Money and Banking Essay Practice Question 1) What are the three functions of money?     2

1)

What are the three functions of money?

2.

Distinguish between M1 and M2.

3.

Define the term target reserve ratio.

4.

What gives the Canadian dollar its value?

5.

How does a banking system create money?

6.

Which function of money is in each of the following cases demonstrating?

(1) You pay $10 for a movie ticket.

(2) You deposit your tax refund check in your saving account.

(3) A restaurant manager sets the prices of meals she serves in dollars.

(4) A restaurant manager places the day's receipts in the safe.

(5) McDonald's announces that a Big-Mac now costs only $1.00.

(6) Bill Gates has a net worth of $50 billion.

7.

“Credit cards make a difference in how much money people hold, but they are not money.” Explain this statement.

8.

A story often told is that banks first emerged from the activities of goldsmiths, who stored gold for a fee. Briefly describe this story.

9.

What are bank reserves? What is the reserve ratio?

10.

Economists use the terms save and invest in a way that is somewhat different from their common language usage. Explain the special meaning of these terms as used by economists.

11.

The following table shows the balance sheet of the Bank of Manitoba.

By how much is the Bank of Manitoba over- or under- reserved if the target reserve ratio is as follows:

12.

The following table shows the balance sheet for the Senators' Bank, which has a target reserve ratio of 8 percent.

13.

The following table shows the balance sheet for all banks combined in the banking system.  All banks have a target reserve ratio of 12.5 percent.

14.

Answer the questions below based on the data in the following table.  (All figures are in $ billions.)

15.

Fill in the blanks in the balance sheet of the Orion Bank shown below assuming that the value of fixed assets is the same as shareholders' equity and that the bank is fully loaned up.  The target reserve ratio is 6 percent.