Question 1

Whenever desired reserves exceed actual reserves, the bank

Accepted Answer

A)  is in a profit- making position.
B)  can make new loans.
C)  will go out of business.
D)  will call in loans.
E)  has excess reserves. D

Question 2

If households and firms find they are holding more money than desired, they will

Accepted Answer

A)  sell bonds, and the interest rate will fall.
B)  buy bonds, and the interest rate will rise.
C)  buy bonds, and the interest rate will fall.
D)  buy goods, and the price level will rise.
E)  sell bonds, and the interest rate will rise. C

Question 3

Which of the following is not considered money in Canada today?

Accepted Answer

A)  deposits at banks
B)  debit cards
C)  Bank of Canada notes
D)  coins
E)  deposits at credit unions B

Question 4

Real GDP is $2,000 billion, the GDP deflator is 120 a price level of 1.2), and the velocity of circulation is 5.Nominal GDP is

Accepted Answer

A)  $24 billion.
B)  $2,000 billion.
C)  $600 billion.
D)  $2,400 billion.
E)  $166.67 billion.

Question 5

The banks on Sunny Island have deposits of $4 million, reserves of $600,000, and loans of $2.4 million.The desired reserve ratio is 10 percent.The banks have _______ of desired reserves and _______ of excess reserves.

Accepted Answer

A)  $200,000; $600,000
B)  $200,000; $400,000
C)  $600,000; $200,000
D)  $400,000; $600,000
E)  $400,000; $200,000

Question 6

Use the figure below to answer the following questions.
  Figure 8.5.2
-Refer to Figure 8.5.2.Which one of the following best shows the effect of a rise in the market price of bonds?

Accepted Answer

A)  A movement from A to E
B)  A movement from A to F
C)  A movement from A to B
D)  A movement from A to C
E)  A movement from C to A

Question 7

Which of the following assets is the most liquid?

Accepted Answer

A)  a line of credit
B)  a credit card
C)  a Van Gogh painting
D)  a house
E)  cash

Question 8

If the desired reserve ratio is 3 percent and deposits are $5.75 billion, banks hold

Accepted Answer

A)  $0.1725 million in excess reserves.
B)  $192 million in reserves.
C)  $0.1725 million in reserves.
D)  $172.5 million in excess reserves.
E)  $172.5 million in reserves.

Question 9

If the interest rate is above the equilibrium interest rate, how is equilibrium achieved in the money market?

Accepted Answer

A)  People sell goods to try to raise more money, lowering the price of goods and lowering the interest rate.
B)  People buy bonds to get rid of their excess money, raising the price of bonds and lowering the interest rate.
C)  People sell bonds to try to raise more money, raising the price of bonds and lowering the interest rate.
D)  People buy goods to get rid of their excess money, lowering the price of goods and lowering the interest rate.
E)  People buy bonds to get rid of their excess money, lowering the price of bonds and lowering the interest rate.

Question 10

The quantity theory of money begins with the equation of exchange, MV = PY, and then adds the assumptions that

Accepted Answer

A)  velocity and the price level are independent of the quantity of money.
B)  velocity and potential GDP are independent of the quantity of money.
C)  velocity varies inversely with the interest rate, and the price level is independent of the quantity of money.
D)  potential GDP and the price level are independent of the quantity of money.
E)  potential GDP and the quantity of money are independent of the price level.

Question 11

If Wolfgang transfers $1,000 out of his chequable deposit account and places it in his non- chequable deposit account,

Accepted Answer

A)  M1 falls and M2 rises.
B)  M1 and M2 fall.
C)  M1 rises and M2 remains the same.
D)  M1 falls and M2 remains the same.
E)  M1 falls and M3 rises.

Question 12

Who bears the ultimate responsibility for regulation of depository institutions?

Accepted Answer

A)  The Office of the Superintendent of Financial Institutions
B)  The Canada Deposit Insurance Corporation
C)  The Department of Finance
D)  The Bank of Canada
E)  The Federal Reserve

Question 13

On the average in Canada, the inflation rate and the money growth rate minus real GDP growth rate

Accepted Answer

A)  are always rising.
B)  are not related.
C)  move in opposite directions.
D)  are always equal.
E)  rise and fall together.

Question 14

The ratio of currency to deposits is the

Accepted Answer

A)  monetary reserve ratio.
B)  excess reserve ratio.
C)  reserve ratio.
D)  currency drain ratio.
E)  currency ratio.

Question 15

The Bank of Canada does not do which of the following?

Accepted Answer

A)  act as a lender of last resort to banks
B)  issue bank notes
C)  lend money to the public
D)  hold government of Canada securities
E)  supervise chartered banks

Question 16

When the Bank of Canada makes an open market purchase, its assets _______ and its liabilities _______.

Accepted Answer

A)  decrease; increase
B)  increase; increase
C)  decrease; decrease
D)  increase; decrease
E)  decrease; do not change

Question 17

Nominal money is equal to real

Accepted Answer

A)  GDP times the GDP deflator.
B)  money times the price level.
C)  money divided by the price level.
D)  GDP times the price level.
E)  GDP times real money.

Question 18

Quantecon is a country in which the quantity theory of money operates.The country has a constant population, and technology.In year 1, real GDP was $400 million, the GDP deflator was 200 a price level of 2), and the veloc circulation was 20. In year 2 the quantity of money was 20 percent higher than in year 1.The quantity of money in year 1 was _______.
The quantity of money in year 2 was _______.
The GDP deflator in year 2 is _______.

Accepted Answer

A)  $40 million; $48 million; 240
B)  $20 million; $24 million; 220
C)  $80 million; $88 million; 200
D)  $20 million; 24 million; 240
E)  $40 million; $48 million; 220

Question 19

Use the information below to answer the following questions.
Fact 8.1.2
Currency held by individuals and businesses is $57 billion; chequable deposits owned by individuals and businesses are $211 non- chequable personal deposits are $163 billion; non- chequable business deposits are $29 billion; and fixed term deposits are $303 billion.
-Consider Fact 8.1.2.M1 is

Accepted Answer

A)  $57 billion.
B)  $460 billion.
C)  $763 billion.
D)  $431 billion
E)  $268 billion.

Question 20

Whenever actual reserves exceed desired reserves, the bank

Accepted Answer

A)  will raise the interest rate on its loans.
B)  will borrow funds from another bank.
C)  needs to call in loans.
D)  will go out of business.
E)  can make new loans.

Exam 8: Money, the Price Level, and Inflation