Question 1

A bank has (in millions) : $400 assets, $280 deposits, and $80 debt. If the bank's assets decrease by 10 percent, by how much does the bank's capital change?

Accepted Answer

A)   It decreases by 100 percent.
B)   It decreases by 5 percent.
C)   It increases by 100 percent.
D)   It increases by 5 percent.E) None of the above
F) C) and D)

Question 2

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Accepted Answer

When the reserve requirement is less tha...

Question 3

How could the Bank of Canada decrease the money supply?

Accepted Answer

A)   by buying government bonds
B)   by decreasing the bank rate
C)   by decreasing the reserve requirement
D)   by increasing the bank rateE) All of the above
F) B) and D)

Question 4

If the reserve ratio is 25 percent, how much money can be created from $100 of reserves? Show your work.

Accepted Answer

(1/0.25) ×...

Question 5

Which of the following ranks assets from most to least liquid?

Accepted Answer

A)   currency, gold, bonds
B)   currency, bonds, gold
C)   gold, currency, bonds
D)   gold, bonds, currencyE) All of the above
F) A) and C)

Question 6

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange, even though the ruble was legal tender. The cigarettes provide an example of fiat money.

Accepted Answer

A) True 
 B)False

Question 7

In the nineteenth century, when there were often bank runs caused by crop failures, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, which action should the banks have taken?

Accepted Answer

A)   They should have increased both the money multiplier and the money supply.
B)   They should have decreased the money multiplier and increased the money supply.
C)   They should have increased the money multiplier and decreased the money supply.
D)   They should have decreased both the money multiplier and the money supply.E) C) and D)
F) None of the above

Question 8

At one time, the country of Freedonia had no banks, but had currency of $40 million. Then a banking system was established with a reserve requirement of one-third. The people of Freedonia now keep half their money in the form of currency and half in the form of bank deposits. If banks do not hold excess reserves, how much currency do the people of Freedonia now hold?

Accepted Answer

A)   $13.33 million
B)   $20 million
C)   $33.34 million
D)   $36.36 millionE) B) and D)
F) None of the above

Question 9

How does currency contribute to the money supply?

Accepted Answer

A)   Currency held by the public and by banks is part of the money supply.
B)   Currency held by the public is part of the money supply, but currency held by banks is not.
C)   Currency held by the public is not part of the money supply, but currency held by banks is.
D)   Currency held by the public or banks is not part of the money supply since it is not included in M1.E) A) and D)
F) None of the above

Question 10

-Refer to Table 10-1. If $1000 is deposited into the First Bank of Dawson City, what will happen?

Accepted Answer

A)   Reserves will decrease by $800.
B)   Liabilities will decrease by $1000.
C)   Assets will increase by $1000.
D)   Reserves will increase by $800.E) A) and B)
F) All of the above

Question 11

A bank has (in millions): $40 reserves, $160 loans, $80 securities, $240 deposits, and $20 debt. Calculate the bank's reserve ratio, assets, liabilities, capital, and leverage ratio.

Accepted Answer

Reserve ratio = Reserve / Deposits = 40/...

Question 12

Which of the following does M1+ include?

Accepted Answer

A)   currency
B)   savings deposits
C)   travellers' cheques
D)   foreign currency accountsE) A) and C)
F) A) and D)

Question 13

When the Bank of Canada conducts open-market purchases, how do commercial banks' assets most likely change?

Accepted Answer

A)   Reserves increase, and banks increase lending.
B)   Reserves increase, and banks decrease lending.
C)   Reserves decrease, and banks increase lending.
D)   Reserves decrease, and banks decrease lending.E) B) and C)
F) A) and B)

Question 14

Which statement best describes the consequences of open-market sales conducted by the Bank of Canada?

Accepted Answer

A)   Bank reserves increase, and the money supply increases.
B)   Bank reserves increase, and the money supply decreases.
C)   Bank reserves decrease, and the money supply increases.
D)   Bank reserves decrease, and the money supply decreases.E) C) and D)
F) None of the above

Question 15

If the Bank of Canada increases reserve requirements, the money supply will increase.

Accepted Answer

A) True 
 B)False

Question 16

What characterizes commodity money?

Accepted Answer

A)   It is money that is backed by gold.
B)   It is the principal type of money in use today.
C)   It is money with intrinsic value.
D)   It is comprised of receipts created in international trade that are used as a medium of exchange.E) A) and B)
F) C) and D)

Question 17

How does the Bank of Canada conduct open-market transactions?

Accepted Answer

A)   It prints new currency.
B)   It buys or sells government bonds from or to the public.
C)   It lowers the bank rate.
D)   It increases its lending to chartered banks.E) B) and D)
F) C) and D)

Question 18

What does the text mean by, and how does it answer the question, "Where is all the currency?"

Accepted Answer

The amount of currency per person is abo...

Question 19

-Refer to Table 10-3. Assume that all other banks hold only the required 5 percent of deposits as reserves and people hold only deposits and no currency. If the Bank of Kamloops decides to hold exactly 5 percent in reserves, by how much would the economy's money supply increase?

Accepted Answer

A)   $500
B)   $1200
C)   $1500
D)   $2000E) A) and C)
F) B) and C)

Question 20

The money multiplier equals 1 divided by (1 - the reserve ratio).

Accepted Answer

A) True 
 B)False

Exam 10: The Monetary System

Which of the following does M1+ include?

Correct Answer
verified

Correct Answer
verified

In the nineteenth century, when there were often bank runs caused by crop failures, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, which action should the banks have taken?

Correct Answer
verified

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Correct Answer
verified
When the reserve requirement is less tha...
View Answer

If the Bank of Canada increases reserve requirements, the money supply will increase.

Correct Answer
verified

A bank has (in millions): $40 reserves, $160 loans, $80 securities, $240 deposits, and $20 debt. Calculate the bank's reserve ratio, assets, liabilities, capital, and leverage ratio.

Correct Answer
verified
Reserve ratio = Reserve / Deposits = 40/...
View Answer

What characterizes commodity money?

Correct Answer
verified

How could the Bank of Canada decrease the money supply?

Correct Answer
verified

How does the Bank of Canada conduct open-market transactions?

Correct Answer
verified

Which of the following ranks assets from most to least liquid?

Correct Answer
verified

When the Bank of Canada conducts open-market purchases, how do commercial banks' assets most likely change?

Correct Answer
verified

What does the text mean by, and how does it answer the question, "Where is all the currency?"

Correct Answer
verified
The amount of currency per person is abo...
View Answer

The money multiplier equals 1 divided by (1 - the reserve ratio).

Correct Answer
verified

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange, even though the ruble was legal tender. The cigarettes provide an example of fiat money.

Correct Answer
verified

If the reserve ratio is 25 percent, how much money can be created from $100 of reserves? Show your work.

Correct Answer
verified
(1/0.25) ×...
View Answer

How does currency contribute to the money supply?

Correct Answer
verified

-Refer to Table 10-1. If $1000 is deposited into the First Bank of Dawson City, what will happen?

Correct Answer
verified

-Refer to Table 10-3. Assume that all other banks hold only the required 5 percent of deposits as reserves and people hold only deposits and no currency. If the Bank of Kamloops decides to hold exactly 5 percent in reserves, by how much would the economy's money supply increase?

Correct Answer
verified

A bank has (in millions) : $400 assets, $280 deposits, and $80 debt. If the bank's assets decrease by 10 percent, by how much does the bank's capital change?

Correct Answer
verified

Which statement best describes the consequences of open-market sales conducted by the Bank of Canada?

Correct Answer
verified

Exam 10: The Monetary System

Which of the following does M1+ include?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the nineteenth century, when there were often bank runs caused by crop failures, banks would make relatively fewer loans and hold relatively more excess reserves. By itself, which action should the banks have taken?

Correct AnswerverifiedShow Answer

Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.

Correct AnswerverifiedWhen the reserve requirement is less tha...View AnswerShow Answer

If the Bank of Canada increases reserve requirements, the money supply will increase.

Correct AnswerverifiedShow Answer

A bank has (in millions): $40 reserves, $160 loans, $80 securities, $240 deposits, and $20 debt. Calculate the bank's reserve ratio, assets, liabilities, capital, and leverage ratio.

Correct AnswerverifiedReserve ratio = Reserve / Deposits = 40/...View AnswerShow Answer

What characterizes commodity money?

Correct AnswerverifiedShow Answer

How could the Bank of Canada decrease the money supply?

Correct AnswerverifiedShow Answer

How does the Bank of Canada conduct open-market transactions?

Correct AnswerverifiedShow Answer

Which of the following ranks assets from most to least liquid?

Correct AnswerverifiedShow Answer

When the Bank of Canada conducts open-market purchases, how do commercial banks' assets most likely change?

Correct AnswerverifiedShow Answer

What does the text mean by, and how does it answer the question, "Where is all the currency?"

Correct AnswerverifiedThe amount of currency per person is abo...View AnswerShow Answer

The money multiplier equals 1 divided by (1 - the reserve ratio).

Correct AnswerverifiedShow Answer

When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of exchange, even though the ruble was legal tender. The cigarettes provide an example of fiat money.

Correct AnswerverifiedShow Answer

If the reserve ratio is 25 percent, how much money can be created from $100 of reserves? Show your work.

Correct Answerverified(1/0.25) ×...View AnswerShow Answer

How does currency contribute to the money supply?

Correct AnswerverifiedShow Answer

-Refer to Table 10-1. If $1000 is deposited into the First Bank of Dawson City, what will happen?

Correct AnswerverifiedShow Answer

-Refer to Table 10-3. Assume that all other banks hold only the required 5 percent of deposits as reserves and people hold only deposits and no currency. If the Bank of Kamloops decides to hold exactly 5 percent in reserves, by how much would the economy's money supply increase?

Correct AnswerverifiedShow Answer

A bank has (in millions) : $400 assets, $280 deposits, and $80 debt. If the bank's assets decrease by 10 percent, by how much does the bank's capital change?

Correct AnswerverifiedShow Answer

Which statement best describes the consequences of open-market sales conducted by the Bank of Canada?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
When the reserve requirement is less tha...
View Answer

Correct Answer
verified

Correct Answer
verified
Reserve ratio = Reserve / Deposits = 40/...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The amount of currency per person is abo...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
(1/0.25) ×...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified