Question 1

Currency (paper money plus coins) constitute about:

Accepted Answer

A)   80 percent of our M1 money supply.
B)   55 percent of our M1 money supply.
C)   24% percent of our M1 money supply.
D)   68 percent of our M1 money supply.E) C) and D)
F) All of the above

Question 2

A chartered bank's demand-deposit liabilities can be calculated by:

Accepted Answer

A)   dividing its desired reserve by its excess reserves.
B)   dividing its desired reserve by the reserve ratio.
C)   multiplying its desired reserve by its excess reserves.
D)   multiplying its desired reserve by the reserve ratio.E) A) and B)
F) A) and C)

Question 3

The amount of reserves that a chartered bank wishes to hold is equal to:

Accepted Answer

A)   the amount of its demand deposits.
B)   the sum of its demand deposits and time deposits.
C)   its demand deposits multiplied by the desired reserve ratio.
D)   none of the above.E) A) and B)
F) B) and C)

Question 4

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

Question 5

Individual chartered banks are limited in their ability to create money by lending because:

Accepted Answer

A)   lending is likely to result in the loss of reserves to other banks.
B)   only the Department of Finance is authorized to create new money.
C)   the Bank of Canada prohibits bank lending when the result is an expansion of the money supply.
D)   banking is a highly competitive industry.E) None of the above
F) A) and C)

Question 6

Subprime mortgage loans refer to:

Accepted Answer

A)   low-interest rate loans by financial institutions to home buyers with higher-than -average credit risk.
B)   high-interest rate loans by financial institutions to home buyers with higher-than -average credit risk.
C)   high-interest rate loans by financial institutions to home buyers with no credit risk.
D)   high-interest rate loans by financial institutions to home buyers with lower-than -average credit risk.E) A) and B)
F) A) and C)

Question 7

If actual cash reserves in the banking system are $8,000,demand deposits are $70,000,and the desired reserve ratio is 10 percent,then excess reserves:

Accepted Answer

A)   are zero.
B)   are $1,000.
C)   are $2,000.
D)   cannot be determined from this information.E) A) and B)
F) A) and C)

Question 8

The desired reserve ratio refers to the ratio of a bank's:

Accepted Answer

A)   reserves to its liabilities and net worth.
B)   stock shares to its total assets.
C)   demand deposits to its total liabilities.
D)   specified percentage of deposit liabilities a chartered bank chooses to keep as vault cash.E) A) and B)
F) C) and D)

Question 9

Demand deposits are:

Accepted Answer

A)   included in M1.
B)   not included in either M1 or M2.
C)   considered to be a near money.
D)   also called notice deposits.E) A) and B)
F) A) and C)

Question 10

The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent.
 
-Refer to the above data.If a cheque for $14,000 is drawn and cleared against this bank,its reserves and demand deposits will be,respectively:

Accepted Answer

A)   $50,000 and $120,000.
B)   $50,000 and $106,000.
C)   $36,000 and $120,000.
D)   $36,000 and $106,000.E) A) and D)
F) B) and C)

Question 11

Money eliminates the need for a coincidence of wants primarily through its use as a:

Accepted Answer

A)   unit of account.
B)   medium of exchange
C)   store of value.
D)   standard of confidence.E) All of the above
F) None of the above

Question 12

Which of the following is correct?

Accepted Answer

A)   Desired reserves minus actual reserves equal excess reserves.
B)   Desired reserves equal excess reserves minus actual reserves.
C)   Desired reserves equal actual reserves plus excess reserves.
D)   Actual cash reserves minus desired reserves equal excess reserves.E) C) and D)
F) B) and D)

Question 13

One major advantage of the medium of exchange function of money is that it allows society to:

Accepted Answer

A)   transfer purchasing power from the present to the future.
B)   measure the relative worth of products.
C)   escape the complications of barter.
D)   use credit cards instead of currency.E) B) and C)
F) A) and D)

Question 14

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) All of the above
F) B) and D)

Question 15

When chartered banks retire outstanding loans,the supply of money is increased.

Accepted Answer

A) True 
 B)False

Question 16

If you deposit a $50 bill in a chartered bank that has a 10 percent desired reserve ratio,the bank will:

Accepted Answer

A)   have $45 of additional excess reserves.
B)   be capable of lending an additional $500.
C)   be capable of lending an additional $50.
D)   have $50 of desired reserves.E) All of the above
F) None of the above

Question 17

The balance sheet below is for chartered bank EFG.Assume the desired reserve ratio is 25 percent.All figures are in billions.
 
-Refer to the above information.The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

Accepted Answer

A)   $140 and,$560.
B)   $51 and,$204.
C)   $16 and,$376.
D)   $16 and,$64.E) A) and C)
F) All of the above

Question 18

The smallest component of the money supply (M1) is:

Accepted Answer

A)   currency.
B)   chequable deposits.
C)   small time deposits.
D)   large time deposits.E) A) and C)
F) B) and C)

Question 19

The balance sheet below is for chartered bank ABC.Assume the desired reserve ratio is 20 percent.All figures are in billions.
 
-Refer to the above information.The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

Accepted Answer

A)   $5,000 and $110,000.
B)   $5,000 and $25,000.
C)   $5,000 and,22,000.
D)   $5,000 and,27,000.E) All of the above
F) C) and D)

Question 20

A chartered bank has actual cash reserves of $1 million and demand-deposit liabilities of $9 million,and the desired reserve ratio is 10 percent.The excess reserves of the bank are:

Accepted Answer

A)   $50,000
B)   $100,000
C)   $900,000
D)   $1 million.E) A) and B)
F) None of the above

Exam 14: Money, Banking, and Money Creation

Subprime mortgage loans refer to:

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Stock market price quotations best exemplify money serving as a:

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Money eliminates the need for a coincidence of wants primarily through its use as a:

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If actual cash reserves in the banking system are $8,000,demand deposits are $70,000,and the desired reserve ratio is 10 percent,then excess reserves:

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A chartered bank has actual cash reserves of $1 million and demand-deposit liabilities of $9 million,and the desired reserve ratio is 10 percent.The excess reserves of the bank are:

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The amount of reserves that a chartered bank wishes to hold is equal to:

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The desired reserve ratio refers to the ratio of a bank's:

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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:

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The balance sheet below is for chartered bank EFG.Assume the desired reserve ratio is 25 percent.All figures are in billions. -Refer to the above information.The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

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The following balance sheet is for the First National Bank.Assume the desired reserve ratio is 15 percent. -Refer to the above data.If a cheque for $14,000 is drawn and cleared against this bank,its reserves and demand deposits will be,respectively:

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If you deposit a $50 bill in a chartered bank that has a 10 percent desired reserve ratio,the bank will:

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Which of the following is correct?

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Individual chartered banks are limited in their ability to create money by lending because:

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The smallest component of the money supply (M1) is:

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One major advantage of the medium of exchange function of money is that it allows society to:

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When chartered banks retire outstanding loans,the supply of money is increased.

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The balance sheet below is for chartered bank ABC.Assume the desired reserve ratio is 20 percent.All figures are in billions. -Refer to the above information.The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

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Demand deposits are:

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A chartered bank's demand-deposit liabilities can be calculated by:

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Currency (paper money plus coins) constitute about:

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