Question 1

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

Accepted Answer

A)  profits
B)  fractional reserves
C)  excess reserves
D)  reserve ratio
E)  cash drainF) A) and C)
G) A) and B)

Question 2

Suppose a commercial bank has a target reserve ratio of 1%,but has an actual reserve ratio of 0.8%.This bank will likely

Accepted Answer

A)  expand its portfolio of loans.
B)  contract its portfolio of loans.
C)  maintain its new,higher reserve ratio because it is more profitable.
D)  buy government securities from the Bank of Canada.
E)  allow fewer cash withdrawals by the bankʹs customers.F) B) and E)
G) B) and D)

Question 3

A central bank can ʺcreateʺ 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.F) B) and E)
G) B) and C)

Question 4

Consider a new deposit of $10 000 to the Canadian banking system.The bank that initially receives this deposit will find itself with

Accepted Answer

A)  no excess reserves if there is no reserve requirement.
B)  $1000 of excess cash reserves if its target reserve ratio is 10%.
C)  $2000 of excess cash reserves if its target reserve ratio is 10%.
D)  $8000 of excess cash reserves if its target reserve ratio is 20%.
E)  $10 000 of excess cash reserves if its target reserve ratio is 100%.F) B) and D)
G) B) and E)

Question 5

Suppose you come into possession of two ʺsilverʺ dollars,one minted in the 1950s which contains a lot of silver,the other minted in the 2000s which contains no silver at all.The legal exchange rate between the coins is fixed at one for one.According to Greshamʹs law,the 1950s silver dollar

Accepted Answer

A)  is considered ʺbadʺ money.
B)  will drive out of circulation the 1990s silver dollar.
C)  is more likely to be used as a medium of exchange.
D)  is less likely to be used as a medium of exchange.
E)  is less likely to be used as a store of value because it will appear old fashioned.F) A) and E)
G) C) and D)

Question 6

Assume that Bank ABC has a target reserve ratio of 10%.If Bank ABC receives a new deposit of $100 000,the largest new loan this bank could initially make,and maintain its target reserve ratio,is

Accepted Answer

A)  $1000.
B)  $10 000.
C)  $90 000.
D)  $100 000.
E)  $900 000.F) All of the above
G) C) and D)

Question 7

Northern Bank: Balance Sheet

Table 26-6
-Refer to Table 26-6.Assume that Northern Bankʹs target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must  ________ and ________.

Accepted Answer

A)  increase its reserves by $200; decrease its deposits by $200
B)  increase its reserves by $400; decrease its deposits by $400
C)  not change its reserves; not change its deposits
D)  increase its reserves by $200; decrease its loans by $200
E)  increase its reserves by $400; increase its loans by $800F) B) and D)
G) None of the above

Question 8

Which of the following is consistent with the predictions of Greshamʹs law?

Accepted Answer

A)  An increase in the money supply will be followed by inflation.
B)  The increased circulation of U.S.coins in Canada during periods when the Canadian dollar is worth significantly less than the U.S.dollar.
C)  Debasement of a metallic money will be followed by inflation.
D)  Increases in the money supply led to the hyperinflation of the 1920s in Germany.
E)  The disappearance of U.S.coins circulating in Canada during periods when the Canadian dollar is worth less than the U.S.dollar.F) None of the above
G) A) and E)

Question 9

Suppose that the cash drain in the banking system increases during holiday periods.As a result,

Accepted Answer

A)  the capacity of the banking system to create deposit money is dampened during holiday periods.
B)  the capacity of the banking system to create deposit money is increased during holiday periods.
C)  commercial banks decrease their target reserve ratios.
D)  changes in reserves will result in no change in deposits during holiday periods.
E)  the money supply will automatically increase.F) B) and D)
G) None of the above

Question 10

Northern Bank: Balance Sheet

Table 26-6
-Refer to Table 26-6.Owners of Northern Bank contributed money to start the bank.Under which category of itʹs balance sheet do these funds fall?

Accepted Answer

A)  Reserves
B)  Loans
C)  Assets
D)  Deposits
E)  CapitalF) D) and E)
G) C) and D)

Question 11

Consider a new deposit of $10 000 to the Canadian banking system.Assuming that all Canadian banks have a target reserve ratio of 2%,and that there is no cash drain,the banking system as a whole could create ________ as a result of this single new deposit.

Accepted Answer

A)  $10 000 of new deposits
B)  $50 000 of new deposits
C)  $500 000 of new deposits
D)  $980 000 of additional loans
E)  $1 000 000 of additional loansF) B) and C)
G) None of the above

Question 12

Canadian commercial banks maintain their reserves in the form of

Accepted Answer

A)  cash in their bank vaults and deposits at the Bank of Canada.
B)  cash in their bank vaults.
C)  gold in their bank vaults.
D)  deposits at other commercial banks that are immediately accessible.
E)  cash and foreign currency at the Bank of Canada.F) C) and E)
G) A) and B)

Question 13

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; largerF) A) and E)
G) A) and D)

Question 14

ʺExcess reservesʺ for a commercial bank refer to

Accepted Answer

A)  any surplus in the bankʹs supply of gold.
B)  any surplus of chequable deposits.
C)  any reserves (cash or deposits with the Bank of Canada) that the bank holds over and above its desired reserves.
D)  reserves (cash or deposits with the Bank of Canada) that the Bank of Canada requires the bank to hold.
E)  excess demand for money from that bank.F) B) and D)
G) A) and B)

Question 15

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.F) D) and E)
G) B) and D)

Question 16

The biggest disadvantage of a barter system compared to one that uses money is that

Accepted Answer

A)  it is difficult to find goods to trade in a barter system that satisfy the needs of society.
B)  a standardized unit of account cannot exist in a barter system.
C)  all commodities are difficult to transport and therefore inefficient for exchange.
D)  each trade requires a double coincidence of wants.
E)  commodities are difficult to use as a store of value.F) A) and D)
G) A) and C)

Question 17

As a measure of the Canadian money supply,M2+ is defined as currency in circulation plus

Accepted Answer

A)  all chequable deposits.
B)  demand and notice deposits at all financial institutions.
C)  savings deposits at the chartered banks and non-bank financial institutions.
D)  term deposits and money market funds at all financial institutions.
E)  term deposits,money market funds and personal savings accounts.F) A) and E)
G) A) and D)

Question 18

Which of the following statements about reserve ratios at Canadian commercial banks is true? Commercial banks in Canada

Accepted Answer

A)  are required by the Bank Act to hold required reserves.
B)  have a reserve ratio of zero.
C)  have a reserve ratio of 100%.
D)  have a positive reserve ratio.
E)  never have excess reserves.F) D) and E)
G) A) and E)

Question 19

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.F) B) and E)
G) B) and D)

Question 20

Which of the following entries would appear on the assets side of a commercial bankʹs balance sheet?

Accepted Answer

A)  Government of Canada securities
B)  chequable deposits
C)  Government of Canada deposits
D)  savings deposits
E)  shareholdersʹ equityF) C) and E)
G) A) and E)

Exam 26: Money and Banking

Suppose you come into possession of two ʺsilverʺ dollars,one minted in the 1950s which contains a lot of silver,the other minted in the 2000s which contains no silver at all.The legal exchange rate between the coins is fixed at one for one.According to Greshamʹs law,the 1950s silver dollar

Correct AnswerverifiedShow Answer

Suppose that the cash drain in the banking system increases during holiday periods.As a result,

Correct AnswerverifiedShow Answer

Which of the following is consistent with the predictions of Greshamʹs law?

Correct AnswerverifiedShow Answer

Suppose a commercial bank has a target reserve ratio of 1%,but has an actual reserve ratio of 0.8%.This bank will likely

Correct AnswerverifiedShow Answer

Which of the following entries would appear on the assets side of a commercial bankʹs balance sheet?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements about reserve ratios at Canadian commercial banks is true? Commercial banks in Canada

Correct AnswerverifiedShow Answer

Northern Bank: Balance Sheet Table 26-6 -Refer to Table 26-6.Owners of Northern Bank contributed money to start the bank.Under which category of itʹs balance sheet do these funds fall?

Correct AnswerverifiedShow Answer

A central bank can ʺcreateʺ money by

Correct AnswerverifiedShow Answer

Assume that Bank ABC has a target reserve ratio of 10%.If Bank ABC receives a new deposit of $100 000,the largest new loan this bank could initially make,and maintain its target reserve ratio,is

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

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 AnswerverifiedShow Answer

Consider a new deposit of $10 000 to the Canadian banking system.Assuming that all Canadian banks have a target reserve ratio of 2%,and that there is no cash drain,the banking system as a whole could create ________ as a result of this single new deposit.

Correct AnswerverifiedShow Answer

Northern Bank: Balance Sheet Table 26-6 -Refer to Table 26-6.Assume that Northern Bankʹs target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must ________ and ________.

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ʺExcess reservesʺ for a commercial bank refer to

Correct AnswerverifiedShow Answer

The biggest disadvantage of a barter system compared to one that uses money is that

Correct AnswerverifiedShow Answer

As a measure of the Canadian money supply,M2+ is defined as currency in circulation plus

Correct AnswerverifiedShow Answer

Consider a new deposit of $10 000 to the Canadian banking system.The bank that initially receives this deposit will find itself with

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

Canadian commercial banks maintain their reserves in the form of

Correct AnswerverifiedShow Answer

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

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Northern Bank: Balance Sheet Table 26-6 -Refer to Table 26-6.Assume that Northern Bankʹs target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must and .

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