Question 1

When chartered banks use excess reserves to buy government securities from the public:

Accepted Answer

A)   new money is created.
B)   chartered bank reserves increase.
C)   the money supply falls.
D)   demand deposits decline.E) A) and B)
F) None of the above

Question 2

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

Accepted Answer

A) True 
 B)False

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) B) and C)
F) A) and B)

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

Question 5

A $200 price tag on a cashmere sweater in a department store window is an example of money functioning as a:

Accepted Answer

A)   unit of account.
B)   standard of deferred payments.
C)   store of value.
D)   medium of exchange.E) C) and D)
F) B) and C)

Question 6

Banks destroy money when they:

Accepted Answer

A)   buy government bonds.
B)   accept deposits of cash.
C)   fail to reissue loans that are paid off.
D)   clear cheques against another bank.E) B) and C)
F) A) and B)

Question 7

Chartered banks create money in the form of chequable deposits when they make loans.

Accepted Answer

A) True 
 B)False

Question 8

Mortgage-backed securities are:

Accepted Answer

A)   stocks backed by mortgage payments.
B)   bonds backed by mortgage payments.
C)   homes that are backed by mortgage payments.
D)   mortgages that are backed by the government.E) B) and D)
F) B) and C)

Question 9

Suppose a chartered bank has demand deposits of $100,000 and the desired reserve ratio is 10 percent. If the bank's desired and excess reserves are equal, then its actual cash reserves:

Accepted Answer

A)   are $30,000.
B)   are $10,000.
C)   are $20,000.
D)   cannot be determined from the given information.E) A) and B)
F) A) and C)

Question 10

The reserve ratio is equal to:

Accepted Answer

A)   a chartered bank's demand-deposit liabilities divided by its desired reserve.
B)   a chartered bank's desired reserve divided by its demand-deposit liabilities.
C)   a chartered bank's demand-deposit liabilities multiplied by its excess reserves.
D)   a chartered bank's excess reserves divided by its desired reserve.E) A) and B)
F) B) and D)

Question 11

If the desired reserve ratio is 15 percent and chartered bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired demand deposits, then the relevant money multiplier for the banking system will be:

Accepted Answer

A)   5.
B)   4.
C)   3.
D)   10.E) C) and D)
F) A) and B)

Question 12

-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) A) and C)

Question 13

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 C)
F) B) and D)

Question 14

The smallest component of the money supply (M1)  is:

Accepted Answer

A)   currency.
B)   chequable deposits.
C)   small time deposits.
D)   large time deposits.E) A) and B)
F) A) and C)

Question 15

The main goal of a chartered bank is liquidity.
Subtopic: True-false

Accepted Answer

A) True 
 B)False

Question 16

The smallest component of the money supply (M1)  is:

Accepted Answer

A)   currency.
B)   chequable deposits.
C)   small time deposits.
D)   large time deposits.E) None of the above
F) All of the above

Question 17

A single chartered bank has a desired reserve ratio of 25 percent. If the bank has no excess reserves initially and $5,000 cash is deposited in the bank, it can increase its loans by a maximum of:

Accepted Answer

A)   $1,250.
B)   $120,000.
C)   $5,000.
D)   $3,750.E) C) and D)
F) A) and B)

Question 18

Refer to the information below. The monetary multiplier is: Consolidated balance sheet for the chartered banking system. All figures are in billions. Assume that the desired reserve ratio is 20 percent.

Accepted Answer

A)   4.
B)   5.
C)   8.
D)   10.E) C) and D)
F) None of the above

Question 19

The two basic functions of the Canadian chartered banks and saving institutions are:

Accepted Answer

A)   making loans to the public and the federal government.
B)   holding the money deposits of businesses and households, and making loans to the public.
C)   holding the money deposits of businesses and households, and lending to the federal government.
D)   creating money and lending to the federal government.E) A) and B)
F) B) and D)

Question 20

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) A) and C)

Exam 12: Money, Banking, and Money Creation

Suppose a chartered bank has demand deposits of $100,000 and the desired reserve ratio is 10 percent. If the bank's desired and excess reserves are equal, then its actual cash reserves:

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The two basic functions of the Canadian chartered banks and saving institutions are:

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What is one significant characteristic of fractional reserve banking?

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The smallest component of the money supply (M1) is:

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A $200 price tag on a cashmere sweater in a department store window is an example of money functioning as a:

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Chartered banks create money in the form of chequable deposits when they make loans.

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When chartered banks use excess reserves to buy government securities from the public:

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Refer to the information below. The monetary multiplier is: Consolidated balance sheet for the chartered banking system. All figures are in billions. Assume that the desired reserve ratio is 20 percent.

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The smallest component of the money supply (M1) is:

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

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If the desired reserve ratio is 15 percent and chartered bankers decide to hold additional excess reserves equal to 5 percent of any newly acquired demand deposits, then the relevant money multiplier for the banking system will be:

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Banks destroy money when they:

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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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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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The main goal of a chartered bank is liquidity. Subtopic: True-false

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A single chartered bank has a desired reserve ratio of 25 percent. If the bank has no excess reserves initially and $5,000 cash is deposited in the bank, it can increase its loans by a maximum of:

Correct AnswerverifiedShow Answer

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

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The reserve ratio is equal to:

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Mortgage-backed securities are:

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

Correct AnswerverifiedShow Answer

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