Question 1

Suppose Bank ABC has a target reserve ratio of 10%.If Bank ABC receives a new deposit of $100 000 it will immediately find itself with

Accepted Answer

With a target reserve ratio of 10%, Bank ABC must keep $10,000 (10% of $100,000) as reserves. The remaining $90,000 is excess reserves, as it is above the required reserve amount.

Question 2

Suppose the Canadian banking system jointly has $20 million in reserves (cash and deposits at the Bank of Canada),all banks have a target reserve ratio of 20%,and there are no excess reserves.What is the amount of deposits in the banking system?

Accepted Answer

If the banks have $20 million in reserves and have a target reserve ratio of 20%, then their deposits must be five times the reserves ($20 million / 0.20 = $100 million). Therefore, the amount of deposits in the banking system is $100 million.

Question 3

Bank West's Balance Sheet
Assets Liabilities
Cash $500 Deposits $20 000
Deposits at Bank of Canada $700 Capital $1 000
Loans and Mortgages $19 800 $21 000
$21 000
TABLE 26-3
-Refer to Table 26-3.Assume that Bank West is operating at its target reserve ratio and has no excess reserves.If Bank West receives a new deposit of $1500,it can immediately expand its loans by ________ while maintaining its target reserve ratio.

Accepted Answer

The answer of Bank West's Balance Sheet
Assets Liabilities
Cash $500 Deposits...

Question 4

Bank North's Balance Sheet
Assets Liabilities
Reserves $300 Deposits $2000
Loans $2200 Capital $500
$2500 $2500
TABLE 26-2
-Refer to Table 26-2.If Bank North receives a new deposit of $400,its actual reserve ratio immediately becomes

Accepted Answer

After a new deposit of $400, total reserves become $700 ($300 + $400), and total deposits become $2400 ($2000 + $400). The reserve ratio is $700/$2400 = 29.17%, approximately 29%.

Question 5

Suppose a commercial bank has a level of target reserves of $500 million and actual reserves of $575 million.This bank's ________ is/are $75 million.

Accepted Answer

The excess reserves of the bank are the difference between its actual reserves and the target reserves, which is $575 million - $500 million = $75 million. Therefore, the correct answer is (C) excess reserves.

Question 6

Bank North's Balance Sheet
Assets Liabilities
Reserves $300 Deposits $2000
Loans $2200 Capital $500
$2500 $2500
TABLE 26-2
-Refer to Table 26-2.Assume that Bank North is operating at its target reserve ratio and has no excess reserves,and that all commercial banks have the same target reserve ratio.If a new deposit to the Canadian banking system of $400 is deposited at Bank North,the total new deposits created in the banking system can be calculated as follows:

Accepted Answer

The total new deposits created in the banking system can be calculated using the money multiplier formula: 
1/reserve ratio = 1/0.15 = 6.67
$400 x 6.67 = $2666.67. Therefore, the best choice is B.

Question 7

Bank North's Balance Sheet
Assets Liabilities
Reserves $300 Deposits $2000
Loans $2200 Capital $500
$2500 $2500
TABLE 26-2
-Refer to Table 26-2.Assume that Bank North is operating at its target reserve ratio and has no excess reserves.If Bank North receives a new deposit of $400,it can immediately expand its loans by ________ while maintaining its target reserve ratio.

Accepted Answer

The answer of Bank North's Balance Sheet
Assets Liabilities
Reserves $300 Deposits...

Question 8

Bank North's Balance Sheet
Assets Liabilities
Reserves $300 Deposits $2000
Loans $2200 Capital $500
$2500 $2500
TABLE 26-2
-Refer to Table 26-2.What are the income-earning assets for Bank North?

Accepted Answer

Income-earning assets are typically those that generate interest or other forms of income for the bank. In this case, the only asset that fits that category is Loans, which are typically the primary income-earning asset for banks. Reserves and Deposits do not generate income for the bank, and Capital is not considered an asset.

Question 9

A central bank can "create" money by

Accepted Answer

When a central bank purchases government securities on the open market, it injects new money into the economy, which increases the money supply. This process is known as "open market operations." By increasing the money supply, the central bank can lower interest rates and stimulate economic growth.

Question 10

Bank West's Balance Sheet
Assets Liabilities
Cash $500 Deposits $20 000
Deposits at Bank of Canada $700 Capital $1 000
Loans and Mortgages $19 800 $21 000
$21 000
TABLE 26-3
-Refer to Table 26-3.Assume that Bank West is operating with no excess reserves.What is its actual reserve ratio?

Accepted Answer

The answer of Bank West's Balance Sheet
Assets Liabilities
Cash $500 Deposits...

Question 11

Bank North's Balance Sheet
Assets Liabilities
Reserves $300 Deposits $2000
Loans $2200 Capital $500
$2500 $2500
TABLE 26-2
-Refer to Table 26-2.Assume that Bank North is operating with no excess reserves.What is their actual reserve ratio?

Accepted Answer

The answer of Bank North's Balance Sheet
Assets Liabilities
Reserves $300 Deposits...

Question 12

Which of the following examples constitutes a new deposit to the Canadian commercial banking system?

Accepted Answer

When the Bank of Canada buys government securities from a Canadian commercial bank, it injects new money into the banking system, increasing the reserves and deposits of the commercial bank.

Question 13

Suppose Bank ABC has a target reserve ratio of 2%.If Bank ABC receives a new deposit of $50 million it will immediately find itself with

Accepted Answer

The answer of Suppose Bank ABC has a target reserve...

Question 14

Suppose a commercial bank has a target reserve ratio of 1%,but has an actual reserve ratio of 0.8%.This bank will likely

Accepted Answer

The bank will likely contract its portfolio of loans to increase its reserves and meet its target reserve ratio of 1%.

Question 15

Bank West's Balance Sheet
Assets Liabilities
Cash $500 Deposits $20 000
Deposits at Bank of Canada $700 Capital $1 000
Loans and Mortgages $19 800 $21 000
$21 000
TABLE 26-3
-Refer to Table 26-3.If Bank West receives a new deposit of $1500,its actual reserve ratio immediately becomes

Accepted Answer

The correct answer is D because the new deposit of $1500 increases the deposits to $21500, and the actual reserve ratio becomes $700/$21500 = 12.6%.

Question 16

Which of the following examples constitutes a new deposit to the Canadian commercial banking system?

Accepted Answer

When an individual immigrates to Canada and deposits money from abroad, it constitutes a new deposit to the Canadian commercial banking system. This increases the total deposits in the banking system and contributes to the money supply.

Option A does not constitute a new deposit as the money is just transferred from one financial institution to another within the same banking system. Option C does not constitute a new deposit either as the cash is not added to the banking system until it is deposited in an account. Option D and E do not involve individual deposits into the banking system, but rather transactions between the Bank of Canada and individuals/firms.

Question 17

Without a central bank,commercial banks in Canada would probably hold ________ reserves than they do now,resulting in a ________ money supply than at present.

Accepted Answer

Without a central bank, commercial banks would likely hold more reserves as a precaution against runs, leading to a smaller money supply due to reduced lending capacity.

Question 18

The Canadian banking system is a

Accepted Answer

The Canadian banking system is a fractional-reserve system, which means that banks are required to keep only a fraction of their deposits in reserve and can lend out the remaining funds. This allows for the expansion of credit and the creation of money in the economy.

Question 19

Commercial banks hold a fraction of their deposits in cash in their vaults (or as deposits with the central bank).This fraction is known as

Accepted Answer

The fraction of deposits that commercial banks hold in cash in their vaults or as deposits with the central bank is known as the reserve ratio. This is the ratio of reserves to deposits that banks are required to maintain as a buffer against potential withdrawals. The other options, such as required reserve, excess reserve ratio, fractional reserve, and target reserve, may or may not be related to the concept of reserve ratio, but they are not the correct technical term.

Question 20

Bank West's Balance Sheet
Assets Liabilities
Cash $500 Deposits $20 000
Deposits at Bank of Canada $700 Capital $1 000
Loans and Mortgages $19 800 $21 000
$21 000
TABLE 26-3
-Refer to Table 26-3.What are the reserves held by Bank West?

Accepted Answer

Reserves are the sum of cash and deposits at the central bank, which is $500 + $700 = $1200.

Quiz 26: Money and Banking

Suppose Bank ABC has a target reserve ratio of 10%.If Bank ABC receives a new deposit of $100 000 it will immediately find itself with

Suppose the Canadian banking system jointly has $20 million in reserves (cash and deposits at the Bank of Canada) ,all banks have a target reserve ratio of 20%,and there are no excess reserves.What is the amount of deposits in the banking system?

Bank North's Balance Sheet Assets Liabilities Reserves $300 Deposits $2000 Loans $2200 Capital $500 $2500 $2500 TABLE 26-2 -Refer to Table 26-2.If Bank North receives a new deposit of $400,its actual reserve ratio immediately becomes

Suppose a commercial bank has a level of target reserves of $500 million and actual reserves of $575 million.This bank's ________ is/are $75 million.

Bank North's Balance Sheet Assets Liabilities Reserves $300 Deposits $2000 Loans $2200 Capital $500 $2500 $2500 TABLE 26-2 -Refer to Table 26-2.What are the income-earning assets for Bank North?

A central bank can "create" money by

Bank West's Balance Sheet Assets Liabilities Cash $500 Deposits $20 000 Deposits at Bank of Canada $700 Capital $1 000 Loans and Mortgages $19 800 $21 000 $21 000 TABLE 26-3 -Refer to Table 26-3.Assume that Bank West is operating with no excess reserves.What is its actual reserve ratio?

Bank North's Balance Sheet Assets Liabilities Reserves $300 Deposits $2000 Loans $2200 Capital $500 $2500 $2500 TABLE 26-2 -Refer to Table 26-2.Assume that Bank North is operating with no excess reserves.What is their actual reserve ratio?

Which of the following examples constitutes a new deposit to the Canadian commercial banking system?

Suppose Bank ABC has a target reserve ratio of 2%.If Bank ABC receives a new deposit of $50 million it will immediately find itself with

Suppose a commercial bank has a target reserve ratio of 1%,but has an actual reserve ratio of 0.8%.This bank will likely

Bank West's Balance Sheet Assets Liabilities Cash $500 Deposits $20 000 Deposits at Bank of Canada $700 Capital $1 000 Loans and Mortgages $19 800 $21 000 $21 000 TABLE 26-3 -Refer to Table 26-3.If Bank West receives a new deposit of $1500,its actual reserve ratio immediately becomes

Which of the following examples constitutes a new deposit to the Canadian commercial banking system?

Without a central bank,commercial banks in Canada would probably hold reserves than they do now,resulting in a money supply than at present.

The Canadian banking system is a

Commercial banks hold a fraction of their deposits in cash in their vaults (or as deposits with the central bank) .This fraction is known as

Bank West's Balance Sheet Assets Liabilities Cash $500 Deposits $20 000 Deposits at Bank of Canada $700 Capital $1 000 Loans and Mortgages $19 800 $21 000 $21 000 TABLE 26-3 -Refer to Table 26-3.What are the reserves held by Bank West?