Deck 10: The Monetary System

Question 1

Which of the following ranks assets from most to least liquid?

A) currency, gold, bonds
B) currency, bonds, gold
C) gold, currency, bonds
D) gold, bonds, currency

Answer 1

currency, bonds, gold

Question 2

Which statement best defines barter?

A) It is an exchange of goods for money.
B) It is an exchange of money for foreign currency.
C) It is a generally accepted legal tender.
D) It is a transaction that requires a double coincidence of wants.

Answer 2

It is a transaction that requires a double coincidence of wants.

Question 3

What is a generally accepted medium of exchange?

A) hockey cards
B) treasury bills
C) gold
D) currency

Answer 3

currency

Question 4

When Arnold uses dollars to record his income and expenses, how is he using money?

A) as a unit of account
B) as a means of payment
C) as a store of value
D) as a medium of exchange

Question 5

What is current Canadian currency?

A) fiat money with intrinsic value
B) fiat money with no intrinsic value
C) commodity money with intrinsic value
D) commodity money with no intrinsic value

Question 6

Which of the following is included in M1+?

A) government bonds
B) demand deposits
C) savings deposits
D) travellers' cheques

Question 7

Which statement best illustrates the unit of account function of money?

A) You list prices on your new restaurant menu in dollars.
B) You pay for your Toronto FC season tickets with dollars.
C) You keep $1000 in your safe for emergencies.
D) You sell your home for $750 000.

Question 8

Which statement best illustrates the medium of exchange function of money?

A) You keep some money hidden in your sock drawer.
B) You have your house remortgaged for $500 000.
C) You use cash to buy a new tent for $250.
D) You borrow $500 from your parents for textbooks.

Question 9

Which of the following does M1+ include?

A) currency
B) savings deposits
C) travellers' cheques
D) foreign currency accounts

Question 10

Which of the following has intrinsic value?

A) a gold coin
B) a one hundred-dollar bill
C) a credit card
D) a personal cheque

Question 11

What do economists use the word "money" to refer to?

A) income generated by the production of goods and services
B) those assets regularly used to buy goods and services
C) the value of a person's assets
D) the value of stocks and bonds

Question 12

Which statement best defines liquidity?

A) It is the ease with which an asset is converted to the medium of exchange.
B) It is a measurement of the intrinsic value of commodity money.
C) It is the ability of an asset to retain purchasing power.
D) It refers to how many times a dollar changes hands in a given year.

Question 13

Which of the following is included in M2 but not in M1+?

A) currency
B) demand deposits
C) savings deposits
D) gold

Question 14

What is a characteristic of paper money?

A) It has a high intrinsic value.
B) It hinders efficient allocation of resources.
C) It is valuable because it is generally accepted in trade.
D) It is valuable only because of the legal tender requirement.

Question 15

What does the legal tender requirement imply?

A) People are more likely to accept the dollar as a medium of exchange.
B) The government must hold enough gold to redeem all currency.
C) People may not make trades with anything else.
D) It is illegal to hold foreign currencies.

Question 16

What characterizes fiat money?

A) It has no intrinsic value.
B) It is backed by gold.
C) It has intrinsic value equal to its value in exchange.
D) It is an illiquid asset.

Question 17

Madison puts money under her mattress so she can spend it later. Which function of money does this illustrate?

A) store of value
B) medium of exchange
C) unit of account
D) wealth

Question 18

What characterizes commodity money?

A) It is money that is backed by gold.
B) It is the principal type of money in use today.
C) It is money with intrinsic value.
D) It is comprised of receipts created in international trade that are used as a medium of exchange.

Question 19

What is the role of money in an economy?

A) Money serves as a person's wealth.
B) Money allows people to save
C) Money is an investment asset.
D) Money allows greater specialization.

Question 20

What characterizes currency?

A) It has intrinsic value.
B) It has no intrinsic value.
C) It may be used as a medium of exchange but is not legal tender.
D) It performs all the functions of money except providing a unit of account.

Question 21

What is the function of debit cards?

A) They defer payments.
B) They are equivalent to credit cards.
C) They are included in M2.
D) They are used as a method of payment.

Question 22

What is the approximate amount of currency in Canada?

A) $84 million
B) $840 million
C) $84 billion
D) $840 billion

Question 23

What is a credit card?

A) a form of money
B) a form of saving
C) a form of investing
D) a form of payment

Question 24

Which account balance is included in M1+?

A) a chequing account
B) a credit card account
C) a term savings account
D) a stock investment

Question 25

What is the fundamental function of credit cards?

A) Credit cards are used for deferring payments.
B) Credit cards are used as store of value.
C) Credit cards are used for increasing the money supply.
D) Credit cards are used as investment assets.

Question 26

Who appoints the members of the Board of Directors at the Bank of Canada?

A) the Governor General
B) the Minister of Finance
C) the Director of the IMF
D) the Prime Minister

Question 27

Which of the following is included in M1+?

A) credit cards
B) savings accounts
C) currency
D) Canada savings bonds

Question 28

For how long is the governor of the Bank of Canada appointed?

A) a two-year term
B) a five-year term
C) a seven-year term
D) a life term

Question 29

If currency is $50 billion, chequable deposits $700 billion, other minor, less liquid categories $300 billion, and credit card debt $500 billion, how much is M1+?

A) $750 billion
B) $1000 billion
C) $1050 billion
D) $1550 billion

Question 30

Which of the following is included in M2?

A) gold
B) mortgages
C) currency
D) investment accounts

Question 31

In 2018, what was the average currency holding of Canadian dollars relative to Canadian population?

A) $791
B) $1791
C) $2791
D) $3791

Question 32

Which agency is responsible for regulating the money supply in Canada?

A) Finance Canada
B) the Bank of Canada
C) the Royal Bank of Canada
D) the Canadian Payments Association

Question 33

On average, Americans have almost twice as much currency as Canadians. What is the most plausible reason for this?

A) Canadians trust their banking system a lot more.
B) Americans are a lot richer than Canadians.
C) The American economy is two times bigger than the Canadian economy.
D) A lot of U.S. currency is held by foreigners.

Question 34

What does the Bank of Canada NOT do?

A) control the supply of money
B) control the value of money
C) make loans to individuals
D) regulate the banking system

Question 35

Which of the following is included in M2 but not in M1+?

A) demand deposits
B) corporate bonds
C) currency
D) term deposits

Question 36

What is a debit card?

A) a form of postponing debt
B) a means of payment
C) a form of savings
D) a means of borrowing

Question 37

Which of the following is included in the M2 definition of the money supply?

A) credit cards
B) term deposits
C) treasury bills
D) US dollars

Question 38

How does M1+ compare with M2?

A) M1+ is smaller and less liquid than M2.
B) M1+ is smaller but more liquid than M2.
C) M1+ is larger than and less liquid than M2.
D) M1+ is larger than but more liquid than M2.

Question 39

What does the calculated amount of currency per person in Canada suggest?

A) People tend to hold too much currency.
B) Most payments are made in cash.
C) People do not trust banks.
D) There is a significant illegal activity.

Question 40

Which statement best characterizes credit cards?

A) They are a payment form of money.
B) They are part of the M1+ money supply.
C) They are a method of deferring payment.
D) They are a unit of account.

Question 41

Who owns the Bank of Canada?

A) the Toronto Stock Exchange
B) the US Federal Reserve Bank
C) the chartered banks
D) the federal government of Canada

Question 42

Suppose a bank has $200,000 in deposits and $150,000 in loans. What is its reserve ratio?

A) 1 percent
B) 5 percent
C) 10 percent
D) 25 percent

Question 43

When was the Bank of Canada Act first enacted?

A) 1867
B) 1934
C) 1945
D) 1991

Question 44

What is a characteristic of the Bank of Montreal?

A) It can issue currency.
B) It is part of the "big 5" commercial banks group.
C) It acts as a central bank for Montreal.
D) It is owned by the Canadian government.

Question 45

Fallout from which event led to the creation of the Bank of Canada?

A) World War I
B) the Great Depression
C) the 1970s oil crisis
D) September 11, 2001

Question 46

How do deposits and reserves appear on a bank's T-account?

A) Both deposits and reserves are assets.
B) Both deposits and reserves are liabilities.
C) Deposits are assets, and reserves are liabilities.
D) Reserves are assets, and deposits are liabilities.

Question 47

Suppose that the reserve ratio is 7 percent and that a bank has $2000 in deposits. What are its required reserves?

A) $70
B) $140
C) $1400
D) $1860

Question 48

Who chairs the Board of Directors of the Bank of Canada?

A) the governor of the Bank of Canada
B) the Prime Minister
C) the Minister of Finance
D) the Governor General

Question 49

What is one of the functions of the Bank of Canada?

A) to maximize profits on behalf of its shareholders
B) to issue currency
C) to convert currency into gold
D) to bail out the government

Question 50

Which organization plays the role of a central bank in Canada?

A) the Royal Canadian Mint
B) the Toronto Stock Exchange
C) the Bank of Canada
D) the Royal Bank of Canada

Question 51

Suppose a bank has a 6 percent reserve ratio, $4000 in deposits, and it loans out all it can, given the reserve ratio. Which of the following describes the bank's assets?

A) It has $800 in reserves and $16,000 in loans.
B) It has $240 in reserves and $3760 in loans.
C) It has $240in reserves and $4000 in loans.
D) It has $800 in reserves and $3200 in loans.

Question 52

What is the role of the Bank of Canada?

A) to pay off the Canadian debt
B) to make monetary policy
C) to collect taxes
D) to oversee government spending

Question 53

What is the reason behind the seven-year appointment for the governor of Bank of Canada?

A) It makes the system compatible with the ones in other countries.
B) It confers stability to the financial system.
C) It allows the governor time to implement changes and to analyze the results of those changes.
D) It insulates the governor from political pressure.

Question 54

Suppose a bank has $10,000 in deposits and $7000 in loans. What is its reserve ratio?

A) 3 percent
B) 7 percent
C) 30 percent
D) 70 percent

Question 55

When a bank loans out $1000, what happens to the money supply in the long term?

A) It increases by $1000.
B) It decreases by $1000.
C) It increases by more than $1000.
D) It decreases by more than $1000.

Question 56

What happens in a 100-percent-reserve banking system?

A) Banks can create money by issuing currency.
B) Banks can create money by lending out reserves.
C) Banks can lend money to their customers.
D) Banks hold as many reserves as they hold deposits.

Question 57

What is most likely to happen under a fractional reserve banking system?

A) Banks hold more reserves than deposits.
B) Banks generally lend out a majority of the funds deposited.
C) Banks cause the money supply to fall by lending out reserves.
D) Banks only accept savings deposits.

Question 58

Suppose that the reserve ratio is 9 percent and that a bank has $3000 in deposits. What are its required reserves?

A) $90
B) $270
C) $333
D) $1730

Question 59

If you deposit $100 into a demand deposit at a bank, what does this action do to the money supply?

A) It increases the money supply by more than $100.
B) It increases the money supply by less than $100.
C) It decreases the money supply by more than $100.
D) It decreases the money supply by less than $100.

Question 60

Suppose a bank has a 10 percent reserve ratio, $2000 in deposits, and it loans out all it can, given the reserve ratio. Which of the following describes the bank's assets?

A) It has $20 in reserves and $1800 in loans.
B) It has $20 in reserves and $1980 in loans.
C) It has $200 in reserves and $1800 in loans.
D) It has $200 in reserves and $2000 in loans.

Question 61

Refer to Table 10-3. If the Bank of Kamloops has loaned out all the money it wants, given its deposits, what is its reserve ratio?

A) 1 percent
B) 5 percent
C) 10 percent
D) 15 percent

Question 62

Refer to Table 10-4. Assume that all banks hold the same reserve ratio as the Bank of the Kawarthas. What is the money multiplier?

A) 3.5
B) 17.5
C) 19
D) 20

Question 63

Refer to Table 10-3. If the Bank of Canada requires banks to hold 5 percent of deposits as reserves, how much in excess reserves does the Bank of Kamloops now hold?

A) $5
B) $25
C) $60
D) $65

Question 64

Refer to Table 10-2. If the reserve requirement is 12 percent, what is the state of this bank?

A) It can make a new loan of $17,500.
B) It has less reserves than required.
C) It has excess reserves of less than $5000.
D) It has excess reserves of more than $5000.

Question 65

Refer to Table 10-3. Assume that all other banks hold only the required 5 percent of deposits as reserves and people hold only deposits and no currency. If the Bank of Kamloops decides to hold exactly 5 percent in reserves, by how much would the economy's money supply increase?

A) $500
B) $1200
C) $1500
D) $2000

Question 66

If the reserve ratio is 10 percent and a bank receives a new deposit of $20, what happens to the bank's reserves in the longer term?

A) increase by $2
B) increase by $18
C) increase by $20
D) increase by $200

Question 67

Refer to Table 10-4. If the Bank of Canada requires a reserve ratio of 4 percent, how much in excess reserves does the Bank of the Kawarthas now hold?

A) $600
B) $700
C) $1440
D) $1500

Question 68

Refer to Table 10-4. Assume that all other banks hold only the required 4 percent of deposits as reserves, and that people hold only deposits and no currency. If the Bank of the Kawarthas decides to hold reserves of 4 percent, by how much would the economy's money supply increase?

A) $30,000
B) $35,000
C) $42,000
D) $45,000

Question 69

Refer to Table 10-1. If $500 is deposited into the First Bank of Dawson City, what will happen?

A) The bank will be able to make additional loans totalling $500.
B) Excess reserves initially increase by $500.
C) Required reserves initially increase by $10,000.
D) Excess reserves initially increase by $400.

Question 70

If you deposit $5000 into First Hawkeye Bank, what will the bank most likely do?

A) It will eventually increase its required reserves by the reserve ratio times $5000.
B) It will be able to lend out $5000 times the reserve ratio.
C) It will initially see reserves increase by $5000 divided by the reserve ratio.
D) It will be able to lend out $5000.

Question 71

Refer to Table 10-4. If the Bank of the Kawarthas has lent out all the money it can, then what is its reserve ratio?

A) 0 percent
B) 5 percent
C) 20 percent
D) 100 percent

Question 72

Refer to Table 10-2. If the reserve requirement is 30 percent, what is this bank's reserve position?

A) It has $29,000 of excess reserves.
B) It needs $10,000 more in reserves to meet its reserve requirement.
C) It needs $27,500 more in reserves to meet its reserve requirement.
D) It just meets its reserve requirement.

Question 73

Refer to Table 10-2. If the Last Bank of Panorama Springs is holding $4000 in excess reserves, what is the reserve requirement?

A) 8 percent
B) 9 percent
C) 10 percent
D) 12 percent

Question 74

A central bank raised the reserve requirement ratio from 5 percent to 8 percent. Other things the same, how does the money multiplier change?

A) It increases by 3.
B) It decreases by 3.
C) It increases by 7.5
D) It decreases by 7.5

Question 75

Refer to Table 10-3. Assume that the Bank of Kamloops is holding the required percent of deposits as reserves. Also, assume all other banks hold only the required percent of deposits as reserves, and that people hold only deposits and no currency. What is the money multiplier?

A) 1
B) 5
C) 10
D) 15

Question 76

If the reserve ratio is 5 percent and a bank receives a new deposit of $1,000, by how much can the bank increase its new loans?

A) by $950
B) by $1,000
C) by $5,000
D) by $20,000

Question 77

Refer to Table 10-1. What is the reserve ratio?

A) 0 percent
B) 20 percent
C) 80 percent
D) 100 percent

Question 78

If the reserve ratio is 10 percent and a bank receives a new deposit of $500, which of the following will this bank most likely do?

A) It will increase its required reserves by $5000.
B) It will make new loans of $5000.
C) It will be able to make new loans of $500.
D) It will initially see its total reserves increase by $500.

Question 79

Refer to Table 10-2. If the reserve requirement is 10 percent and then someone deposits $50,000 into the bank, what is the bank's reserve position?

A) It will have $75,000 in excess reserves.
B) It will have $52,500 in excess reserves.
C) It will need to raise reserves by $5000.
D) It will have excess reserves of $2500.

Question 80

Refer to Table 10-1. If $1000 is deposited into the First Bank of Dawson City, what will happen?

A) Reserves will decrease by $800.
B) Liabilities will decrease by $1000.
C) Assets will increase by $1000.
D) Reserves will increase by $800.