Question 1

Demand deposits are classified as money because:

Accepted Answer

A)   they can be readily used in the making of purchases and payment of debts.
B)   banks hold currency equal to the value of their outstanding deposits.
C)   they are ultimately the obligations of the government.
D)   they earn interest income for the depositor.

Question 2

Securatization is:

Accepted Answer

A)   the process of slicing up and bundling groups of loans, mortgages, corporate bonds and other financial debts into distinct new securities.
B)   the securing of loans, mortgages, corporate bonds and other financial debts by governments.
C)   a guarantee that loans, mortgages, corporate bonds and other financial debts were secure.
D)   the process of securing loans, mortgages, corporate bonds and other financial debts by insurance companies.

Question 3

Assume that Johnson deposits $350 of his currency in his account in the XYZ bank. Later the same day Swanson negotiates a loan for $2,000 at the same bank. In what direction and by what amount has this single transaction changed the supply of money?

Accepted Answer

A)   increased by $2,350
B)   increased by $2,000
C)   decreased by $350
D)   decreased by $1,650

Question 4

Consolidated balance sheet for the chartered banking system. Assume the desired reserve ratio is 10 percent. All figures are in billions.
 
-Refer to the above information. The chartered banking system has excess reserves of:

Accepted Answer

A)   $0 billion.
B)   $30 billion.
C)   $60 billion.
D)   $70 billion.

Question 5

What function is money serving when you deposit money in a savings account?

Accepted Answer

A)   a store of value
B)   a unit of account
C)   a chequable deposit
D)   a medium of exchange

Question 6

Currency and coins held within chartered banks are:

Accepted Answer

A)   part of the M2+ definition of the money supply.
B)   part of the M2 definition of the money supply.
C)   part of the M1 definition of the money supply.
D)   not part of the definitions of the money supply.

Question 7

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.

Question 8

The basic source of money in our economy is the Department of Finance.

Accepted Answer

A) True 
 B)False

Question 9

The amount of money reported as M2:

Accepted Answer

A)   is smaller than the amount reported as M1.
B)   is larger than the amount reported as M1.
C)   excludes coins and currency.
D)   includes nonpersonal fixed-term deposits of residents booked in Canada.

Question 10

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.

Question 11

Which of the following statements best describes the relationship between the real value or purchasing power of the monetary unit and the price level? The purchasing power of money:

Accepted Answer

A)   and the price level varies inversely.
B)   and the price level vary directly during recessions, but inversely during inflations.
C)   and the price level vary directly, but not proportionately.
D)   and the price level vary directly and proportionately.

Question 12

The following is information about a banking system:
new currency deposited in the system = $40 billion; desired reserve ratio = 20%;
excess reserves prior to the currency deposit = $0.
-Refer to the above information. The $40 billion deposit of currency into chequing accounts will initially create:

Accepted Answer

A)   $8 billion of new demand deposits.
B)   $10 billion of new demand deposits.
C)   $40 billion of new demand deposits.
D)   $160 billion of new demand deposits.

Question 13

When a borrower repays a loan of $4000, either in cash or by cheque, the supply of money is reduced by $4000.

Accepted Answer

A) True 
 B)False

Question 14

Coins held in chartered banks are:

Accepted Answer

A)   included in M1, but not in M2.
B)   included both in M1 and in M2.
C)   included in M2, but not in M1.
D)   not part of the nation's money supply.

Question 15

"Near-monies" are important:

Accepted Answer

A)   because they are likely to affect the level of consumer spending.
B)   because they can be converted into chequable deposits and thereby affect macroeconomic stability.
C)   because they complicate defining money and therefore complicate the formulation of monetary policy.
D)   for all of the above reasons.

Question 16

A chartered bank's desired reserve can be calculated by:

Accepted Answer

A)   dividing its excess reserves by its desired reserve.
B)   dividing its desired reserve by its excess reserves.
C)   multiplying its demand-deposit liabilities by the reserve ratio.
D)   multiplying its demand-deposit liabilities by its excess reserves.

Question 17

Consolidated balance sheet for the chartered banking system. Assume the desired reserve ratio is 10 percent. All figures are in billions.
 
-Refer to the above information. After a deposit of $10 billion of new currency into a chequing account in the banking system, excess reserves will increase by:

Accepted Answer

A)   $0 billion.
B)   $7 billion.
C)   $9 billion.
D)   $10 billion.

Question 18

Demand deposits are also called:

Accepted Answer

A)   chequing accounts.
B)   high-powered money.
C)   savings balances.
D)   Bank of Canada notes.

Question 19

The paper money used in Canada is:

Accepted Answer

A)   National Bank notes.
B)   Treasury notes of 1890.
C)   Canada notes.
D)   Bank of Canada notes.

Question 20

Chartered banks monetize claims when they sell securities to the Bank of Canada.
Subtopic: True-false

Accepted Answer

A) True 
 B)False

Exam 12: Money, Banking, and Money Creation

Currency and coins held within chartered banks are:

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When a borrower repays a loan of $4000, either in cash or by cheque, the supply of money is reduced by $4000.

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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:

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What function is money serving when you deposit money in a savings account?

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"Near-monies" are important:

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Demand deposits are also called:

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The basic source of money in our economy is the Department of Finance.

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Coins held in chartered banks are:

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

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Consolidated balance sheet for the chartered banking system. Assume the desired reserve ratio is 10 percent. All figures are in billions. -Refer to the above information. The chartered banking system has excess reserves of:

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Which of the following statements best describes the relationship between the real value or purchasing power of the monetary unit and the price level? The purchasing power of money:

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Demand deposits are classified as money because:

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Securatization is:

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The paper money used in Canada is:

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The amount of money reported as M2:

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Assume that Johnson deposits $350 of his currency in his account in the XYZ bank. Later the same day Swanson negotiates a loan for $2,000 at the same bank. In what direction and by what amount has this single transaction changed the supply of money?

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Chartered banks monetize claims when they sell securities to the Bank of Canada. Subtopic: True-false

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Consolidated balance sheet for the chartered banking system. Assume the desired reserve ratio is 10 percent. All figures are in billions. -Refer to the above information. After a deposit of $10 billion of new currency into a chequing account in the banking system, excess reserves will increase by:

Correct AnswerverifiedShow Answer

A chartered bank's desired reserve can be calculated by:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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