 3

Assuming initially that r = 10 percent and c = 40 percent, an increase in r to 15 percent causes ________.

Accepted Answer

A)  the money multiplier to increase from 2.55 to 2.8 
B)  the money multiplier to decrease from 2.8 to 2.55 
C)  the money multiplier to increase from 1.82 to 2 
D)  no change in the money multiplier

Question 4

The government agency that oversees the banking system and is responsible for the conduct of monetary policy in Canada is ________.

Accepted Answer

A)  the Bank of Canada 
B)  the Department of Finance 
C)  the Canada Customs and Revenue Agency 
D)  the House of Parliament

Question 5

If a bank has excess reserves of $15000 and demand deposit liabilities of $80000, and if the reserve requirement is 20 percent, then the bank has total reserves of ________.

Accepted Answer

A)  $11000 
B)  $21000 
C)  $31000 
D)  $41000

Question 6

A bank has excess reserves of $10000 and demand deposit liabilities of $100,000 when the desired reserve ratio is 20 percent. If the reserve ratio is raised to 25 percent, the bank's excess reserves will be ________.

Accepted Answer

A)  -$5000 
B)  -$1000 
C)  $1000 
D)  $5000

Question 7

The three players in the money supply process include ________.

Accepted Answer

A)  banks, depositors, and the Department of Finance 
B)  banks, depositors, and borrowers 
C)  banks, depositors, and the central bank 
D)  banks, borrowers, and the central bank

Question 8

If the money supply is equal to $400 billion and the monetary base is equal to $100 billion, the money multiplier is equal to ________.

Accepted Answer

A)  4 
B)  0.25 
C)  5 
D)  cannot be determined

Question 9

An increase in ________ leads to an equal ________ in the monetary base in the short run.

Accepted Answer

A)  float; decrease 
B)  float; increase 
C)  advances to banks; decrease 
D)  deposits at the Bank; increase

Question 10

In the simple deposit expansion model, a decline in chequable deposits of $1000 when the desired reserve ratio is equal to 20 percent implies that the Bank of Canada ________.

Accepted Answer

A)  sold $200 in government bonds 
B)  sold $500 in government bonds 
C)  purchased $200 in government bonds 
D)  purchased $500 in government bonds

Question 11

If the desired reserve ratio is ten percent, currency in circulation is $400 billion, chequable deposits are $800 billion, and excess reserves total $0.8 billion, then the excess reserves-chequable deposit ratio is ________.

Accepted Answer

A)  0.001 
B)  0.10 
C)  0.01 
D)  0.05

Question 12

When an individual sells a $100 bond to the Bank, she may either deposit the cheque she receives or cash it for currency. In both cases ________.

Accepted Answer

A)  reserves increase 
B)  high-powered money increases 
C)  reserves decrease 
D)  high-powered money decreases

Question 13

In the simple deposit expansion model, if the Bank of Canada purchases $100 worth of bonds from a bank that previously had no excess reserves, the bank can now increase its loans by ________.

Accepted Answer

A)  $10 
B)  $100 
C)  $100 times the reciprocal of the desired reserve ratio 
D)  $100 times the desired reserve ratio

Question 14

When a bank buys a government bond from the Bank of Canada, reserves in the banking system ________ and the monetary base ________, everything else held constant.

Accepted Answer

A)  increase; increases 
B)  increase; decreases 
C)  decrease; increases 
D)  decrease; decreases

Question 15

If the desired reserve ratio is 10 percent, the simple deposit multiplier is ________.

Accepted Answer

A)  5.0 
B)  2.5 
C)  100.0 
D)  10.0

Question 16

Everything else held constant, an increase in the time deposit ratio will result in ________ in the M1+ money multiplier and ________ in the M2+ money multiplier.

Accepted Answer

A)  an increase; an increase 
B)  no change; an increase 
C)  a decrease; a decrease 
D)  no change; a decrease

Question 17

A decrease in ________ leads to an equal ________ in the monetary base in the short run.

Accepted Answer

A)  float; increase 
B)  float; decrease 
C)  deposits at the Bank; decrease 
D)  advances to banks; increase

Question 18

Who are the three players in the money supply process? Describe their roles.

Accepted Answer

The answer of Who are the three players in the...

Question 19

If the money multiplier is equal to 2 and the money supply is equal to $100 billion, the monetary base is equal to ________.

Accepted Answer

A)  $50 billion 
B)  $200 billion 
C)  $25 billion 
D)  cannot be determined

Question 20

If a bank has excess reserves of $4000 and demand deposit liabilities of $100,000, and if the reserve requirement is 15 percent, then the bank has actual reserves of ________.

Accepted Answer

A)  $17000 
B)  $19000 
C)  $24000 
D)  $29000

Exam 15: The Money Supply Process