Question 1

The development of fiat money is quite perplexing, as people began to value something that is intrinsically useless. Explain why fiat money came into use.

Accepted Answer

Fiat money fulfils all the three purpose...

Question 2

The Bank of Canada can influence the money supply using:

Accepted Answer

A)  open-market operations and deposit switching.
B)  open-market operations and excess reserve swaps.
C)  changes in the reserve-deposit ratio and the currency-deposit ratio.
D)  changes in the amount of corporate bonds.

Question 3

Macroeconomists call assets used to make transactions:

Accepted Answer

A)  real income.
B)  nominal income.
C)  money.
D)  consumption.

Question 4

Liabilities of banks include:

Accepted Answer

A)  reserves.
B)  currency in the hands of the public.
C)  loans to customers.
D)  demand deposits.

Question 5

The monetary base of Moneyland is $500 million. The currency-deposit ratio (cr) is 0.2, and the reserve-deposit ratio (rr) is 0.2. Calculate the money multiplier and money supply.

Accepted Answer

Money Multiplier = (1 + cr) / ...

Question 6

The Bank of Canada wants to increase the money supply by printing and distributing 1 million dollars. What will be the actual increase in money supply if the public holds one-fourth of the currency as cash and deposits rest of the money in banks that hold 5 percent of their deposits as reserves?

Accepted Answer

Money Multiplier = 1 / Reserve-Deposit R...

Question 7

People use money as a unit of account when they:

Accepted Answer

A)  hold money to transfer purchasing power into the future.
B)  use money as a measure of economic transactions.
C)  use money to buy goods and services.
D)  hold money to gain power and esteem.

Question 8

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

Accepted Answer

A)  0.6.
B)  1.67.
C)  2.0.
D)  2.5.

Question 9

Chequing account balances that are linked to debit cards are included in:

Accepted Answer

A)  M1.
B)  M2 only.
C)  both M1 and M2.
D)  neither M1 nor M2.

Question 10

When the Bank of Canada increases the overnight rate, it:

Accepted Answer

A)  increases the reserve to deposit ratio (rr) .
B)  decreases the reserve to deposit ratio (rr) .
C)  is likely to increase the monetary base (
B)  .
D)  is likely to decrease the monetary base (
B)  .

Question 11

People use money as a store of value when they:

Accepted Answer

A)  hold money to transfer purchasing power into the future.
B)  use money as a measure of economic transactions.
C)  use money to buy goods and services.
D)  hold money to gain power and esteem.

Question 12

The minimum amount of owners' equity in a bank mandated by regulators is called a _____ requirement.

Accepted Answer

A)  reserve
B)  margin
C)  liquidity
D)  capital

Question 13

The money supply consists of:

Accepted Answer

A)  currency plus reserves.
B)  currency plus the monetary base.
C)  currency plus demand deposits.
D)  the monetary base plus demand deposits.

Question 14

Financial intermediation is the process of:

Accepted Answer

A)  settling disputes between borrowers and lenders.
B)  advising corporations how to invest.
C)  transferring funds from savers to borrowers.
D)  converting from a barter economy to a money economy.

Question 15

If the Bank of Canada conducts a Sale and Repurchase Agreement (SRA) , the money supply will:

Accepted Answer

A)  explode.
B)  stay the same.
C)  decrease.
D)  increase.

Question 16

Table: Bank Balance Sheet  Based on the table, what is the reserve-deposit ratio at the bank?

Accepted Answer

A)  3 percent
B)  5 percent
C)  10 percent
D)  15 percent

Question 17

In Canada, bank reserves consist of:

Accepted Answer

A)  currency and demand deposits.
B)  vault cash and deposits at the Bank of Canada.
C)  gold deposits at the Bank of Canada.
D)  the money supply.

Question 18

Based on historical observations, if many banks fail, this is likely to:

Accepted Answer

A)  cause surviving banks to lower their ratios of reserves to deposits.
B)  cause surviving banks to raise their ratios of reserves to deposits.
C)  have no effect on the ratio of reserves to deposits in surviving banks.
D)  cause surviving banks to hold less currency.

Question 19

When the Bank of Canada increases the interest rate paid on reserves, it:

Accepted Answer

A)  increases the reserve-deposit ratio (rr) .
B)  decreases the reserve-deposit ratio (rr) .
C)  increases the monetary base (
B)  .
D)  decreases the monetary base (
B)  .

Question 20

Currency equals:

Accepted Answer

A)  M1.
B)  the sum of funds in chequing accounts.
C)  the sum of chequing accounts and paper money.
D)  the sum of coins and paper money.

Exam 4: The Monetary System: What It Is and How It Works

The development of fiat money is quite perplexing, as people began to value something that is intrinsically useless. Explain why fiat money came into use.

Correct AnswerverifiedFiat money fulfils all the three purpose...View AnswerShow Answer

The Bank of Canada wants to increase the money supply by printing and distributing 1 million dollars. What will be the actual increase in money supply if the public holds one-fourth of the currency as cash and deposits rest of the money in banks that hold 5 percent of their deposits as reserves?

Correct AnswerverifiedMoney Multiplier = 1 / Reserve-Deposit R...View AnswerShow Answer

People use money as a store of value when they:

Correct AnswerverifiedShow Answer

The Bank of Canada can influence the money supply using:

Correct AnswerverifiedShow Answer

If the Bank of Canada conducts a Sale and Repurchase Agreement (SRA) , the money supply will:

Correct AnswerverifiedShow Answer

Currency equals:

Correct AnswerverifiedShow Answer

The minimum amount of owners' equity in a bank mandated by regulators is called a _____ requirement.

Correct AnswerverifiedShow Answer

When the Bank of Canada increases the interest rate paid on reserves, it:

Correct AnswerverifiedShow Answer

Based on historical observations, if many banks fail, this is likely to:

Correct AnswerverifiedShow Answer

Financial intermediation is the process of:

Correct AnswerverifiedShow Answer

When the Bank of Canada increases the overnight rate, it:

Correct AnswerverifiedShow Answer

The money supply consists of:

Correct AnswerverifiedShow Answer

If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals:

Correct AnswerverifiedShow Answer

Table: Bank Balance Sheet Based on the table, what is the reserve-deposit ratio at the bank?

Correct AnswerverifiedShow Answer

The monetary base of Moneyland is $500 million. The currency-deposit ratio (cr) is 0.2, and the reserve-deposit ratio (rr) is 0.2. Calculate the money multiplier and money supply.

Correct AnswerverifiedMoney Multiplier = (1 + cr) / ...View AnswerShow Answer

Chequing account balances that are linked to debit cards are included in:

Correct AnswerverifiedShow Answer

In Canada, bank reserves consist of:

Correct AnswerverifiedShow Answer

Liabilities of banks include:

Correct AnswerverifiedShow Answer

Macroeconomists call assets used to make transactions:

Correct AnswerverifiedShow Answer

People use money as a unit of account when they:

Correct AnswerverifiedShow Answer

Correct Answer
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Fiat money fulfils all the three purpose...
View Answer

Correct Answer
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Money Multiplier = 1 / Reserve-Deposit R...
View Answer

Correct Answer
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Money Multiplier = (1 + cr) / ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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