Question 1

When a cheque is drawn and cleared, the

Accepted Answer

A)   reserves and deposits of both the bank against which the cheque is cleared and the bank receiving the cheque are unchanged by this transaction.
B)   bank against which the cheque is cleared loses cash reserves and deposits equal to the amount of the cheque.
C)   bank receiving the cheque loses reserves and deposits equal to the amount of the cheque.
D)   bank against which the cheque is cleared acquires reserves and deposits equal to the amount of the cheque.E) B) and C)
F) A) and D)

Question 2

-Refer to the above information for a single chartered bank. When the desired reserve ratio is 30 percent, the money multiplier is:

Accepted Answer

A)   5.
B)   4.
C)   3.33.
D)   2.5.E) None of the above
F) B) and D)

Question 3

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

Question 4

When a bank loan is repaid the supply of money:

Accepted Answer

A)   is constant, but its composition will have changed.
B)   is decreased.
C)   is increased.
D)   may either increase or decrease.E) None of the above
F) A) and B)

Question 5

The amount that a chartered bank can lend is determined by its:

Accepted Answer

A)   desired reserves.
B)   excess reserves.
C)   outstanding loans.
D)   outstanding demand deposits.E) A) and D)
F) C) and D)

Question 6

A bank owns a 10-story office building. In the bank's balance sheet, this would be an example of:

Accepted Answer

A)   an asset.
B)   a liability.
C)   stock shares.
D)   a chequable deposit.E) B) and D)
F) B) and C)

Question 7

The chartered banking system can lend by a multiple of its excess reserves primarily because:

Accepted Answer

A)   its reserves are on deposit with the Bank of Canada
B)   its reserves are highly liquid assets.
C)   it loses reserves when it extends credit.
D)   its reserves are fractional.E) B) and C)
F) A) and B)

Question 8

The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of reserves to the banking system as a whole.

Accepted Answer

A) True 
 B)False

Question 9

What is one significant characteristic of fractional reserve banking?

Accepted Answer

A)   Banks are not subject to "panics" or "runs."
B)   Banks use deposit insurance for loans to customers.
C)   Bank loans will be equal to the amount of gold on deposit.
D)   Banks can create money through lending their reserves.E) A) and D)
F) A) and C)

Question 10

Actual cash reserves equal desired reserves plus excess reserves.

Accepted Answer

A) True 
 B)False

Question 11

A bank which has assets of $85 billion and a net worth of $10 billion must have:

Accepted Answer

A)   liabilities of $75 billion.
B)   excess reserves of $10 billion.
C)   liabilities of $10 billion.
D)   excess reserves of $75 billion.E) C) and D)
F) B) and D)

Question 12

When we say that the Canadian banking system is fractional reserve system, it means:

Accepted Answer

A)   chartered banks loan out only a small fraction of their deposits.
B)   chartered banks have to keep a large percentage of their deposit to meet everyday cash withdrawals.
C)   chartered banks loan out the entire deposits and do not have to meet their everyday cash withdrawal.
D)   chartered banks loan out most of their deposits, keeping only a small percentage of their deposits to meet everyday cash withdrawals.E) C) and D)
F) B) and D)

Question 13

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) None of the above

Question 14

Given a 25 percent desired reserve ratio, assume the chartered banking system is loaned up. Now assume the desired reserve ratio falls to 20 percent. As a result of this reduction:

Accepted Answer

A)   we can expect bank lending and bank profits to decline.
B)   each dollar of bank reserves will now support a maximum of $5 of demand deposits.
C)   the banking system must now reduce outstanding loans by 5 percent.
D)   the banking system can now increase lending by 5 percent.E) All of the above
F) None of the above

Question 15

The cause of the skyrocketing mortgage default rates was:

Accepted Answer

A)   government programs that encouraged and subsidized home ownership for renters.
B)   declining real estate values.
C)   bad incentives provided by mortgage-backed bonds.
D)   all of the above.E) None of the above
F) A) and B)

Question 16

A cheque is drawn against Bank A and deposited in Bank
A.
B. The collection of that cheque will increase both the reserves and chequeable deposits of Bank

Accepted Answer

A) True 
 B)False

Question 17

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) None of the above
F) All of the above

Question 18

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) All of the above
F) None of the above

Question 19

Refer to the above information. Which of the following is not included in any of the official definitions of money?

Accepted Answer

A)   item 1
B)   items 1 and 4
C)   no item
D)   item 5E) B) and D)
F) None of the above

Question 20

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) A) and B)
F) A) and D)

Exam 12: Money, Banking, and Money Creation

The cause of the skyrocketing mortgage default rates was:

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When we say that the Canadian banking system is fractional reserve system, it means:

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The difference between M1 and M2 is that:

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A cheque is drawn against Bank A and deposited in Bank A. B. The collection of that cheque will increase both the reserves and chequeable deposits of Bank

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

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What is one significant characteristic of fractional reserve banking?

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

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A bank which has assets of $85 billion and a net worth of $10 billion must have:

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A bank owns a 10-story office building. In the bank's balance sheet, this would be an example of:

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Refer to the above information. Which of the following is not included in any of the official definitions of money?

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-Refer to the above information for a single chartered bank. When the desired reserve ratio is 30 percent, the money multiplier is:

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When a cheque is drawn and cleared, the

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The banking system can lend by a multiple of its excess reserves because lending does not result in a loss of reserves to the banking system as a whole.

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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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Given a 25 percent desired reserve ratio, assume the chartered banking system is loaned up. Now assume the desired reserve ratio falls to 20 percent. As a result of this reduction:

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

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The amount that a chartered bank can lend is determined by its:

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When a bank loan is repaid the supply of money:

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The chartered banking system can lend by a multiple of its excess reserves primarily because:

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Actual cash reserves equal desired reserves plus excess reserves.

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