Question 1

Money is destroyed when:

Accepted Answer

A)  loans are made.
B)  cheques written on one bank are deposited in another bank.
C)  loans are repaid.
D)  the net worth of the banking system declines.E) A) and C)
F) A) and B)

Question 2

In terms of volume or dollar amount, most of the money in our economy is created by:

Accepted Answer

A)  the receipt of gold bullion through international trade and finance.
B)  chartered banks and the Bank of Canada.
C)  the Royal Canadian mint.
D)  the Department of Finance.E) A) and B)
F) A) and C)

Question 3

Given a 25 percent desired reserve ratio, assume the chartered banking system is loaned up.Now assume the desired reserve ratio falls to 20 percent.As a result of this reduction:

Accepted Answer

A)  we can expect bank lending and bank profits to decline.
B)  each dollar of bank reserves will now support a maximum of $5 of demand deposits.
C)  the banking system must now reduce outstanding loans by 5 percent.
D)  the banking system can now increase lending by 5 percent.E) All of the above
F) A) and B)

Question 4

Securitization is the process of slicing up and bundling groups of loans, mortgages, corporate bonds and other financial debts into distinct new securities.

Accepted Answer

A) True 
 B)False

Question 5

The multiple by which the chartered banking system can expand the supply of money is equal to the reciprocal of:

Accepted Answer

A)  the MPS.
B)  its actual cash reserves.
C)  its excess reserves.
D)  the desired reserve ratio.E) C) and D)
F) All of the above

Question 6

The functions of money are to serve as a:

Accepted Answer

A)  resource allocator, method for accounting, and means of income distribution.
B)  unit of account, store of value, and medium of exchange.
C)  determinant of consumption, investment, and government spending.
D)  factor of production, exchange, and aggregate supply.E) A) and D)
F) B) and C)

Question 7

The chartered banking system can lend by a multiple of its excess reserves primarily because:

Accepted Answer

A)  its reserves are on deposit with the Bank of Canada
B)  its reserves are highly liquid assets.
C)  it loses reserves when it extends credit.
D)  its reserves are fractional.E) A) and B)
F) All of the above

Question 8

In Canada the money supply (M1)  is comprised of:

Accepted Answer

A)  coins, paper currency, and demand deposits.
B)  currency, notice deposits, and bonds.
C)  coins, paper currency, demand deposits, and credit balances with brokers.
D)  paper currency, coin, gold certificates, and time deposits.E) B) and D)
F) B) and C)

Question 9

The main goal of a chartered bank is liquidity.

Accepted Answer

A) True 
 B)False

Question 10

If the value of the dollar is falling, then it follows that:

Accepted Answer

A)  the price index is falling.
B)  the price index is rising.
C)  real incomes are falling.
D)  interest rates are rising.E) C) and D)
F) B) and C)

Question 11

The higher desired reserve ratio, the lower is the monetary multiplier.

Accepted Answer

A) True 
 B)False

Question 12

A bank's actual cash reserves can be found by:

Accepted Answer

A)  adding its desired and excess reserves.
B)  subtracting its desired reserves from its excess reserves.
C)  multiplying its excess reserves by the reserve ratio.
D)  multiplying its demand deposits by the reserve ratio.E) None of the above
F) A) and B)

Question 13

Fiat money is valuable because:

Accepted Answer

A)  it is backed by gold.
B)  it is fractionally backed by gold.
C)  it is generally acceptable.
D)  it is convertible to gold.E) B) and C)
F) A) and D)

Question 14

1.Foreign currency deposits of residents booked in Canada 2.Personal savings deposits at the chartered banks
3) Currency (coins and paper money) 
4) Demand deposits
5) Government securities
6) Non-personal notice deposits at the chartered banks
Refer to the above information.The M2 definition of money includes:

Accepted Answer

A)  items 1, 2, 3, and 6.
B)  items 3, 4, 5, and 6.
C)  items 2, 3, 4, and 6.
D)  items 1, 2, 3, and 4.E) A) and B)
F) C) and D)

Question 15

If the desired reserve ratio is 10 percent, how much excess reserves does a bank acquire when a business deposits a $500 cheque drawn on another bank?

Accepted Answer

A)  $450
B)  $550
C)  $5000
D)  $500E) B) and C)
F) None of the above

Question 16

When a consumer wants to compare the price of one product with another, money is primarily functioning as a:

Accepted Answer

A)  store of value.
B)  unit of account.
C)  chequable deposit.
D)  medium of exchange.E) None of the above
F) A) and D)

Question 17

A bank which has liabilities of $150 billion and a net worth of $20 billion must have:

Accepted Answer

A)  excess reserves of $130 billion.
B)  assets of $150 billion.
C)  excess reserves of $150 billion.
D)  assets of $170 billion.E) A) and C)
F) A) and B)

Question 18

The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent.  Refer to the above information.If the bank safely expands its loans by the maximum, the bank will now have excess reserves of:

Accepted Answer

A)  $0
B)  $3,000
C)  $12,000
D)  $5,000E) A) and B)
F) A) and C)

Question 19

The granting of a $10,000 loan and the purchase of a $10,000 government securities from a securities dealer by a chartered bank have the same effect on the money supply.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following business assets is normally the most liquid?

Accepted Answer

A)  Accounts receivable
B)  Merchandise inventory
C)  Capital equipment
D)  Office suppliesE) A) and D)
F) B) and D)

Exam 14: B: Money, Banking, and Money Creation

The granting of a $10,000 loan and the purchase of a $10,000 government securities from a securities dealer by a chartered bank have the same effect on the money supply.

Correct Answer
verified

The higher desired reserve ratio, the lower is the monetary multiplier.

Correct Answer
verified

The functions of money are to serve as a:

Correct Answer
verified

Fiat money is valuable because:

Correct Answer
verified

In Canada the money supply (M1) is comprised of:

Correct Answer
verified

A bank's actual cash reserves can be found by:

Correct Answer
verified

Given a 25 percent desired reserve ratio, assume the chartered banking system is loaned up.Now assume the desired reserve ratio falls to 20 percent.As a result of this reduction:

Correct Answer
verified

When a consumer wants to compare the price of one product with another, money is primarily functioning as a:

Correct Answer
verified

Money is destroyed when:

Correct Answer
verified

The chartered banking system can lend by a multiple of its excess reserves primarily because:

Correct Answer
verified

In terms of volume or dollar amount, most of the money in our economy is created by:

Correct Answer
verified

If the value of the dollar is falling, then it follows that:

Correct Answer
verified

The main goal of a chartered bank is liquidity.

Correct Answer
verified

Correct Answer
verified

A bank which has liabilities of $150 billion and a net worth of $20 billion must have:

Correct Answer
verified

Which of the following business assets is normally the most liquid?

Correct Answer
verified

Securitization is the process of slicing up and bundling groups of loans, mortgages, corporate bonds and other financial debts into distinct new securities.

Correct Answer
verified

The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent. Refer to the above information.If the bank safely expands its loans by the maximum, the bank will now have excess reserves of:

Correct Answer
verified

If the desired reserve ratio is 10 percent, how much excess reserves does a bank acquire when a business deposits a $500 cheque drawn on another bank?

Correct Answer
verified

The multiple by which the chartered banking system can expand the supply of money is equal to the reciprocal of:

Correct Answer
verified

Exam 14: B: Money, Banking, and Money Creation

The granting of a $10,000 loan and the purchase of a $10,000 government securities from a securities dealer by a chartered bank have the same effect on the money supply.

Correct AnswerverifiedShow Answer

The higher desired reserve ratio, the lower is the monetary multiplier.

Correct AnswerverifiedShow Answer

The functions of money are to serve as a:

Correct AnswerverifiedShow Answer

Fiat money is valuable because:

Correct AnswerverifiedShow Answer

In Canada the money supply (M1) is comprised of:

Correct AnswerverifiedShow Answer

A bank's actual cash reserves can be found by:

Correct AnswerverifiedShow Answer

Given a 25 percent desired reserve ratio, assume the chartered banking system is loaned up.Now assume the desired reserve ratio falls to 20 percent.As a result of this reduction:

Correct AnswerverifiedShow Answer

When a consumer wants to compare the price of one product with another, money is primarily functioning as a:

Correct AnswerverifiedShow Answer

Money is destroyed when:

Correct AnswerverifiedShow Answer

The chartered banking system can lend by a multiple of its excess reserves primarily because:

Correct AnswerverifiedShow Answer

In terms of volume or dollar amount, most of the money in our economy is created by:

Correct AnswerverifiedShow Answer

If the value of the dollar is falling, then it follows that:

Correct AnswerverifiedShow Answer

The main goal of a chartered bank is liquidity.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A bank which has liabilities of $150 billion and a net worth of $20 billion must have:

Correct AnswerverifiedShow Answer

Which of the following business assets is normally the most liquid?

Correct AnswerverifiedShow Answer

Securitization is the process of slicing up and bundling groups of loans, mortgages, corporate bonds and other financial debts into distinct new securities.

Correct AnswerverifiedShow Answer

The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent. Refer to the above information.If the bank safely expands its loans by the maximum, the bank will now have excess reserves of:

Correct AnswerverifiedShow Answer

If the desired reserve ratio is 10 percent, how much excess reserves does a bank acquire when a business deposits a $500 cheque drawn on another bank?

Correct AnswerverifiedShow Answer

The multiple by which the chartered banking system can expand the supply of money is equal to the reciprocal of:

Correct AnswerverifiedShow Answer

Correct Answer
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