Macro Ch 12 Midterm 2

D. item 5

1. Foreign currency deposits of residents booked in Canada 2. Personal savings deposits at the chartered banks 3. Currency (coins and paper money) 4. Demand deposits 5. Government securities 6. Non-personal notice deposits at the chartered banks 7. Refer to the above information. Which of the following is not included in any of the official definitions of money? A. item 1 B. items 1 and 4 C. no item D. item 5

D. all of the above.

1. Money functions as: A. a store of value. B. a unit of account. C. a medium of exchange. D. all of the above.

A. by the government's ability to control the supply of money and therefore to keep its value relatively stable.

11. The money supply is "backed": A. by the government's ability to control the supply of money and therefore to keep its value relatively stable. B. by government bonds. C. dollar-for-dollar with gold and silver. D. dollar-for-dollar with gold bullion.

C. $24,000

24. Suppose the ABC bank has excess reserves of $4,000 and outstanding demand deposits of $80,000. If the desired reserve ratio is 25 percent, what is the size of the bank's actual cash reserves? A. $16,000 B. $84,000 C. $24,000 D. $20,000

A. $15,000

27. Refer to the above data. If a cheque for $20,000 is drawn and cleared against this bank, it will have excess reserves of: A. $15,000. B. $20,000. C. $25,000. D. $30,000.

B. is 12.5 percent.

35. If actual cash reserves in the banking system are $40,000, excess reserves are $10,000, and demand deposits are $240,000, then the desired reserve ratio: A. is 10 percent. B. is 12.5 percent. C. is 20 percent. D. cannot be determined from this information.

B. demand deposits.

4. The major component of the money supply (M1) is: A. gold certificates. B. demand deposits. C. paper money in circulation. D. coins.

A. they can be readily used in the making of purchases and payment of debts.

5. Demand deposits are classified as money because: 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.

C. included in M1 and in M2.

6. Demand deposits are: A. included in M1 but not in M2. B. considered to be a near-money. C. included in M1 and in M2. D. also called notice deposits.

C. items 2, 3, 4, and 6.

8. Refer to the above information. The M2 definition of money includes: refer to quiz A. items 1, 2, 3, and 6. B. items 3, 4, 5, and 6. C. items 2, 3, 4, and 6. D. items 1, 2, 3, and 4.

D. $32,000.

The following balance sheet is for the First National Bank. Assume the desired reserve ratio is 15 percent. refer to quiz 26. Refer to the above data, this chartered bank has excess reserves of: A. $15,000. B. $18,000. C. $27,000. D. $32,000.

D. $5,000.

The following balance sheet shows the assets and liabilities of the ABC National Bank. Assume the desired reserve ratio is 20 percent. refer to quiz 30. Refer to the above information. This chartered bank has excess reserves of: A. $0. B. $3,000. C. $12,000. D. $5,000.

D. its components are directly and immediately spenda

10. A basic argument for using the M1 concept of money is that: A. it includes all of the important financial assets that have any degree of liquidity. B. the government collects data for the components of M1, but does not do so for M2 and M2+. C. its components are superior to other financial assets as a store of value. D. its components are directly and immediately spendable.

D. all of the above.

12. A $20 bill is an example of: A. legal tender. B. fiat money. C. a store of value. D. all of the above.

A. inversely with the price level.

13. The value of money varies: A. inversely with the price level. B. directly with the volume of employment. C. directly with the price level. D. directly with the interest rate.

B. D = 1/P.

14. 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: A. P = D - 1. B. D = 1/P. C. 1 = D/P. D. D = P - 1.

B. decrease the purchasing power of each dollar.

15. Other things being equal, we would expect an excessive increase in the supply of money to: A. increase the purchasing power of each dollar. B. decrease the purchasing power of each dollar. C. have no impact upon the purchasing power of the dollar. D. cause the price level to fall.

C. Canadian Payments Association.

16. Under the Canadian federal law, the institution that is in charge of inter-bank cheque system is called: A. Canadian Financial Association. B. Canadian Banking Association. C. Canadian Payments Association. D. Canadian Chartered Banks Association.

B. high-interest rate loans by financial institutions to home buyers with higher-than -average credit risk.

17. Subprime mortgage loans refer to: A. low-interest rate loans by financial institutions to home buyers with higher-than -average credit risk. B. high-interest rate loans by financial institutions to home buyers with higher-than -average credit risk. C. high-interest rate loans by financial institutions to home buyers with no credit risk. D. high-interest rate loans by financial institutions to home buyers with lower-than -average credit risk.

D. paper money was rarely redeemed for gold.

18. The goldsmith's ability to create money was based on the fact that: A. withdrawals of gold tended to exceed deposits of gold in any given time period. B. consumers and merchants preferred to use gold for transactions, rather than paper money. C. the goldsmith was required to keep 100 percent gold reserves. D. paper money was rarely redeemed for gold.

D. deposit insurance

19. Which one of the following is presently preventing bank panics in Canada? A. the reserve requirement B. the fractional reserve system C. the gold standard D. deposit insurance

C. 3 and 4.

2. Refer to the information below. The M1 definition of money comprises item(s): 1. Foreign currency deposits of residents booked in Canada 2. Personal savings deposits 3. Currency (coins and paper money) 4. Demand deposits 5. Government securities 6. Nonpersonal notice deposits A. 3 only. B. 2, 3, and 6. C. 3 and 4. D. 3, 4, and 6.

A. an asset.

20. A bank owns a 10-story office building. In the bank's balance sheet, this would be an example of: A. an asset. B. a liability. C. stock shares. D. a chequable deposit.

B. a chartered bank's desired reserve divided by its demand-deposit liabilities.

21. The reserve ratio is equal to: A. a chartered bank's demand-deposit liabilities divided by its desired reserve. B. a chartered bank's desired reserve divided by its demand-deposit liabilities. C. a chartered bank's demand-deposit liabilities multiplied by its excess reserves. D. a chartered bank's excess reserves divided by its desired reserve.

C. its demand deposits multiplied by the desired reserve ratio.

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

C. multiplying its demand-deposit liabilities by the reserve ratio.

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

D. $54,000.

25. Suppose a chartered bank has demand deposits of $500,000 and the desired reserve ratio is 10 percent. If the institution has excess reserves of $4,000, then its actual cash reserves are: A. $46,000. B. $50,000. C. $4,000. D. $54,000.

B. demand deposits and cash reserves.

28. When a cheque is cleared against a bank, it will lose: A. cash and securities. B. demand deposits and cash reserves. C. reserves and stock shares. D. loans and demand deposits.

C. create demand deposits in exchange for IOUs.

29. Chartered banks create money when they: A. accept cash deposits from the public. B. purchase government securities from the central banks. C. create demand deposits in exchange for IOUs. D. raise their interest rates.

D. Bank of Canada notes.

3. The paper money used in Canada is: A. National Bank notes. B. Treasury notes of 1890. C. Canada notes. D. Bank of Canada notes.

A. the supply of money is increased by $5,000.

31. Assume the Standard Toy Company negotiates a loan for $5,000 from the Metro Bank and receives a demand deposit for that amount in exchange for its promissory note (IOU). As a result of this single transaction: A. the supply of money is increased by $5,000. B. the supply of money declines by the amount of the loan. C. a claim has been "demonetized." D. the Metro Bank acquires reserves from other banks.

B. D = E * m.

32. If D equals the maximum amount of new demand-deposit money that can be created by the banking system on the basis of any given amount of excess reserves; E equals the amount of excess reserves; and m is the money multiplier, then we can say that: A. m = E/D. B. D = E * m. C. D = E - 1/m. D. D = m/E.

C. lower is the monetary multiplier.

33. The greater the desired reserve ratio, the: A. higher is the income multiplier. B. lower is the income multiplier. C. lower is the monetary multiplier. D. higher is the monetary multiplier.

C. loans are repaid.

34. Money is destroyed when: A. loans are made. B. cheques written on one bank are deposited in another bank. C. loans are repaid. D. the net worth of the banking system declines.

D. for all of the above reasons.

9. "Near-monies" are important: 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.