Question 1

Suppose a commercial bank has a level of target reserves of $500 million and actual reserves of $575 million.This bank's ________ is/are $75 million.

Accepted Answer

A)  profits
B)  fractional reserves
C)  excess reserves
D)  reserve ratio
E)  cash drain

Question 2

If all the banks in the banking system collectively have $20 million in cash reserves and have a target reserve ratio of 5%,the maximum amount of deposits the banking system can support is

Accepted Answer

A)  $4 million.
B)  $40 million.
C)  $80 million.
D)  $100 million.
E)  $400 million.

Question 3

A central bank can "create" money by

Accepted Answer

A)  selling some of its foreign-currency reserves for domestic currency.
B)  selling government Treasury bills to the commercial banks.
C)  increasing the rate of inflation.
D)  issuing its own Central Bank bonds.
E)  purchasing government securities on the open market.

Question 4

The major advantage of using money rather than barter is that

Accepted Answer

A)  in the barter system there is no way to express values of commodities.
B)  money is the only convenient way to store one's wealth.
C)  money has more value than real goods.
D)  money stays where you put it,whereas a cow often has to be fenced in.
E)  the use of money significantly reduces transactions costs.

Question 5

When metal coins,such as gold and silver,were used as money,a technique which helped to prevent the reduction of their value through clipping was

Accepted Answer

A)  basing.
B)  re-minting.
C)  milling.
D)  debasement.
E)  sweating.

Question 6

Which of the following examples constitutes a new deposit to the Canadian commercial banking system?

Accepted Answer

A)  an individual transfers money from ShipShape Credit Union to Scotiabank
B)  an individual immigrates to Canada and deposits money from abroad
C)  an individual puts cash in a safety-deposit box
D)  the Bank of Canada sells government securities to an individual or a firm
E)  the Bank of Canada buys foreign currency from abroad B

Question 7

If the target reserve ratio in the banking system is 20%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an eventual expansion of the money supply of

Accepted Answer

A)  $0.20.
B)  $1.20.
C)  $2.00.
D)  $5.00.
E)  $20.00. D

Question 8

A commercial bank's target reserve ratio is the

Accepted Answer

A)  fraction of its deposit liabilities that it wishes to holds as reserves,either as cash or as deposits with the Bank of Canada.
B)  fraction of its deposit liabilities that it actually holds as cash in its own vaults.
C)  fraction of its deposit liabilities that are backed by gold.
D)  ratio of Canadian dollars to foreign currencies that the bank holds on its books.
E)  ratio of chequable deposits to term deposits that the bank holds on its books.

Question 9

Bank West's Balance Sheet
Assets Liabilities
Cash $500 Deposits $20 000
Deposits at Bank of Canada $700 Capital $1 000
Loans and Mortgages $19 800 $21 000
$21 000
TABLE 26-3
-Refer to Table 26-3.Assume that Bank West is operating at its target reserve ratio and has no excess reserves.If Bank West receives a new deposit of $1500,it can immediately expand its loans by ________ while maintaining its target reserve ratio.

Accepted Answer

A)  $1387.50
B)  $1410
C)  $1462.50
D)  $1464
E)  $1500 B

Question 10

If the target reserve ratio in the banking system is 10%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an eventual expansion of the money supply of

Accepted Answer

A)  $0.01.
B)  $0.10.
C)  $1.00.
D)  $10.00.
E)  $100.00.

Question 11

Basic functions of the Bank of Canada include
1) acting as lender of last resort to private non-financial corporations;
2) acting as banker for the chartered banks.
3) regulating the money supply.

Accepted Answer

A)  1 only
B)  2 only
C)  3 only
D)  2 and 3
E)  1,2,and 3

Question 12

Which of the following was the most important initial step in the evolution of paper currency?

Accepted Answer

A)  the acceptance of bank notes
B)  the acceptance of goldsmiths' receipts
C)  the acceptance of metallic coins
D)  the issuance of currency by governments
E)  the use of the Gold Standard

Question 13

Commercial banks in Canada are prohibited by law from

Accepted Answer

A)  accepting demand deposits.
B)  issuing paper currency.
C)  lending money to households and firms.
D)  accepting term deposits.
E)  settling inter-bank debts through a clearinghouse.

Question 14

Other things being equal,a rise in the price level will

Accepted Answer

A)  increase the value of money.
B)  decrease the purchasing power of money.
C)  stabilize the value of money.
D)  increase the purchasing power of money.
E)  have no effect on the value of money.

Question 15

Without a central bank,commercial banks in Canada would probably hold ________ reserves than they do now,resulting in a ________ money supply than at present.

Accepted Answer

A)  the same; the same
B)  more; larger
C)  more; smaller
D)  less; smaller
E)  less; larger

Question 16

Consider the following situation in the Canadian banking system:
∙ An investment dealer withdraws $10 million from its account at Bank XYZ to
purchase government securities from the Bank of Canada.
∙ As a result,$10 million has been withdrawn from the Canadian banking system.
∙ The target reserve ratio for all banks is 10%.
∙ All commercial banks operate with no excess reserves.
∙ There is no cash drain.
TABLE 26-5
-Refer to Table 26-5.As a result of this withdrawal from the banking system,the Canadian banking system would eventually

Accepted Answer

A)  decrease its loans by $100 million.
B)  decrease its loans by $90 million.
C)  decrease its loans by $10 million.
D)  increase loans by $90 million.
E)  increase loans by $100 million.

Question 17

Which of the following statements best describes the relationship between the Bank of Canada and the Government of Canada?

Accepted Answer

A)  The Bank of Canada has the same status as the Department of Finance and is directly responsible to Parliament for its day-to-day operations of monetary policy.
B)  The Bank of Canada is a wholly owned entity of the government but is given independence in the day-to-day operations of monetary policy.
C)  The Bank of Canada is a central-banking institution that is completely independent of the government and is fully autonomous in its conduct of monetary policy.
D)  The Bank of Canada is a privately owned banking institution that is overseen by a Board of Directors with a mandate to act in the best interests of the citizens of Canada.
E)  The governor of the Bank of Canada and the minister of finance have joint responsibility for both fiscal and monetary policy.

Question 18

Suppose you found a $100 bill that was lost for many years under your grandmother's mattress and you decided to deposit this money in a commercial bank.If the target reserve ratio were 20% and all excess reserves were lent out,your new deposit of $100 would lead to an eventual expansion of the money supply of

Accepted Answer

A)  $120.
B)  $200.
C)  $500.
D)  $1200.
E)  $2000.

Question 19

The financial crisis that occurred in 2007 and 2008 highlighted one of the crucial functions of commercial banks and other financial institutions in developed economies.A crucial function that ceased to work smoothly during this time,and contributed to the global recession that began in 2008,was

Accepted Answer

A)  the acceptance of deposits from firms and households.
B)  the joint regulation of financial markets.
C)  the provision of credit to firms,households and other banks.
D)  cheque clearing and collection.
E)  the clearing of electronic transfers.

Question 20

The function of money in an economy is to serve as
1) a unit of account;
2) a store of value;
3) a medium of exchange.

Accepted Answer

A)  1 and 2
B)  2 and 3
C)  1 and 3
D)  1,2,and 3
E)  3 only

Exam 26: Money and Banking

Suppose a commercial bank has a level of target reserves of $500 million and actual reserves of $575 million.This bank's ________ is/are $75 million.

Correct Answer
verified

If all the banks in the banking system collectively have $20 million in cash reserves and have a target reserve ratio of 5%,the maximum amount of deposits the banking system can support is

Correct Answer
verified

A central bank can "create" money by

Correct Answer
verified

The major advantage of using money rather than barter is that

Correct Answer
verified

When metal coins,such as gold and silver,were used as money,a technique which helped to prevent the reduction of their value through clipping was

Correct Answer
verified

Which of the following examples constitutes a new deposit to the Canadian commercial banking system?

Correct Answer
verified
B

If the target reserve ratio in the banking system is 20%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an eventual expansion of the money supply of

Correct Answer
verified
D

A commercial bank's target reserve ratio is the

Correct Answer
verified

Correct Answer
verified
B

If the target reserve ratio in the banking system is 10%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an eventual expansion of the money supply of

Correct Answer
verified

Basic functions of the Bank of Canada include 1) acting as lender of last resort to private non-financial corporations; 2) acting as banker for the chartered banks. 3) regulating the money supply.

Correct Answer
verified

Which of the following was the most important initial step in the evolution of paper currency?

Correct Answer
verified

Commercial banks in Canada are prohibited by law from

Correct Answer
verified

Other things being equal,a rise in the price level will

Correct Answer
verified

Without a central bank,commercial banks in Canada would probably hold reserves than they do now,resulting in a money supply than at present.

Correct Answer
verified

Correct Answer
verified

Which of the following statements best describes the relationship between the Bank of Canada and the Government of Canada?

Correct Answer
verified

Correct Answer
verified

The financial crisis that occurred in 2007 and 2008 highlighted one of the crucial functions of commercial banks and other financial institutions in developed economies.A crucial function that ceased to work smoothly during this time,and contributed to the global recession that began in 2008,was

Correct Answer
verified

The function of money in an economy is to serve as 1) a unit of account; 2) a store of value; 3) a medium of exchange.

Correct Answer
verified

Exam 26: Money and Banking

Suppose a commercial bank has a level of target reserves of $500 million and actual reserves of $575 million.This bank's ________ is/are $75 million.

Correct AnswerverifiedShow Answer

If all the banks in the banking system collectively have $20 million in cash reserves and have a target reserve ratio of 5%,the maximum amount of deposits the banking system can support is

Correct AnswerverifiedShow Answer

A central bank can "create" money by

Correct AnswerverifiedShow Answer

The major advantage of using money rather than barter is that

Correct AnswerverifiedShow Answer

When metal coins,such as gold and silver,were used as money,a technique which helped to prevent the reduction of their value through clipping was

Correct AnswerverifiedShow Answer

Which of the following examples constitutes a new deposit to the Canadian commercial banking system?

Correct AnswerverifiedB

If the target reserve ratio in the banking system is 20%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an eventual expansion of the money supply of

Correct AnswerverifiedD

A commercial bank's target reserve ratio is the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedB

If the target reserve ratio in the banking system is 10%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an eventual expansion of the money supply of

Correct AnswerverifiedShow Answer

Basic functions of the Bank of Canada include 1) acting as lender of last resort to private non-financial corporations; 2) acting as banker for the chartered banks. 3) regulating the money supply.

Correct AnswerverifiedShow Answer

Which of the following was the most important initial step in the evolution of paper currency?

Correct AnswerverifiedShow Answer

Commercial banks in Canada are prohibited by law from

Correct AnswerverifiedShow Answer

Other things being equal,a rise in the price level will

Correct AnswerverifiedShow Answer

Without a central bank,commercial banks in Canada would probably hold ________ reserves than they do now,resulting in a ________ money supply than at present.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements best describes the relationship between the Bank of Canada and the Government of Canada?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The financial crisis that occurred in 2007 and 2008 highlighted one of the crucial functions of commercial banks and other financial institutions in developed economies.A crucial function that ceased to work smoothly during this time,and contributed to the global recession that began in 2008,was

Correct AnswerverifiedShow Answer

The function of money in an economy is to serve as 1) a unit of account; 2) a store of value; 3) a medium of exchange.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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B

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D

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B

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Without a central bank,commercial banks in Canada would probably hold reserves than they do now,resulting in a money supply than at present.

Correct Answer
verified

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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