1)

Why is notice deposits not included in the M1 definition of money?

A)

Because the real value of notice deposits is zero.

B)

Because the value of notice deposits is much less stable than that of demand deposits and currency.

C)

Because they do not have direct or immediate access to goods and services.

D)

Because they are not recognized in law as legal tender.

E)

Because in terms of volume they are much less than demand deposits.

2).

If John and Todd both have chequing accounts in the same commercial bank and John writes a cheque for $5000 payable to Todd, what will happen to the bank's accounts?

A)

They will not be affected.

B)

Assets and liabilities will both decrease by $5000

C)

Liabilities will decrease by $1000, and the bank's equity will increase by $5000.

D)

Reserves and demand deposits will both decrease by $5000.

E)

Demand deposits will increase by $5000 and loans to customers will decrease by $5000.

3).

All of the following statements, except one, are correct. Which is the exception?

A)

Target reserves equal actual reserves minus excess reserves.

B)

Excess reserves plus target reserves equal actual reserves.

C)

Actual reserves minus target reserves equal excess reserves.

D)

Actual reserves equal target reserves minus excess reserves.

E)

Actual reserves minus excess reserves equal target reserves.

4).

The Vancouver Bank has demand deposits of $300 000 and the target reserve ratio is 6 percent. If the bank's target reserves are equal to its excess reserves, then what must its actual reserves be?

A)

0.

B)

$18 000.

C)

$36 000.

D)

$108 000.

E)

That cannot be determined from the information.

Assets

Liabilities and Equity

Reserves

$24 000

Demand deposits

$240 000

Loans

126 000

Equity

    40 000

Securities

  80 000

Land & Buildings

  50 000

5).

Refer to the information above to answer this question. Assume the target reserve ratio is 8 percent. By how much can this bank safely expand its loans?

A)  $43 200.      B)  $60 000.            C)  $6000.            D)  $4800.           E)  $75 000.

    6)

Refer to the information above to answer this question. Assume the target reserve ratio is 8 percent, and the bank gives a loan equal to its excess reserves. The recipient of this loan then writes out a cheque for this amount which is cleared against the bank. At the end of these transactions, what will the bank's reserves and demand deposits be?

A)

$24 000 and $240 000 respectively.

D)

$24 000 and $235 000 respectively.

B)

$19 200 and $240 000 respectively.

E)

$14,400 and $235,200 respectively.

C)

$19 200 and $235 200 respectively.

7).

Refer to the information above to answer this question. Assume the target reserve ratio is 8 percent. If the original balance sheet was for the commercial banking system rather than a single bank, what is the maximum amount by which loans and deposits can be expanded?

A)  $4,800.    B)  $19,200.    C)  $240 000.    D)  $60 000.    E)  $35 000.

12.

If Guy and Laraine both have chequing accounts at the same bank and Guy writes a cheque for $1000, payable to Laraine, what will happen to the bank's accounts?

A)

They will not be affected.

B)

Assets and liabilities will both decrease by $1000.

C)

Liabilities will decline and the bank's equity will increase by $1000.

D)

Reserves and demand deposits will both decrease by $1000.

E)

Demand deposits will increase and loans to customers will decrease by $1000.

13.

What is meant by the term "fractional reserve banking"?

A)

A system whereby banks keep only a fraction of their assets in the form of cash.

B)

A system whereby banks keep only a fraction of their cash with the central bank.

C)

A system whereby banks keep only a fraction of their total deposits in the form of cash.

D)

A system whereby banks must maintain a minimum amount of loans in the form of cash reserves.

14.

How is money functioning in the case of stock market price quotations?

A)

As a store of wealth.

D)

All of the above.

B)

As a unit of account.

E)

None of the above.

C)

As a medium of exchange.

15.

What are a bank's target reserves equal to?

A)

Its demand deposits divided by the target reserve ratio.

B)

The amount of outstanding loans multiplied by the target reserve ratio.

C)

The amount of its demand deposits..

D)

Its demand deposits multiplied by the target reserve ratio

E)

The sum of its demand deposits and notice deposits.

16.

How is the major portion of the Canadian money supply created?

A)

By the actions of the Canadian mint.

B)

By the actions of the commercial banks and the Bank of Canada.

C)

Through the receipt of gold bullion via international trade.

D)

By the actions of the Department of Finance.

E)

Through loans from the International Monetary Fund.

17.

How is the money multiplier calculated?

A)

By dividing the target reserve ratio by 1.

B)

By dividing the change in deposits by the change in reserves.

C)

By multiplying the target reserve ratio by M1.

D)

By multiplying the target reserve ratio by 1.

18.

Which of the following does the M2 definition of money include?

A)

Only currency in circulation and savings accounts.

B)

Only coins, paper money, and demand deposits.

C)

Only currency in circulation and savings accounts.

D)

Currency in circulation, demand deposits, personal term deposits, and personal and non-personal savings (notice) deposits.

E)

Currency in circulation, demand deposits and personal and non-personal notice and term deposits.

19.

What is one of the basic reasons for focusing on the M1 definition of money?

A)

Only the components of M1 are regarded as liquid.

B)

Statistics Canada is able to gather data for the components of M1, but cannot do so for M2 and M3.

C)

Only the components of M1 can be used as a store of wealth.

D)

Its components all have direct and immediate control over goods and services.

E)

Only the components of M1 are regarded as secure and are able to retain their value.

20.

What are the reserves of a commercial bank?:

A)

The amount of money-market funds it holds.

B)

Deposits at the Bank of Canada and vault cash.

C)

Vault cash plus securities.

D)

The bank's equity.

E)

Vault cash plus securities plus deposits at the Bank of Canada.

21.

Only one of the following is part of the money supply. Which is it?

A)

Gold.

B)

Currency in a bank's vault.

C)

Demand deposits.

D)

Available credit on people's credit cards.

22.

What does it mean when a commercial bank has "excess reserves"?

A)

It is in a position to make additional loans.

B)

Its reserves exceed its loans.

C)

It is making above-normal profits on its loans to customers.

D)

Its actual reserves are less than its target reserves.

E)

Its loans to customers exceeds its target reserves.

23.

Which of the following will result in a larger money multiplier?

A)

An decrease in cash holdings by the public.

B)

An increase in the banks' target reserves.

C)

An increase in excess reserves at banks.

D)

A decrease in creditworthy applicants for loans.

E)

An increase in interest rates.

24.

Which of the following is true regarding the purchasing power of the dollar?

A)

It varies directly with the cost-of-living index.

B)

It has been increasing in recent years because of higher standards of living.

C)

It varies inversely with the level of aggregate demand.

D)

It varies inversely with the price level.

E)

It varies directly with the price level.

25.

Debasing the coinage has which of the following effects?

A)

It causes the price level to drop.

B)

It increases the purchasing power of each coin.

C)

It represents a loss to the person issuing the coins.

D)

It causes inflation.

E)

None of the above.

26.

Refer to the information above to answer this question. Which item(s) is included in the M1 definition of money?

A)  6 only.    B)  2, 3 and 4.    C)  3 and 4.    D)  3, 4 and 6.    E)  3 only.

27.

Refer to the information above to answer this question. Which item(s) is included in the M2 definition of money?

A)

Items 1, 2, 3 and 4.

D)

Items 2, 3, 4 and 6.

B)

Items 3, 4 and 6.

E)

Items 3, 4, and 5.

C)

Items 2, 3 and 4.

28.

Refer to the information above to answer this question. Which item(s) is included in the M3 definition of money?

A)

Items 1, 2, 3 and 4.

D)

All six of the items listed.

B)

Items 1, 2, 3, 4 and 5.

E)

None of the above.

C)

Items 1, 3, 4 and 6.

29.

Refer to the information above to answer this question. Most of the following items are included in the official definitions of money. Which is/are the exception?

A)  Items 1 and 5.    B)  Items 1 and 6.    C)  Items 5 and 6.    D)  Item 6.

30.

All of the following statements, except one, are correct. Which is the exception?

A)

A commercial bank's total reserves are equal to its excess reserves plus its target reserves.

B)

A bank's assets plus its net worth equal its liabilities.

C)

When a commercial bank gives a loan it creates demand deposits.

D)

A single commercial bank can safely lend only an amount up to the value of its excess reserves.

E)

If a bank transaction were to decrease the value of one of its assets, then either some other asset would increase in value or one of its liabilities would decrease in value.

Assets

Liabilities and Net Worth

Reserves

$  35 000

Demand deposits

$260 000

Loans

200 000

Equity

    50 000

Securities

  75 000

31.

Refer to the information above to answer this question. If the bank's target reserve ratio is 10%, which of the following is correst?

A)

The bank's reserves are in equilibrium.

B)

There are excess reserves of $9000.

C)

The bank is under-reserved by $9000.

D)

There are excess reserves of $3500.

32.

Refer to the information above to answer this question. If the bank had $2500 in excess reserves what would be its target reserve ratio?

A)  5%.    B)  7.5%.    C)  8%.    D)  12.5%.    E)  15%.

33.

Refer to the information above to answer this question. Assuming a target reserve ratio of 8 percent how much excess reserves would this bank have after a cheque for $10 000 was cleared against it?

A)  0.    B)  $ 4200.    C)  $ 5000.    D)  $14200.    E)  $15 000.