Question 1

Refer to the above information.If the desired reserve ratio falls from 25 percent to 10 percent, excess reserves of this single bank will:

Accepted Answer

A)  rise by $6,000 and the monetary multiplier will increase from 4 to 10.
B)  rise by $60,000 and the monetary multiplier will increase from 4 to 10.
C)  fall by $6,000 and the monetary multiplier will decline from 30 to 10.
D)  fall by $2,000 and the monetary multiplier will decline from 10 to 4.E) A) and B)
F) C) and D)

Question 2

Demand deposits are:

Accepted Answer

A)  included in M1 but not in M2.
B)  considered to be a near-money.
C)  included in M1 and in M2.
D)  also called notice deposits.E) All of the above
F) A) and B)

Question 3

When a cheque is drawn and cleared, the

Accepted Answer

A)  reserves and deposits of both the bank against which the cheque is cleared and the bank receiving the cheque are unchanged by this transaction.
B)  bank against which the cheque is cleared loses cash reserves and deposits equal to the amount of the cheque.
C)  bank receiving the cheque loses reserves and deposits equal to the amount of the cheque.
D)  bank against which the cheque is cleared acquires reserves and deposits equal to the amount of the cheque.E) B) and C)
F) A) and D)

Question 4

Refer to the information below which shows the demand deposits and actual reserves of a banking system.When the desired reserve ratio is 20 percent, the money creating potential of the entire banking system is:

Accepted Answer

A)  $4,000
B)  $6,000
C)  $8,000
D)  $10,000E) A) and B)
F) A) and C)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

The value of the money multiplier is:

Accepted Answer

A)  1/MPS.
B)  1/Excess Reserves.
C)  1/MPC.
D)  1/Desired Reserve Ratio.E) A) and B)
F) C) and D)

Question 7

If actual cash reserves in the banking system are $8,000, demand deposits are $70,000, and the desired reserve ratio is 10 percent, then excess reserves:

Accepted Answer

A)  are zero.
B)  are $1,000.
C)  are $2,000.
D)  cannot be determined from this information.E) A) and C)
F) C) and D)

Question 8

What function is money serving when you deposit money in a savings account?

Accepted Answer

A)  a store of value
B)  a unit of account
C)  a chequable deposit
D)  a medium of exchangeE) None of the above
F) B) and D)

Question 9

A chartered bank has actual cash reserves of $1 million and demand-deposit liabilities of $9 million, and the desired reserve ratio is 10 percent.The excess reserves of the bank are:

Accepted Answer

A)  $50,000
B)  $100,000
C)  $900,000
D)  $1 million.E) A) and D)
F) B) and D)

Question 10

Suppose a chartered banking system has $100,000 of outstanding demand deposits and actual cash reserves of $35,000.If the desired reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of:

Accepted Answer

A)  $122,000
B)  $175,000
C)  $300,000
D)  $75,000E) None of the above
F) A) and C)

Question 11

Currency and coins held within chartered banks are:

Accepted Answer

A)  part of the M2+ definition of the money supply.
B)  part of the M2 definition of the money supply.
C)  part of the M1 definition of the money supply.
D)  not part of the definitions of the money supply.E) B) and C)
F) C) and D)

Question 12

The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent.  Refer to the above data, this chartered bank has excess reserves of:

Accepted Answer

A)  $15,000
B)  $18,000
C)  $27,000
D)  $32,000E) B) and D)
F) All of the above

Question 13

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) A) and D)
F) None of the above

Question 14

The supply of money increases when the public purchases government securities from chartered banks.

Accepted Answer

A) True 
 B)False

Question 15

When a chartered bank has "excess reserves":

Accepted Answer

A)  it is in a position to make additional loans.
B)  its actual reserves are less than its desired reserves.
C)  it is charging too high an interest rate on its loans.
D)  its reserves exceed its assets.E) All of the above
F) C) and D)

Question 16

The ABC Bank has $5,000 in excess reserves and the desired reserve ratio is 30.The bank must have:

Accepted Answer

A)  $90,000 in outstanding loans and $35,000 in actual cash reserves.
B)  $90,000 in demand deposit liabilities and $32,000 in actual cash reserves.
C)  $20,000 in demand deposit liabilities and $10,000 in actual cash reserves.
D)  $90,000 in demand deposit liabilities and $35,000 in actual cash reserves.E) C) and D)
F) A) and B)

Question 17

When we say that the Canadian banking system is fractional reserve system, it means:

Accepted Answer

A)  chartered banks loan out only a small fraction of their deposits.
B)  chartered banks have to keep a large percentage of their deposit to meet everyday cash withdrawals.
C)  chartered banks loan out the entire deposits and do not have to meet their everyday cash withdrawal.
D)  chartered banks loan out most of their deposits, keeping only a small percentage of their deposits to meet everyday cash withdrawals.E) C) and D)
F) B) and D)

Question 18

The chartered banking system of Canada allows the system to lend:

Accepted Answer

A)  by a multiple of its excess cash reserves.
B)  one dollar for each dollar of its excess cash reserves.
C)  less than one dollar for each dollar of its excess cash reserves.
D)  more or less than a dollar per dollar of excess cash reserves.E) C) and D)
F) B) and D)

Question 19

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) A) and B)
F) All of the above

Question 20

Currency (paper money plus coins)  constitute about:

Accepted Answer

A)  80 percent of our M1 money supply.
B)  55 percent of our M1 money supply.
C)  24% percent of our M1 money supply.
D)  68 percent of our M1 money supply.E) A) and B)
F) None of the above

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

Currency (paper money plus coins) constitute about:

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When a cheque is drawn and cleared, the

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The prime rate is:

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A chartered bank has actual cash reserves of $1 million and demand-deposit liabilities of $9 million, and the desired reserve ratio is 10 percent.The excess reserves of the bank are:

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When a chartered bank has "excess reserves":

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Refer to the above information.If the desired reserve ratio falls from 25 percent to 10 percent, excess reserves of this single bank will:

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The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent. Refer to the above data, this chartered bank has excess reserves of:

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When we say that the Canadian banking system is fractional reserve system, it means:

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The ABC Bank has $5,000 in excess reserves and the desired reserve ratio is 30.The bank must have:

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If actual cash reserves in the banking system are $8,000, demand deposits are $70,000, and the desired reserve ratio is 10 percent, then excess reserves:

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The value of the money multiplier is:

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Suppose a chartered banking system has $100,000 of outstanding demand deposits and actual cash reserves of $35,000.If the desired reserve ratio is 20 percent, the banking system can expand the supply of money by the maximum amount of:

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

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The chartered banking system of Canada allows the system to lend:

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What function is money serving when you deposit money in a savings account?

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Demand deposits are:

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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:

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The supply of money increases when the public purchases government securities from chartered banks.

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Refer to the information below which shows the demand deposits and actual reserves of a banking system.When the desired reserve ratio is 20 percent, the money creating potential of the entire banking system is:

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Currency and coins held within chartered banks are:

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