Question 1

Refer to the information below. The maximum amount by which the chartered banking system can expand the supply of money by lending is about: Consolidated balance sheet for the chartered banking system. Assume the desired reserve ratio is 30 percent. All figures are in billions.

Accepted Answer

A)   $27 billion.
B)   $23.1 billion.
C)   $30 billion.
D)   $15 billion.E) A) and C)
F) A) and B)

Question 2

The following is a consolidated balance sheet for the chartered banking system. All figures are in billions. Assume that the desired reserve ratio is 20 percent.
 
-Refer to the above information. The maximum amount by which this chartered banking system can expand the supply of money by lending is:

Accepted Answer

A)   $120 billion.
B)   $300 billion.
C)   $480 billion.
D)   $600 billion.E) None of the above
F) C) and D)

Question 3

If the price index rises from 100 to 120, the value of the dollar:

Accepted Answer

A)   may either rise or fall.
B)   will rise by 16.67 percent.
C)   will fall by 16.67 percent.
D)   will rise by 20 percent.E) B) and C)
F) A) and B)

Question 4

One reason that "near-monies" are important is because:

Accepted Answer

A)   they simplify the definition of money and therefore the formulation of monetary policy.
B)   they can be easily converted into money or vice versa, and thereby can influence the stability of the economy.
C)   they do not reflect the level of consumer spending but they have a critical impact on saving and investment in the economy.
D)   credit cards synchronize one's expenditures and income, thereby reducing the cash and chequeable deposits one must hold.E) A) and B)
F) A) and C)

Question 5

The value of money varies:

Accepted Answer

A)   inversely with the price level.
B)   directly with the volume of employment.
C)   directly with the price level.
D)   directly with the interest rate.E) A) and B)
F) A) and C)

Question 6

The purchasing power of the dollar:

Accepted Answer

A)   has been increasing in recent years because of economic growth.
B)   varies directly with the cost-of-living index.
C)   is inversely related to the level of aggregate demand.
D)   is the reciprocal of the price level.E) None of the above
F) A) and B)

Question 7

A 15 percent increase in the price

Accepted Answer

A)   increases the value of a dollar by 15 percent.
B)   decreases the value of a dollar by about 13 percent.
C)   decreases the value of a dollar by 15 percent.
D)   decreases the value of a dollar by about 8 percent.E) A) and D)
F) A) and C)

Question 8

If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves; E equals the amount of excess reserves; and m is the money multiplier, then we can say that:

Accepted Answer

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

Question 9

The following balance sheet shows the assets and liabilities of the ABC National Bank. Assume the desired reserve ratio is 20 percent.
 
-Refer to the above information. This bank can safely expand its loans by a maximum of:

Accepted Answer

A)   $7,000.
B)   $25,000.
C)   $12,000.
D)   $5,000.E) B) and C)
F) A) and D)

Question 10

Currency and coins held by banks are part of the M1 definition of money supply.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following are all assets to a chartered bank?

Accepted Answer

A)   demand deposits, stock shares, and reserves
B)   vault cash, property, and reserves
C)   vault cash, property, and stock shares
D)   vault cash, stock shares, and demand depositsE) All of the above
F) A) and D)

Question 12

The difference between M1 and M2 is that:

Accepted Answer

A)   the former includes notice deposits.
B)   the latter includes personal saving deposits and non-personal notice deposits.
C)   the latter includes government bonds.
D)   the latter includes cash held by chartered banks.E) B) and D)
F) C) and D)

Question 13

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) A) and B)

Question 14

A basic argument for using the M1 concept of money is that:

Accepted Answer

A)   it includes all of the important financial assets that have any degree of liquidity.
B)   the government collects data for the components of M1, but does not do so for M2 and M2+.
C)   its components are superior to other financial assets as a store of value.
D)   its components are directly and immediately spendable.E) A) and C)
F) None of the above

Question 15

If the desired reserve ratio falls:

Accepted Answer

A)   banks would be prompted to reduce their lending.
B)   the size of the money multiplier would increase.
C)   the actual reserves of banks would increase.
D)   none of the above would occur.E) All of the above
F) B) and C)

Question 16

The prime rate is:

Accepted Answer

A)   the interest rate charged by the chartered banks in Canada for lending to their best corporate customers.
B)   the interest rate charged by the chartered banks in Canada for lending to other financial intermediaries.
C)   the interest rate charged by the chartered banks in Canada for lending to the Federal government.
D)   the interest rate charged by the chartered banks in Canada for lending to the trust companies.E) A) and D)
F) All of the above

Question 17

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 C)

Question 18

When a consumer wants to compare the price of one product with another, money is primarily functioning as a:

Accepted Answer

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

Question 19

Suppose a chartered bank has demand deposits of $500,000 and the desired reserve ratio is 10 percent. If the institution has excess reserves of $4,000, then its actual cash reserves are:

Accepted Answer

A)   $46,000.
B)   $50,000.
C)   $4,000.
D)   $54,000.E) A) and B)
F) A) and C)

Question 20

The ABC Bank has $5,000 in excess reserves and the desired reserve ratio is 30. The bank must have:

Accepted Answer

A)   $90,000 in outstanding loans and $35,000 in actual cash reserves.
B)   $90,000 in demand deposit liabilities and $32,000 in actual cash reserves.
C)   $20,000 in demand deposit liabilities and $10,000 in actual cash reserves.
D)   $90,000 in demand deposit liabilities and $35,000 in actual cash reserves.E) A) and B)
F) None of the above

Exam 12: Money, Banking, and Money Creation

If the price index rises from 100 to 120, the value of the dollar:

Correct AnswerverifiedShow Answer

The following balance sheet shows the assets and liabilities of the ABC National Bank. Assume the desired reserve ratio is 20 percent. -Refer to the above information. This bank can safely expand its loans by a maximum of:

Correct AnswerverifiedShow Answer

If the desired reserve ratio falls:

Correct AnswerverifiedShow Answer

Currency and coins held by banks are part of the M1 definition of money supply.

Correct AnswerverifiedShow Answer

The prime rate is:

Correct AnswerverifiedShow Answer

The purchasing power of the dollar:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A 15 percent increase in the price

Correct AnswerverifiedShow Answer

The value of money varies:

Correct AnswerverifiedShow Answer

A basic argument for using the M1 concept of money is that:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to the information below. The maximum amount by which the chartered banking system can expand the supply of money by lending is about: Consolidated balance sheet for the chartered banking system. Assume the desired reserve ratio is 30 percent. All figures are in billions.

Correct AnswerverifiedShow Answer

The following is a consolidated balance sheet for the chartered banking system. All figures are in billions. Assume that the desired reserve ratio is 20 percent. -Refer to the above information. The maximum amount by which this chartered banking system can expand the supply of money by lending is:

Correct AnswerverifiedShow Answer

When a consumer wants to compare the price of one product with another, money is primarily functioning as a:

Correct AnswerverifiedShow Answer

If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves; E equals the amount of excess reserves; and m is the money multiplier, then we can say that:

Correct AnswerverifiedShow Answer

One reason that "near-monies" are important is because:

Correct AnswerverifiedShow Answer

The ABC Bank has $5,000 in excess reserves and the desired reserve ratio is 30. The bank must have:

Correct AnswerverifiedShow Answer

The difference between M1 and M2 is that:

Correct AnswerverifiedShow Answer

Suppose a chartered bank has demand deposits of $500,000 and the desired reserve ratio is 10 percent. If the institution has excess reserves of $4,000, then its actual cash reserves are:

Correct AnswerverifiedShow Answer

Which of the following are all assets to a chartered bank?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified