Question 1

A chartered bank sells a $10,000 government securities to a securities dealer. The dealer pays for the bond in cash, which the bank adds to its vault cash. As the result of this single transaction the money supply has:

Accepted Answer

A)   decreased by $10,000 multiplied by the reciprocal of the desired reserve ratio.
B)   decreased by $10,000.
C)   increased by $10,000.
D)   not been affected.E) None of the above
F) B) and D)

Question 2

Stock market price quotations best exemplify money serving as a:

Accepted Answer

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

Question 3

The currency owned by chartered banks is included in the money supply.

Accepted Answer

A) True 
 B)False

Question 4

A chartered bank has demand-deposit liabilities of $500,000, cash reserves of $150,000, and a desired reserve ratio of 20 percent. The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

Accepted Answer

A)   $30,000 and $150,000.
B)   $50,000 and $250,000.
C)   $50,000 and $500,000.
D)   $100,000 and $500,000.E) All of the above
F) A) and D)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Banks create money when they:

Accepted Answer

A)   allow loans to mature.
B)   accept deposits of cash.
C)   sell government bonds from households.
D)   buy government bonds from households.E) A) and D)
F) A) and C)

Question 7

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 C)
F) A) and D)

Question 8

Henry Trudeau deposits $2,000 in currency in the First Street Bank. Later that same day Jane Harris negotiates a loan for $5,400 at the same bank. This loan alone will:

Accepted Answer

A)   increase the supply of money by $2,100.
B)   increase the supply of money by $3,300.
C)   increase the supply of money by $5,400.
D)   decrease the supply of money by $3,300.E) A) and B)
F) A) and D)

Question 9

If actual cash reserves in the banking system are $40,000, excess reserves are $10,000, and demand deposits are $240,000, then the desired reserve ratio:

Accepted Answer

A)   is 10 percent.
B)   is 12.5 percent.
C)   is 20 percent.
D)   cannot be determined from this information.E) A) and B)
F) B) and D)

Question 10

The goldsmith's ability to create money was based on the fact that:

Accepted Answer

A)   withdrawals of gold tended to exceed deposits of gold in any given time period.
B)   consumers and merchants preferred to use gold for transactions, rather than paper money.
C)   the goldsmith was required to keep 100 percent gold reserves.
D)   paper money was rarely redeemed for gold.E) All of the above
F) B) and C)

Question 11

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

Question 12

Assume that Smith deposits $600 in currency in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has this single transaction changed the supply of money?

Accepted Answer

A)   decreased by $1,200
B)   increased by $1,200
C)   increased by $600
D)   increased by $1,800E) A) and C)
F) A) and D)

Question 13

If the price index rises from 100 to 130, the value of the dollar will fall by about:

Accepted Answer

A)   15 percent.
B)   19 percent.
C)   30 percent.
D)   23 percent.E) A) and C)
F) A) and B)

Question 14

Banks create money when they:

Accepted Answer

A)   add to their reserves in the Bank of Canada.
B)   accept deposits of cash.
C)   sell government bonds.
D)   exchange demand deposits for the IOUs of businesses and individuals.E) C) and D)
F) B) and D)

Question 15

Refer to the information below, after a deposit of $10 billion of new currency into a chequing account in the banking system, the maximum amount by which the chartered banking system can expand the supply of money is: Consolidated balance sheet for the chartered banking system. Assume the desired reserve ratio is 10 percent. All figures are in billions.

Accepted Answer

A)   $9 billion.
B)   $45 billion.
C)   $36 billion.
D)   $90 billion.E) A) and D)
F) B) and C)

Question 16

Purchasing common stock by writing a cheque best exemplifies money serving as a:

Accepted Answer

A)   store of value.
B)   unit of account.
C)   medium of exchange.
D)   index of satisfaction.E) B) and C)
F) A) and B)

Question 17

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 D)
F) All of the above

Question 18

Money functions as:

Accepted Answer

A)   a store of value.
B)   a unit of account.
C)   a medium of exchange.
D)   all of the above.E) All of the above
F) B) and D)

Question 19

The reserves of a chartered bank consist of:

Accepted Answer

A)   the amount of money market funds it holds.
B)   the small deposits at the Bank of Canada and vault cash.
C)   government bonds which the bank holds.
D)   the bank's net worth.E) B) and C)
F) None of the above

Question 20

In Canada the money supply (M1)  is comprised of:

Accepted Answer

A)   coins, paper currency, and demand deposits.
B)   currency, notice deposits, and bonds.
C)   coins, paper currency, demand deposits, and credit balances with brokers.
D)   paper currency, coin, gold certificates, and time deposits.E) None of the above
F) All of the above

Exam 12: Money, Banking, and Money Creation

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:

Correct Answer
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Correct Answer
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Stock market price quotations best exemplify money serving as a:

Correct Answer
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The goldsmith's ability to create money was based on the fact that:

Correct Answer
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Banks create money when they:

Correct Answer
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Currency and demand deposits are money because:

Correct Answer
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The reserve ratio is equal to:

Correct Answer
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The currency owned by chartered banks is included in the money supply.

Correct Answer
verified

In Canada the money supply (M1) is comprised of:

Correct Answer
verified

Henry Trudeau deposits $2,000 in currency in the First Street Bank. Later that same day Jane Harris negotiates a loan for $5,400 at the same bank. This loan alone will:

Correct Answer
verified

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

Correct Answer
verified

Assume that Smith deposits $600 in currency in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has this single transaction changed the supply of money?

Correct Answer
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Money functions as:

Correct Answer
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The reserves of a chartered bank consist of:

Correct Answer
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If the price index rises from 100 to 130, the value of the dollar will fall by about:

Correct Answer
verified

If actual cash reserves in the banking system are $40,000, excess reserves are $10,000, and demand deposits are $240,000, then the desired reserve ratio:

Correct Answer
verified

A chartered bank sells a $10,000 government securities to a securities dealer. The dealer pays for the bond in cash, which the bank adds to its vault cash. As the result of this single transaction the money supply has:

Correct Answer
verified

Banks create money when they:

Correct Answer
verified

Purchasing common stock by writing a cheque best exemplifies money serving as a:

Correct Answer
verified

A chartered bank has demand-deposit liabilities of $500,000, cash reserves of $150,000, and a desired reserve ratio of 20 percent. The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

Correct Answer
verified

Exam 12: Money, Banking, and Money Creation

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:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Stock market price quotations best exemplify money serving as a:

Correct AnswerverifiedShow Answer

The goldsmith's ability to create money was based on the fact that:

Correct AnswerverifiedShow Answer

Banks create money when they:

Correct AnswerverifiedShow Answer

Currency and demand deposits are money because:

Correct AnswerverifiedShow Answer

The reserve ratio is equal to:

Correct AnswerverifiedShow Answer

The currency owned by chartered banks is included in the money supply.

Correct AnswerverifiedShow Answer

In Canada the money supply (M1) is comprised of:

Correct AnswerverifiedShow Answer

Henry Trudeau deposits $2,000 in currency in the First Street Bank. Later that same day Jane Harris negotiates a loan for $5,400 at the same bank. This loan alone will:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Assume that Smith deposits $600 in currency in the XYZ Bank. Later that same day Jones negotiates a loan for $1,200 at the same bank. In what direction and by what amount has this single transaction changed the supply of money?

Correct AnswerverifiedShow Answer

Money functions as:

Correct AnswerverifiedShow Answer

The reserves of a chartered bank consist of:

Correct AnswerverifiedShow Answer

If the price index rises from 100 to 130, the value of the dollar will fall by about:

Correct AnswerverifiedShow Answer

If actual cash reserves in the banking system are $40,000, excess reserves are $10,000, and demand deposits are $240,000, then the desired reserve ratio:

Correct AnswerverifiedShow Answer

A chartered bank sells a $10,000 government securities to a securities dealer. The dealer pays for the bond in cash, which the bank adds to its vault cash. As the result of this single transaction the money supply has:

Correct AnswerverifiedShow Answer

Banks create money when they:

Correct AnswerverifiedShow Answer

Purchasing common stock by writing a cheque best exemplifies money serving as a:

Correct AnswerverifiedShow Answer

A chartered bank has demand-deposit liabilities of $500,000, cash reserves of $150,000, and a desired reserve ratio of 20 percent. The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

Correct AnswerverifiedShow Answer

Correct Answer
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