EC Chapter 16

1) The monetary base minus currency in circulation equals ________. A) reserves B) the borrowed base C) the nonborrowed base D) advances to banks

A

15) If a person selling bonds to the Bank of Canada cashes the Bank's cheque, then reserves ________ and currency in circulation ________, everything else held constant. A) remain unchanged; declines B) remain unchanged; increases C) decline; remains unchanged D) increase; remains unchanged

B

33) The Bank does not tightly control the monetary base because it does not completely control ________. A) open market purchases B) open market sales C) borrowed reserves D) the rate

C

2) Individuals that lend funds to a bank by opening a chequing account are called ________. A) policyholders B) partners C) depositors D) debt holders

C

1) The government agency that oversees the banking system and is responsible for the conduct of monetary policy in Canada is ________. A) the Bank of Canada B) the Department of Finance C) the Canada Customs and Revenue Agency D) the House of Parliament

A

10) When a bank sells a government bond to the Bank of Canada, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases

A

3) High-powered money minus reserves equals ________. A) reserves B) currency in circulation C) the monetary base D) the nonborrowed base

B

1) Both ________ and ________ are Bank of Canada assets. A) notes in circulation; reserves B) notes in circulation; government securities C) government securities; advances to banks D) government securities; reserves

C

14) When the Bank of Canada sells $100 worth of bonds to First National Bank, reserves in the banking system ________. A) increase by $100 B) increase by more than $100 C) decrease by $100 D) decrease by more than $100

C

34) Subtracting borrowed reserves from the monetary base obtains ________. A) reserves B) high-powered money C) the nonborrowed monetary base D) the borrowed monetary base

C

5) Purchases and sales of government securities by the Bank of Canada are called ________. A) advances to banks B) Bank fund transfers C) open market operations D) swap transactions

C

5) The monetary base consists of ________. A) notes in circulation and Canada bonds B) notes in circulation and securities C) notes in circulation and reserves D) reserves and Canada bonds

C

6) The interest rate the Bank of Canada charges banks borrowing from the Bank is the ________. A) overnight rate B) Treasury bill rate C) bank rate D) prime rate

C

24) When a member of the nonbank public deposits currency into her bank account, ________. A) both the monetary base and bank reserves fall B) both the monetary base and bank reserves rise C) the monetary base falls, but bank reserves remain unchanged D) bank reserves rise, but the monetary base remains unchanged

D

4) High-powered money minus currency in circulation equals ________. A) reserves B) the borrowed base C) the nonborrowed base D) advances to banks Answer:

A

13) When the Bank of Canada buys $100 worth of bonds from First National Bank, reserves in the banking system ________. A) increase by $100 B) increase by more than $100 C) decrease by $100 D) decrease by more than $100

A

2) The monetary base minus reserves equals ________. A) currency in circulation B) the borrowed base C) the nonborrowed base D) advances to banks

A

25) When the Bank extends a $100 loan to the First National Bank, reserves in the banking system ________. A) increase by $100 B) increase by more than $100 C) decrease by $100 D) decrease by more than $100

A

4) Of the three players in the money supply process, most observers agree that the most important player is ________. A) the Bank of Canada B) the Department of Finance C) the Canada Customs and Revenue Agency D) the House of Parliament

A

6) When the Bank of Canada purchases a government bond from a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases

A

8) Suppose your payroll cheque is directly deposited to your chequing account. Everything else held constant, total reserves in the banking system ________ and the monetary base ________. A) remain unchanged; remains unchanged B) remain unchanged; increases C) decrease; increases D) decrease; decreases

A

2) The monetary liabilities of the Bank of Canada include ________. A) government securities and advances to banks B) notes in circulation C) government securities and reserves D) notes in circulation and advances to banks

B

22) An increase in ________ leads to an equal ________ in the monetary base in the long run. A) float; increase B) float; decrease C) securities; increase D) securities; decrease

C

26) All else the same, when the Bank calls in a $100 loan previously extended to the First National Bank, reserves in the banking system ________. A) increase by $100 B) increase by more than $100 C) decrease by $100 D) decrease by more than $100

C

35) The relationship between borrowed reserves, the nonborrowed monetary base, and the monetary base is ________. A) MB = MBn - BR B) BR = MBn - MB C) BR = MB - MBn D) MB = BR - mn

C

32) A decrease in ________ leads to an equal ________ in the monetary base in the long run. A) float; increase B) float; decrease C) securities; increase D) securities; decrease

D

3) Both ________ and ________ are monetary liabilities of the Bank. A) government securities; advances to banks B) notes in circulation; reserves C) government securities; reserves D) notes in circulation; advances to banks

B

30) A decrease in ________ leads to an equal ________ in the monetary base in the short run. A) float; increase B) float; decrease C) deposits at the Bank; decrease D) advances to banks; increase

B

31) An increase in ________ leads to an equal ________ in the monetary base in the short run. A) float; decrease B) float; increase C) advances to banks; decrease D) deposits at the Bank; increase

B

7) When banks borrow money from the Bank of Canada, these funds are called ________. A) Bank funds B) borrowed reserves C) Bank loans D) overnight funds

B

27) When the Bank of Canada extends a loan to a bank, the monetary base ________ and reserves ________. A) remains unchanged; decrease B) remains unchanged; increase C) increases; increase D) increases; remain unchanged

C

28) When the Bank of Canada calls in a loan from a bank, the monetary base ________ and reserves ________. A) remains unchanged; decrease B) remains unchanged; increase C) decreases; decrease D) decreases; remains unchanged

C

29) There are two ways in which the Bank can provide additional reserves to the banking system: it can ________ government bonds or it can ________ advances to banks to commercial banks. A) sell; extend B) sell; call in C) purchase; extend D) purchase; call in Answer:

C

3) The three players in the money supply process include ________. A) banks, depositors, and the Department of Finance B) banks, depositors, and borrowers C) banks, depositors, and the central bank D) banks, borrowers, and the central bank

C

7) Suppose a person cashes his payroll cheque and holds all the funds in the form of currency. Everything else held constant, total reserves in the banking system ________ and the monetary base ________. A) remain unchanged; increases B) decrease; increases C) decrease; remains unchanged D) decrease; decreases

C

20) If a member of the nonbank public purchases a government bond from the Bank of Canada in exchange for currency, the monetary base will ________, but reserves will ________. A) remain unchanged; rise B) remain unchanged; fall C) rise; remain unchanged D) fall; remain unchanged

D

4) The sum of the Bank of Canada's monetary liabilities and the Canadian Mint's monetary liabilities is called ________. A) the money supply B) notes in circulation C) bank reserves D) the monetary base

D

17) The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in currency, the open market purchase ________ reserves; if the proceeds are kept as deposits, the open market purchase ________ reserves. A) has no effect on; has no effect on B) has no effect on; increases C) increases; has no effect on D) decreases; increases

B

18) When an individual sells a $100 bond to the Bank, she may either deposit the cheque she receives or cash it for currency. In both cases ________. A) reserves increase B) high-powered money increases C) reserves decrease D) high-powered money decreases

B

16) The effect of an open market purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in ________, the open market purchase has no effect on reserves; if the proceeds are kept as ________, reserves increase by the amount of the open market purchase. A) deposits; deposits B) deposits; currency C) currency; deposits D) currency; currency

C

21) For which of the following is the change in reserves necessarily different from the change in the monetary base? A) Open market purchases from a bank B) Open market purchases from an individual who deposits the cheque in a bank C) Open market purchases from an individual who cashes the cheque D) Open market sale to a bank Answer:

C

11) When a bank buys a government bond from the Bank of Canada, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases

D

12) The monetary base declines when ________. A) the Bank extends advances to banks B) deposits at the Bank decrease C) float increases D) the Bank sells securities

D

19) If a member of the nonbank public sells a government bond to the Bank of Canada in exchange for currency, the monetary base will ________, but ________. A) remain unchanged; reserves will fall B) remain unchanged; reserves will rise C) rise; currency in circulation will remain unchanged D) rise; reserves will remain unchanged

D

23) When a member of the nonbank public withdraws currency from her bank account, ________. A) both the monetary base and bank reserves fall B) both the monetary base and bank reserves rise C) the monetary base falls, but bank reserves remain unchanged D) bank reserves fall, but the monetary base remains unchanged Answer:

D

9) When the Bank of Canada sells a government bond to a bank, reserves in the banking system ________ and the monetary base ________, everything else held constant. A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreases Answer:

D