Question 1

Canadian commercial banks maintain their reserves in the form of

Accepted Answer

A)  cash in their bank vaults.
B)  deposits at other commercial banks that are immediately accessible.
C)  cash in their bank vaults and deposits at the Bank of Canada.
D)  gold in their bank vaults.
E)  cash and foreign currency at the Bank of Canada.F) B) and D)
G) None of the above

Question 2

Money is commonly defined as

Accepted Answer

A)  foreign- exchange reserves.
B)  paper currency.
C)  the Canadian dollar.
D)  gold.
E)  a generally accepted medium of exchange.F) A) and C)
G) A) and E)

Question 3

If all the banks in the banking system collectively have $20 million in cash reserves and have a target reserve ratio of 20 percent, the maximum amount of deposits the banking system can support is

Accepted Answer

A)  $4 million.
B)  $40 million.
C)  $80 million.
D)  $100 million.
E)  $400 million.F) B) and E)
G) A) and D)

Question 4

If the Bank of Canada enters the open market and sells $1000 of government securities, what will be the eventual change in the money supply given a 10 percent target reserve ratio in the commercial banking system and a 10 percent cash drain?

Accepted Answer

A)  decrease of $10 000
B)  decrease of $5000
C)  increase of $10 000
D)  increase of $5000
E)  decrease of $1000F) A) and D)
G) A) and E)

Question 5

Which of the following examples constitutes a new deposit to the Canadian commercial banking system?

Accepted Answer

A)  an individual immigrates to Canada and maintains his existing deposits in a foreign bank.
B)  an individual transfers money from Ship Shape Credit Union to Scotiabank.
C)  the Bank of Canada buys government securities from a Canadian commercial bank.
D)  an individual puts cash in a safety- deposit box.
E)  the Bank of Canada buys foreign currency from abroad.F) A) and B)
G) All of the above

Question 6

If the target reserve ratio in the banking system is 1 percent, there is no cash drain, and there are no excess reserves, a new deposit of $1 will lead to an expansion of the money supply of

Accepted Answer

A)  $0.01
B)  $1.10
C)  $1.00
D)  $10.00
E)  $100.00F) B) and E)
G) B) and C)

Question 7

Suppose that the excess reserves in Toronto Dominion Bank increase by $700. Given a desired reserve ratio of 2.5 percent and no cash drain, the maximum change in deposits for the entire banking system would be

Accepted Answer

A)  $682.50.
B)  $70 000.00.
C)  $28 000.00.
D)  $700.00.
E)  $17 500.00.F) A) and D)
G) B) and E)

Question 8

If all the banks in the banking system collectively have $20 million in cash reserves, and have a target reserve ratio of 5 percent, the maximum amount of deposits the banking system can support is

Accepted Answer

A)  $4 million.
B)  $40 million.
C)  $80 million.
D)  $100 million.
E)  $400 million.F) D) and E)
G) B) and E)

Question 9

A desire by has no effect on the ability of the banking system to create bank deposits, for a given amount of reserves in the banking system.

Accepted Answer

A)  households to increase the fraction of their money held in the form of currency
B)  banks to delay making loans in expectation of higher future interest rates
C)  firms to reduce their desired level of borrowing from banks
D)  households to hold more money in safety- deposit boxes
E)  the government to increase its level of spendingF) B) and C)
G) None of the above

Question 10

regulating the money supply.

Accepted Answer

A)  2 only
B)  3 only
C)  1, 2, and 3
D)  2 and 3
E)  1 onlyF) C) and D)
G) B) and E)

Question 11

A new deposit to the banking system can result when

Accepted Answer

A)  the Bank of Canada buys a government security from a firm, which keeps the proceeds from the sale in a company vault.
B)  an individual stashes cash in a mattress.
C)  the Bank of Canada buys a government security from a firm, which then deposits the proceeds from the sale in its account at a commercial bank.
D)  a new immigrant to Canada sends cash to his or her home country.
E)  the Bank of Canada sells a government security to a firm which then maintains the asset in a bank.F) All of the above
G) B) and D)

Question 12

The largest component of the liabilities of the Bank of Canada is

Accepted Answer

A)  Government of Canada deposits.
B)  Canadian dollars in circulation.
C)  deposits of commercial banks and other financial institutions.
D)  Government of Canada securities.
E)  loans to private individuals.F) B) and C)
G) C) and E)

Question 13

Suppose a commercial bank has a level of target reserves of $500 million and actual reserves of $575 million. This bank's is/are $75 million.

Accepted Answer

A)  reserve ratio
B)  cash drain
C)  profits
D)  fractional reserves
E)  excess reservesF) A) and B)
G) C) and D)

Question 14

Which of the following entries would appear on the assets side of a commercial bank's balance sheet?

Accepted Answer

A)  Government of Canada deposits
B)  Government of Canada securities
C)  savings deposits
D)  chequable deposits
E)  shareholders' equityF) B) and D)
G) B) and C)

Question 15

Which of the following illustrates the use of fiat money?

Accepted Answer

A)  exchanging money- market funds for gold
B)  bartering goods for services
C)  exchanging money- market funds for insurance
D)  keeping gold as a hedge against inflation
E)  exchanging Canadian dollars for a T- shirtF) B) and C)
G) All of the above

Question 16

Suppose that the excess reserves in Toronto Dominion Bank increase by $700. Given a target reserve ratio of 1.0 percent and no cash drain, the maximum change in deposits for the entire banking system would be

Accepted Answer

A)  $28 000.00.
B)  $700.00.
C)  $682.50.
D)  $17 500.00.
E)  $70 000.00.F) None of the above
G) All of the above

Question 17

Commercial banks hold a fraction of their deposits in cash in their vaults (or as deposits with the central bank) . This fraction is known as

Accepted Answer

A)  the excess reserve ratio.
B)  the required reserve.
C)  the reserve ratio.
D)  the fractional reserve.
E)  the target reserve.F) None of the above
G) B) and C)

Question 18

The use of money in an economy does which of the following?

Accepted Answer

A)  creates the necessity for a double coincidence of wants.
B)  promote specialization and the division of labour.
C)  creates a problem of trading a portion of indivisible commodities such as a ship.
D)  solves the problem of inflation.
E)  promotes the use of barter.F) A) and B)
G) A) and C)

Question 19

Other things being equal, a rise in the price level will

Accepted Answer

A)  stabilize the value of money.
B)  increase the purchasing power of money.
C)  have no effect on the value of money
D)  increase the value of money.
E)  decrease the purchasing power of money.F) A) and D)
G) A) and C)

Question 20

If the target reserve ratio in the banking system is 10 percent, there is no cash drain, and there are no excess reserves, a new deposit of $1 will lead to an eventual expansion of the money supply of

Accepted Answer

A)  $0.01
B)  $0.10
C)  $1.00
D)  $10.00
E)  $100.00F) C) and D)
G) All of the above

Exam 27: Money and Banking

If the target reserve ratio in the banking system is 1 percent, there is no cash drain, and there are no excess reserves, a new deposit of $1 will lead to an expansion of the money supply of

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A new deposit to the banking system can result when

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If all the banks in the banking system collectively have $20 million in cash reserves, and have a target reserve ratio of 5 percent, the maximum amount of deposits the banking system can support is

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If all the banks in the banking system collectively have $20 million in cash reserves and have a target reserve ratio of 20 percent, the maximum amount of deposits the banking system can support is

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If the Bank of Canada enters the open market and sells $1000 of government securities, what will be the eventual change in the money supply given a 10 percent target reserve ratio in the commercial banking system and a 10 percent cash drain?

Correct AnswerverifiedShow Answer

Canadian commercial banks maintain their reserves in the form of

Correct AnswerverifiedShow Answer

Suppose that the excess reserves in Toronto Dominion Bank increase by $700. Given a desired reserve ratio of 2.5 percent and no cash drain, the maximum change in deposits for the entire banking system would be

Correct AnswerverifiedShow Answer

Which of the following illustrates the use of fiat money?

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Suppose that the excess reserves in Toronto Dominion Bank increase by $700. Given a target reserve ratio of 1.0 percent and no cash drain, the maximum change in deposits for the entire banking system would be

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The use of money in an economy does which of the following?

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Which of the following examples constitutes a new deposit to the Canadian commercial banking system?

Correct AnswerverifiedShow Answer

Other things being equal, a rise in the price level will

Correct AnswerverifiedShow Answer

If the target reserve ratio in the banking system is 10 percent, there is no cash drain, and there are no excess reserves, a new deposit of $1 will lead to an eventual expansion of the money supply of

Correct AnswerverifiedShow Answer

Suppose a commercial bank has a level of target reserves of $500 million and actual reserves of $575 million. This bank's is/are $75 million.

Correct AnswerverifiedShow Answer

regulating the money supply.

Correct AnswerverifiedShow Answer

The largest component of the liabilities of the Bank of Canada is

Correct AnswerverifiedShow Answer

A desire by has no effect on the ability of the banking system to create bank deposits, for a given amount of reserves in the banking system.

Correct AnswerverifiedShow Answer

Money is commonly defined as

Correct AnswerverifiedShow Answer

Commercial banks hold a fraction of their deposits in cash in their vaults (or as deposits with the central bank) . This fraction is known as

Correct AnswerverifiedShow Answer

Which of the following entries would appear on the assets side of a commercial bank's balance sheet?

Correct AnswerverifiedShow Answer

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