Question 1

Assume the Standard Toy Company negotiates a loan for $5,000 from the Metro Bank and receives a demand deposit for that amount in exchange for its promissory note (IOU) .As a result of this single transaction:

Accepted Answer

A)   the supply of money is increased by $5,000.
B)   the supply of money declines by the amount of the loan.
C)   a claim has been "demonetized."
D)   the Metro Bank acquires reserves from other banks.E) A) and B)
F) C) and D)

Question 2

When we say that money serves as a unit of account,we mean that it is:

Accepted Answer

A)   a way to keep some of our wealth in a readily spendable form for future use.
B)   a means of payment.
C)   a monetary unit for measuring and comparing the relative values of goods.
D)   declared as legal tender by the government.E) A) and C)
F) A) and B)

Question 3

If you write a cheque on a Saskatoon bank to purchase a new Honda Civic,you are employing money as:

Accepted Answer

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

Question 4

What is one significant characteristic of fractional reserve banking?

Accepted Answer

A)   Banks are not subject to "panics" or "runs."
B)   Banks use deposit insurance for loans to customers.
C)   Bank loans will be equal to the amount of gold on deposit.
D)   Banks can create money through lending their reserves.E) A) and C)
F) All of the above

Question 5

Refer to the above information.Which of the following is not included in any of the official definitions of money?

Accepted Answer

A)   item 1
B)   items 1 and 4
C)   no item
D)   item 5E) B) and C)
F) None of the above

Question 6

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) A) and B)
F) A) and D)

Question 7

The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent.
 
-Refer to the above data.If a cheque for $20,000 is drawn and cleared against this bank,it will have excess reserves of:

Accepted Answer

A)   $15,000
B)   $20,000
C)   $25,000
D)   $30,000E) None of the above
F) B) and D)

Question 8

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 9

-Refer to the above information.The value of the dollar in year 3 is:

Accepted Answer

A)   $1.00.
B)   $1.25.
C)   $.80.
D)   $.50.E) A) and C)
F) A) and B)

Question 10

Coins and paper money are:

Accepted Answer

A)   debts of Chartered banks and savings institutions.
B)   debts of the Bank of Canada.
C)   credits of the Bank of Canada.
D)   credits of chartered banks and savings institutions.E) A) and B)
F) None of the above

Question 11

Other things being equal,we would expect an excessive increase in the supply of money to:

Accepted Answer

A)   increase the purchasing power of each dollar.
B)   decrease the purchasing power of each dollar.
C)   have no impact upon the purchasing power of the dollar.
D)   cause the price level to fall.E) A) and D)
F) All of the above

Question 12

Excess reserves are the amount by which desired reserves exceed actual cash reserves.

Accepted Answer

A) True 
 B)False

Question 13

Currency and demand deposits are money because:

Accepted Answer

A)   they are backed by a precious metal.
B)   the government asserts that they are.
C)   they are "resting" in a chartered bank vault.
D)   they can be redeemed for an intrinsically valuable commodity such as gold.E) A) and C)
F) A) and B)

Question 14

When you use money to purchase groceries,money is functioning as a store of value.

Accepted Answer

A) True 
 B)False

Question 15

A chartered bank that is temporarily short in the level of reserves it wishes to hold will borrow from another chartered bank:

Accepted Answer

A)   overnight.
B)   over a week.
C)   for a month.
D)   for six months.E) B) and C)
F) None of the above

Question 16

If the monetary authorities want to lower the size of the money multiplier,they should:

Accepted Answer

A)   ask chartered banks to lower their desired reserve ratio.
B)   ask chartered banks to raise their desired reserve ratio.
C)   take actions to increase bank reserves.
D)   do none of the above.E) B) and D)
F) A) and B)

Question 17

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) C) and D)
F) A) and C)

Question 18

The multiple by which the chartered banking system can expand the supply of money on the basis of excess reserves:

Accepted Answer

A)   is larger the smaller the desired reserve ratio.
B)   is the reciprocal of the bank's actual reserves.
C)   is directly or positively related to the size of the desired reserve ratio.
D)   will be zero when the desired reserve ratio is 50 percent.E) A) and D)
F) None of the above

Question 19

If we let P equal the price level expressed as an index number and D equal the value of the dollar,then we can say that:

Accepted Answer

A)   P = D - 1.
B)   D = 1/P.
C)   1 = D/P.
D)   D = P - 1.E) A) and D)
F) A) and C)

Question 20

Near money means:

Accepted Answer

A)   Money substitutes such as credit cards
B)   Chequing accounts
C)   They are not backed by gold
D)   They do not function as a medium of exchange but they serve as a store of valueE) B) and C)
F) A) and D)

Exam 14: Money, Banking, and Money Creation

When you use money to purchase groceries,money is functioning as a store of value.

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Refer to the above information.Which of the following is not included in any of the official definitions of money?

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If you write a cheque on a Saskatoon bank to purchase a new Honda Civic,you are employing money as:

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Currency and demand deposits are money because:

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Other things being equal,we would expect an excessive increase in the supply of money to:

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Assume the Standard Toy Company negotiates a loan for $5,000 from the Metro Bank and receives a demand deposit for that amount in exchange for its promissory note (IOU) .As a result of this single transaction:

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When we say that money serves as a unit of account,we mean that it is:

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If the monetary authorities want to lower the size of the money multiplier,they should:

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Near money means:

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What is one significant characteristic of fractional reserve banking?

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The multiple by which the chartered banking system can expand the supply of money on the basis of excess reserves:

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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

If we let P equal the price level expressed as an index number and D equal the value of the dollar,then we can say that:

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Coins and paper money are:

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The value of the money multiplier is:

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Excess reserves are the amount by which desired reserves exceed actual cash reserves.

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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.If a cheque for $20,000 is drawn and cleared against this bank,it will have excess reserves of:

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-Refer to the above information.The value of the dollar in year 3 is:

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

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A chartered bank that is temporarily short in the level of reserves it wishes to hold will borrow from another chartered bank:

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