Question 1

-Refer to the Table 10-1. If $400 is deposited into the First Bank of Dawson City, what will happen?

Accepted Answer

A)   The bank will be able to make additional loans totalling $400.
B)   Excess reserves initially increase by $400.
C)   Required reserves initially increase by $8000.
D)   Excess reserves initially increase by $340.E) A) and B)
F) A) and C)

Question 2

Why was changing of reserve requirements phased out as a tool used by the Bank of Canada to control the money supply?

Accepted Answer

A)   to make the rules the same for all financial institutions since only credit unions were required to hold reserves
B)   to make the rules the same for all financial institutions since only commercial banks were required to hold reserves
C)   because Canada was the only country still imposing reserve requirements on its financial institutions
D)   because the Bank of Canada was using it too frequently, causing disruption in the banksE) None of the above
F) B) and C) B

Question 3

Which statement best describes bank runs today?

Accepted Answer

A)   Bank runs are uncommon because of the high required reserve ratio.
B)   Bank runs are uncommon because of CDIC deposit insurance.
C)   Bank runs are common because of the low required reserve ratio.
D)   Bank runs are common because the CDIC is inefficient.E) A) and B)
F) B) and C)

Question 4

Table 10-4
The following information pertains to the Bank of Moncton.

-Refer to the Table 10-4. If the Bank of Canada requires a reserve ratio of 4 percent, how much in excess reserves does the Bank of Moncton now hold?

Accepted Answer

A)   $1200
B)   $1400
C)   $2880
D)   $3000E) All of the above
F) None of the above

Question 5

What is a characteristic of paper money?

Accepted Answer

A)   It has a high intrinsic value.
B)   Ithinders efficient allocation of resources.
C)   It is valuable because it is generally accepted in trade.
D)   It is valuable only because of the legal tender requirement.E) B) and C)
F) All of the above

Question 6

If you deposit $5000 into First Hawkeye Bank, what will the bank most likely do?

Accepted Answer

A)   It will eventually increase its required reserves by the reserve ratio times $5000.
B)   It will be able to lend out $5000 times the reserve ratio.
C)   It will initially see reserves increase by $5000 divided by the reserve ratio.
D)   It will be able to lend out $5000.E) B) and D)
F) None of the above

Question 7

Suppose that the reserve ratio is 9 percent and that a bank has $2000 in deposits. What are its required reserves?

Accepted Answer

A)   $100
B)   $120
C)   $140
D)   $180E) C) and D)
F) A) and B)

Question 8

Which list contains only actions that decrease the money supply?

Accepted Answer

A)   making open-market purchases; raising the reserve requirement ratio
B)   making open-market purchases; lowering the reserve requirement ratio
C)   making open-market sales; raising the reserve requirement ratio
D)   making open-market sales; lowering the reserve requirement ratioE) A) and C)
F) None of the above

Question 9

Which list contains only actions that decrease the money supply?

Accepted Answer

A)   lowering the bank rate; raising the reserve requirement ratio
B)   lowering the bank rate; lowering the reserve requirement ratio
C)   raising the bank rate; raising the reserve requirement ratio
D)   raising the bank rate; lowering the reserve requirement ratioE) A) and D)
F) None of the above

Question 10

For how long is the governor of the Bank of Canada appointed?

Accepted Answer

A)   a two-year term
B)   a five-year term
C)   a seven-year term
D)   a life termE) A) and B)
F) A) and C)

Question 11

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Accepted Answer

(1/0.20)× ...

Question 12

-Refer to the Table 10-1. If $1000 is deposited into the First Bank of Dawson City, what will happen?

Accepted Answer

A)   Reserves will decrease by $800.
B)   Liabilities will decrease by $1000.
C)   Assets will increase by $1000.
D)   Reserves will increase by $800.E) None of the above
F) C) and D) C

Question 13

What is the role of money in an economy?

Accepted Answer

A)   Money serves as a person's wealth.
B)   Money allows people to save
C)   Money is an investment asset.
D)   Money allows greater specialization.E) A) and C)
F) A) and B)

Question 14

If the reserve ratio is 10 percent, how much is the money multiplier?

Accepted Answer

A)   1/10
B)   9/10
C)   10
D)   100E) C) and D)
F) A) and C)

Question 15

Economists argue that the move from barter to money increased trade and production. How is this possible?

Accepted Answer

The use of money allows people...

Question 16

As the reserve ratio increases, what happens to the money multiplier and money supply?

Accepted Answer

A)   The money multiplier increases, but the money supply does not change.
B)   The money multiplier does not change, but the money supply increases.
C)   The money multiplier and the money supply both increase.
D)   The money multiplier and the money supply both decrease.E) All of the above
F) None of the above

Question 17

Suppose the banking system has $10 million in reserves and the reserve ratio is 25 percent. Then bankers decide to decrease the reserve ratio to 20 percent. How does this decision eventually change the money supply?

Accepted Answer

A)   increases by $0.5 million
B)   increases by $5 million
C)   increases by $10 million
D)   increases by $20 millionE) B) and C)
F) None of the above

Question 18

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Accepted Answer

A) True 
 B)False

Question 19

How can the Bank of Canada increase the money supply?

Accepted Answer

A)   by conducting open-market sales and raising the bank rate
B)   by conducting open-market sales and lowering the bank rate
C)   by conducting open-market purchases and raising the bank rate
D)   by conducting open-market purchases and lowering the bank rateE) A) and D)
F) A) and C) D

Question 20

Which statement best describes the process of open-market purchases conducted by the Bank of Canada?

Accepted Answer

A)   The Bank of Canada buys Treasury bills, which increases the money supply.
B)   The Bank of Canada buys Treasury bills, which decreases the money supply.
C)   The Bank of Canada borrows from member banks, which increases the money supply.
D)   The Bank of Canada lends money to member banks, which decreases the money supply.E) B) and C)
F) A) and D)

Exam 10: The Monetary System

-Refer to the Table 10-1. If $400 is deposited into the First Bank of Dawson City, what will happen?

Correct AnswerverifiedShow Answer

Why was changing of reserve requirements phased out as a tool used by the Bank of Canada to control the money supply?

Correct AnswerverifiedB

Which statement best describes bank runs today?

Correct AnswerverifiedShow Answer

Table 10-4 The following information pertains to the Bank of Moncton. -Refer to the Table 10-4. If the Bank of Canada requires a reserve ratio of 4 percent, how much in excess reserves does the Bank of Moncton now hold?

Correct AnswerverifiedShow Answer

What is a characteristic of paper money?

Correct AnswerverifiedShow Answer

If you deposit $5000 into First Hawkeye Bank, what will the bank most likely do?

Correct AnswerverifiedShow Answer

Suppose that the reserve ratio is 9 percent and that a bank has $2000 in deposits. What are its required reserves?

Correct AnswerverifiedShow Answer

Which list contains only actions that decrease the money supply?

Correct AnswerverifiedShow Answer

Which list contains only actions that decrease the money supply?

Correct AnswerverifiedShow Answer

For how long is the governor of the Bank of Canada appointed?

Correct AnswerverifiedShow Answer

If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

Correct Answerverified(1/0.20)× ...View AnswerShow Answer

-Refer to the Table 10-1. If $1000 is deposited into the First Bank of Dawson City, what will happen?

Correct AnswerverifiedC

What is the role of money in an economy?

Correct AnswerverifiedShow Answer

If the reserve ratio is 10 percent, how much is the money multiplier?

Correct AnswerverifiedShow Answer

Economists argue that the move from barter to money increased trade and production. How is this possible?

Correct AnswerverifiedThe use of money allows people...View AnswerShow Answer

As the reserve ratio increases, what happens to the money multiplier and money supply?

Correct AnswerverifiedShow Answer

Suppose the banking system has $10 million in reserves and the reserve ratio is 25 percent. Then bankers decide to decrease the reserve ratio to 20 percent. How does this decision eventually change the money supply?

Correct AnswerverifiedShow Answer

In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as legal tender.

Correct AnswerverifiedShow Answer

How can the Bank of Canada increase the money supply?

Correct AnswerverifiedD

Which statement best describes the process of open-market purchases conducted by the Bank of Canada?

Correct AnswerverifiedShow Answer

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B

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C

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The use of money allows people...
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D

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