Question 1

The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of reserves to the banking system as a whole.

Accepted Answer

A) True 
 B)False

Question 2

If the price index rises from 100 to 130,the value of the dollar will fall by about:

Accepted Answer

A)   15 percent.
B)   19 percent.
C)   30 percent.
D)   23 percent.E) A) and B)
F) None of the above

Question 3

One of the three basic functions of money is to serve as legal tender.

Accepted Answer

A) True 
 B)False

Question 4

Suppose the ABC bank has excess reserves of $4,000 and outstanding demand deposits of $80,000.If the desired reserve ratio is 25 percent,what is the size of the bank's actual cash reserves?

Accepted Answer

A)   $16,000
B)   $84,000
C)   $24,000
D)   $20,000E) A) and D)
F) B) and C)

Question 5

In the fractional reserve banking system:

Accepted Answer

A)   half of the total money supply is held in reserves as currency
B)   a fraction of the total money supply is held in reserves as currency.
C)   an amount equal to the total money supply is held in reserves as currency.
D)   no fraction of the total money supply is held in reserves as currency.E) A) and C)
F) A) and B)

Question 6

If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves;E equals the amount of excess reserves;and m is the money multiplier,then we can say that:

Accepted Answer

A)   m = E/D.
B)   D = E × m.
C)   D = E - 1/m.
D)   D = m/E.E) C) and D)
F) All of the above

Question 7

A chartered bank has demand-deposit liabilities of $500,000,cash reserves of $150,000,and a desired reserve ratio of 20 percent.The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

Accepted Answer

A)   $30,000 and $150,000.
B)   $50,000 and $250,000.
C)   $50,000 and $500,000.
D)   $100,000 and $500,000.E) A) and D)
F) A) and B)

Question 8

A 15 percent increase in the price

Accepted Answer

A)   increases the value of a dollar by 15 percent.
B)   decreases the value of a dollar by about 13 percent.
C)   decreases the value of a dollar by 15 percent.
D)   decreases the value of a dollar by about 8 percent.E) B) and D)
F) None of the above

Question 9

If the desired reserve ratio were 15 percent,the value of the monetary multiplier would be:

Accepted Answer

A)   5.50.
B)   6.67.
C)   7.32.
D)   8.54.E) C) and D)
F) A) and B)

Question 10

If a coin is token money,its face value is greater than its intrinsic value.

Accepted Answer

A) True 
 B)False

Question 11

The major component of the money supply (M1) is:

Accepted Answer

A)   gold certificates.
B)   demand deposits.
C)   paper money in circulation.
D)   coins.E) A) and D)
F) B) and C)

Question 12

Which of the following describes the fundamental identity embodied in a balance sheet?

Accepted Answer

A)   Net Worth plus Assets equal Liabilities
B)   Assets plus Liabilities equal Net Worth
C)   Assets equal Liabilities plus Net Worth
D)   Assets plus Reserves equal Net WorthE) A) and C)
F) C) and D)

Question 13

The following balance sheet is for the First Edmonton Bank.Assume that the desired reserve ratio is 10%.All figures are in millions.
 
-Refer to the above information.Suppose that customers of this bank collectively write cheques for cash at the bank in the amount of $1 million.As a result,the bank's excess reserves diminish to:

Accepted Answer

A)   $0
B)   $6 million.
C)   $9 million.
D)   $9.1 million.E) B) and C)
F) A) and D)

Question 14

Refer to the information below.When the desired reserve ratio is 25 percent,the excess reserves of this single bank are:

Accepted Answer

A)   zero dollars.
B)   $1,000
C)   $5,000
D)   $30,000E) B) and C)
F) A) and D)

Question 15

Demand deposits are:

Accepted Answer

A)   debts of chartered banks and other financial institutions.
B)   debts of the Bank of Canada.
C)   credits of the Bank of Canada.
D)   credits of chartered banks and other financial institutions.E) C) and D)
F) A) and D)

Question 16

The money supply is "backed":

Accepted Answer

A)   by the government's ability to control the supply of money and therefore to keep its value relatively stable.
B)   by government bonds.
C)   dollar-for-dollar with gold and silver.
D)   dollar-for-dollar with gold bullion.E) A) and B)
F) B) and C)

Question 17

The following is a consolidated balance sheet for the chartered banking system.All figures are in billions.Assume that the desired reserve ratio is 20 percent.
 
-Refer to the above information.If there is a deposit of $10 billion of new currency into chequing accounts in the banking system,excess reserves will increase by:

Accepted Answer

A)   $1 billion.
B)   $2 billion.
C)   $8 billion.
D)   $10 billion.E) A) and B)
F) A) and C)

Question 18

The difference between M1 and M2 is that:

Accepted Answer

A)   the former includes notice deposits.
B)   the latter includes personal saving deposits and non-personal notice deposits.
C)   the latter includes government bonds.
D)   the latter includes cash held by chartered banks.E) All of the above
F) C) and D)

Question 19

The prime rate is:

Accepted Answer

A)   the interest rate charged by the chartered banks in Canada for lending to their best corporate customers.
B)   the interest rate charged by the chartered banks in Canada for lending to other financial intermediaries.
C)   the interest rate charged by the chartered banks in Canada for lending to the Federal government.
D)   the interest rate charged by the chartered banks in Canada for lending to the trust companies.E) B) and C)
F) A) and B)

Question 20

Suppose a chartered bank has demand deposits of $500,000 and the desired reserve ratio is 10 percent.If the institution has excess reserves of $4,000,then its actual cash reserves are:

Accepted Answer

A)   $46,000
B)   $50,000
C)   $4,000
D)   $54,000E) B) and C)
F) A) and D)

Exam 14: Money, Banking, and Money Creation

Demand deposits are:

Correct Answer
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Refer to the information below.When the desired reserve ratio is 25 percent,the excess reserves of this single bank are:

Correct Answer
verified

Correct Answer
verified

A chartered bank has demand-deposit liabilities of $500,000,cash reserves of $150,000,and a desired reserve ratio of 20 percent.The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

Correct Answer
verified

If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves;E equals the amount of excess reserves;and m is the money multiplier,then we can say that:

Correct Answer
verified

The difference between M1 and M2 is that:

Correct Answer
verified

One of the three basic functions of money is to serve as legal tender.

Correct Answer
verified

The prime rate is:

Correct Answer
verified

The money supply is "backed":

Correct Answer
verified

In the fractional reserve banking system:

Correct Answer
verified

Suppose a chartered bank has demand deposits of $500,000 and the desired reserve ratio is 10 percent.If the institution has excess reserves of $4,000,then its actual cash reserves are:

Correct Answer
verified

The major component of the money supply (M1) is:

Correct Answer
verified

If the desired reserve ratio were 15 percent,the value of the monetary multiplier would be:

Correct Answer
verified

Suppose the ABC bank has excess reserves of $4,000 and outstanding demand deposits of $80,000.If the desired reserve ratio is 25 percent,what is the size of the bank's actual cash reserves?

Correct Answer
verified

If a coin is token money,its face value is greater than its intrinsic value.

Correct Answer
verified

Which of the following describes the fundamental identity embodied in a balance sheet?

Correct Answer
verified

The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of reserves to the banking system as a whole.

Correct Answer
verified

Correct Answer
verified

If the price index rises from 100 to 130,the value of the dollar will fall by about:

Correct Answer
verified

A 15 percent increase in the price

Correct Answer
verified

Exam 14: Money, Banking, and Money Creation

Demand deposits are:

Correct AnswerverifiedShow Answer

Refer to the information below.When the desired reserve ratio is 25 percent,the excess reserves of this single bank are:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A chartered bank has demand-deposit liabilities of $500,000,cash reserves of $150,000,and a desired reserve ratio of 20 percent.The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

Correct AnswerverifiedShow Answer

If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves;E equals the amount of excess reserves;and m is the money multiplier,then we can say that:

Correct AnswerverifiedShow Answer

The difference between M1 and M2 is that:

Correct AnswerverifiedShow Answer

One of the three basic functions of money is to serve as legal tender.

Correct AnswerverifiedShow Answer

The prime rate is:

Correct AnswerverifiedShow Answer

The money supply is "backed":

Correct AnswerverifiedShow Answer

In the fractional reserve banking system:

Correct AnswerverifiedShow Answer

Suppose a chartered bank has demand deposits of $500,000 and the desired reserve ratio is 10 percent.If the institution has excess reserves of $4,000,then its actual cash reserves are:

Correct AnswerverifiedShow Answer

The major component of the money supply (M1) is:

Correct AnswerverifiedShow Answer

If the desired reserve ratio were 15 percent,the value of the monetary multiplier would be:

Correct AnswerverifiedShow Answer

Suppose the ABC bank has excess reserves of $4,000 and outstanding demand deposits of $80,000.If the desired reserve ratio is 25 percent,what is the size of the bank's actual cash reserves?

Correct AnswerverifiedShow Answer

If a coin is token money,its face value is greater than its intrinsic value.

Correct AnswerverifiedShow Answer

Which of the following describes the fundamental identity embodied in a balance sheet?

Correct AnswerverifiedShow Answer

The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of reserves to the banking system as a whole.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the price index rises from 100 to 130,the value of the dollar will fall by about:

Correct AnswerverifiedShow Answer

A 15 percent increase in the price

Correct AnswerverifiedShow Answer

Correct Answer
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