Question 1

In reality,the reserve ratio for Canadian commercial banks is approximately ________%,which means that the deposit creation process is ________.

Accepted Answer

The answer of In reality,the reserve ratio for Canadian commercial...

Question 2

Suppose Bank ABC has a target reserve ratio of 10%,no excess reserves,and it receives a new deposit of $500 000.This bank will initially expand its loans by

Accepted Answer

The bank's desired reserves will increase by $50,000 (10% of the new deposit). Therefore, the bank will be able to lend out the remaining $450,000.

Question 3

Consider a new deposit of $10 000 to the Canadian banking system.Assuming that all Canadian banks have a target reserve ratio of 2%,and that there is no cash drain,the banking system as a whole could create ________ as a result of this single new deposit.

Accepted Answer

The answer of Consider a new deposit of $10 000...

Question 4

Until recently,and for many years,the common definition of the money supply used by the Bank of Canada was M1,which included currency in circulation plus

Accepted Answer

M1, or the narrow money supply, includes currency in circulation and chequable deposits at chartered banks. The other options mentioned include additional types of deposits or financial instruments that are not considered part of M1.

Question 5

Suppose that the cash drain in the banking system increases during holiday periods.As a result,

Accepted Answer

The cash drain in the banking system indicates that customers are withdrawing cash from their bank accounts, which reduces the available reserves that banks can use to create new deposits. As a result, the capacity of the banking system to create deposit money is dampened during holiday periods.

Question 6

Consider a new deposit of $100 000 to the Canadian banking system.The commercial bank that initially receives this deposit will find itself with

Accepted Answer

The answer of Consider a new deposit of $100 000...

Question 7

If the Bank of Canada enters the open market and sells $1000 of government securities,what will be the eventual change in the money supply if commercial banks lend out all excess reserves and they have a 2.5% target reserve ratio?

Accepted Answer

When the Bank of Canada sells $1000 of government securities in the open market, it effectively removes $1000 from the banking system. With a 2.5% reserve ratio, banks can lend out 97.5% of their deposits. The money multiplier is 1 / reserve ratio = 1 / 0.025 = 40. Therefore, the initial $1000 reduction in reserves leads to a $40,000 decrease in the money supply, as banks lend less due to having fewer reserves.

Question 8

If the target reserve ratio in the banking system is 20%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an eventual expansion of the money supply of

Accepted Answer

The money multiplier formula is 1 / reserve ratio. With a reserve ratio of 20% (or 0.20), the money multiplier is 1 / 0.20 = 5. Therefore, a new deposit of $1 can lead to an eventual expansion of the money supply by $5.

Question 9

Northern Bank: Balance Sheet
Assets Liabilities
Reserves $800 Deposits $10 000
Loans $11 200 Capital $2000
$12 000 $12 000
TABLE 26-6
-Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.What is its current level of excess reserves?

Accepted Answer

The answer of Northern Bank: Balance Sheet
Assets Liabilities
Reserves $800 Deposits...

Question 10

Northern Bank: Balance Sheet
Assets Liabilities
Reserves $800 Deposits $10 000
Loans $11 200 Capital $2000
$12 000 $12 000
TABLE 26-6
-Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must ________ and ________.

Accepted Answer

To achieve a 10% reserve ratio, Northern Bank needs reserves of $1,000 (10% of $10,000 deposits). It currently has $800, so it needs to increase reserves by $200. To maintain balance, it can decrease loans by $200.

Question 11

Northern Bank: Balance Sheet
Assets Liabilities
Reserves $800 Deposits $10 000
Loans $11 200 Capital $2000
$12 000 $12 000
TABLE 26-6
-Refer to Table 26-6.Owners of Northern Bank contributed money to start the bank.Under which category of it's balance sheet do these funds fall?

Accepted Answer

The funds contributed by the owners of Northern Bank fall under the category of Capital, as it represents the money invested by the owners to start the bank.

Question 12

The money supply in Canada is measured using M1,M2,M2+,and M3.The reason there are so many measures of the money supply is that

Accepted Answer

Different kinds of bank accounts represent different functions of money, and so the various measures are used to reflect these different functions. M1 measures the most liquid forms of money (cash, chequing accounts), while M3 includes assets that are still easily convertible to cash but may be less liquid (like treasury bills and commercial paper). The different measures are used to give a more accurate picture of the money supply and its functions in the economy.

Question 13

If the Bank of Canada enters the open market and purchases $1000 of government securities,what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system?

Accepted Answer

When the Bank of Canada purchases $1000 of government securities, it pays for them with its own funds. These funds go into the account of the seller, who will deposit the money into their bank account. This will increase the reserves of the bank, which will in turn increase the money supply. The formula for determining the eventual change in the money supply is:

Change in Money Supply = (1/Target Reserve Ratio) x Change in Reserves

In this case, the target reserve ratio is 10%. Therefore:

Change in Money Supply = (1/0.10) x $1000
Change in Money Supply = 10 x $1000
Change in Money Supply = $10,000

Therefore, the eventual change in the money supply will be an increase of $10,000.

Question 14

Consider a new deposit of $10 000 to the Canadian banking system.The commercial bank that initially receives this deposit will find itself with

Accepted Answer

When a bank receives a new deposit, it must keep a fraction of the deposit as reserves if there is a reserve requirement. If the reserve ratio is 10%, the bank must keep 10% of $10,000, which is $1,000, as reserves. The rest, $9,000, can be considered excess reserves that the bank can lend out.

Question 15

If the Bank of Canada enters the open market and sells $1000 of government securities,what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system and a 10% cash drain?

Accepted Answer

When the Bank of Canada sells $1000 of government securities in the open market, it effectively removes $1000 from the banking system. Given a 10% reserve ratio, this initial removal could support a $10,000 increase in the money supply under the money multiplier effect if it were an addition instead of a removal. However, considering the 10% cash drain, the effective multiplier is reduced. The formula for the adjusted multiplier in this context is 1 / (Reserve Ratio + Cash Drain Ratio), which equals 1 / (0.10 + 0.10) = 5. Therefore, the $1000 removed from the system results in a $5000 decrease in the money supply, as each dollar could have supported five times its amount in the money supply due to the multiplier effect.

Question 16

If the target reserve ratio in the banking system is 1%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an expansion of the money supply of

Accepted Answer

The correct answer is E) $100.00. This is because with a reserve ratio of 1%, banks are required to hold only 1% of deposits as reserves and can lend out 99% of any new deposits. This process of lending and redepositing can theoretically continue until the initial deposit of $1 has expanded the money supply by $100, as each dollar is lent out and redeposited, creating a multiplier effect. The formula for the maximum possible expansion of the money supply is 1/reserve ratio, which in this case is 1/0.01 = 100.

Question 17

If the target reserve ratio in the banking system is 10%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an eventual expansion of the money supply of

Accepted Answer

The correct answer is D) $10.00. This is because with a target reserve ratio of 10%, banks are required to hold 10% of deposits as reserves and can lend out the other 90%. This process of lending and redepositing can theoretically continue until the initial deposit of $1 has created additional bank deposits totaling $10. This is calculated using the money multiplier formula, which is 1/reserve ratio = 1/0.10 = 10.

Question 18

When discussing the banking system,a cash drain of 5% means that

Accepted Answer

Depositors wishing to hold 5% of the value of their deposits in cash represents a cash drain, as it reduces the amount of money banks have available to lend or invest, impacting the money creation process in the banking system.

Question 19

Northern Bank: Balance Sheet
Assets Liabilities
Reserves $800 Deposits $10 000
Loans $11 200 Capital $2000
$12 000 $12 000
TABLE 26-6
-Refer to Table 26-6.Northern Bank holds cash in its vault and has some deposits in its account at the central bank.Under which category on its balance sheet are these funds included?

Accepted Answer

The funds held in the bank's vault and account at the central bank are considered reserves, which are included in the assets section of the balance sheet.

Question 20

The expansion of deposits resulting from an injection of new cash to the banking system can be calculated as follows.The change in deposits is equal to

Accepted Answer

The answer of The expansion of deposits resulting from an...

Quiz 26: Money and Banking

In reality,the reserve ratio for Canadian commercial banks is approximately %,which means that the deposit creation process is .

Suppose Bank ABC has a target reserve ratio of 10%,no excess reserves,and it receives a new deposit of $500 000.This bank will initially expand its loans by

Consider a new deposit of $10 000 to the Canadian banking system.Assuming that all Canadian banks have a target reserve ratio of 2%,and that there is no cash drain,the banking system as a whole could create ________ as a result of this single new deposit.

Until recently,and for many years,the common definition of the money supply used by the Bank of Canada was M1,which included currency in circulation plus

Suppose that the cash drain in the banking system increases during holiday periods.As a result,

Consider a new deposit of $100 000 to the Canadian banking system.The commercial bank that initially receives this deposit will find itself with

If the Bank of Canada enters the open market and sells $1000 of government securities,what will be the eventual change in the money supply if commercial banks lend out all excess reserves and they have a 2.5% target reserve ratio?

If the target reserve ratio in the banking system is 20%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an eventual expansion of the money supply of

Northern Bank: Balance Sheet Assets Liabilities Reserves $800 Deposits $10 000 Loans $11 200 Capital $2000 $12 000 $12 000 TABLE 26-6 -Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.What is its current level of excess reserves?

Northern Bank: Balance Sheet Assets Liabilities Reserves $800 Deposits $10 000 Loans $11 200 Capital $2000 $12 000 $12 000 TABLE 26-6 -Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must and .

Northern Bank: Balance Sheet Assets Liabilities Reserves $800 Deposits $10 000 Loans $11 200 Capital $2000 $12 000 $12 000 TABLE 26-6 -Refer to Table 26-6.Owners of Northern Bank contributed money to start the bank.Under which category of it's balance sheet do these funds fall?

The money supply in Canada is measured using M1,M2,M2+,and M3.The reason there are so many measures of the money supply is that

If the Bank of Canada enters the open market and purchases $1000 of government securities,what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system?

Consider a new deposit of $10 000 to the Canadian banking system.The commercial bank that initially receives this deposit will find itself with

If the Bank of Canada enters the open market and sells $1000 of government securities,what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system and a 10% cash drain?

If the target reserve ratio in the banking system is 1%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an expansion of the money supply of

If the target reserve ratio in the banking system is 10%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an eventual expansion of the money supply of

When discussing the banking system,a cash drain of 5% means that

The expansion of deposits resulting from an injection of new cash to the banking system can be calculated as follows.The change in deposits is equal to

Quiz 26: Money and Banking

In reality,the reserve ratio for Canadian commercial banks is approximately ________%,which means that the deposit creation process is ________.

Suppose Bank ABC has a target reserve ratio of 10%,no excess reserves,and it receives a new deposit of $500 000.This bank will initially expand its loans by

Consider a new deposit of $10 000 to the Canadian banking system.Assuming that all Canadian banks have a target reserve ratio of 2%,and that there is no cash drain,the banking system as a whole could create ________ as a result of this single new deposit.

Until recently,and for many years,the common definition of the money supply used by the Bank of Canada was M1,which included currency in circulation plus

Suppose that the cash drain in the banking system increases during holiday periods.As a result,

Consider a new deposit of $100 000 to the Canadian banking system.The commercial bank that initially receives this deposit will find itself with

If the Bank of Canada enters the open market and sells $1000 of government securities,what will be the eventual change in the money supply if commercial banks lend out all excess reserves and they have a 2.5% target reserve ratio?

If the target reserve ratio in the banking system is 20%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an eventual expansion of the money supply of

Northern Bank: Balance Sheet Assets Liabilities Reserves $800 Deposits $10 000 Loans $11 200 Capital $2000 $12 000 $12 000 TABLE 26-6 -Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.What is its current level of excess reserves?

Northern Bank: Balance Sheet Assets Liabilities Reserves $800 Deposits $10 000 Loans $11 200 Capital $2000 $12 000 $12 000 TABLE 26-6 -Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must ________ and ________.

Northern Bank: Balance Sheet Assets Liabilities Reserves $800 Deposits $10 000 Loans $11 200 Capital $2000 $12 000 $12 000 TABLE 26-6 -Refer to Table 26-6.Owners of Northern Bank contributed money to start the bank.Under which category of it's balance sheet do these funds fall?

The money supply in Canada is measured using M1,M2,M2+,and M3.The reason there are so many measures of the money supply is that

If the Bank of Canada enters the open market and purchases $1000 of government securities,what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system?

Consider a new deposit of $10 000 to the Canadian banking system.The commercial bank that initially receives this deposit will find itself with

If the Bank of Canada enters the open market and sells $1000 of government securities,what will be the eventual change in the money supply given a 10% target reserve ratio in the commercial banking system and a 10% cash drain?

If the target reserve ratio in the banking system is 1%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an expansion of the money supply of

If the target reserve ratio in the banking system is 10%,there is no cash drain,and there are no excess reserves,a new deposit of $1 will lead to an eventual expansion of the money supply of

When discussing the banking system,a cash drain of 5% means that

The expansion of deposits resulting from an injection of new cash to the banking system can be calculated as follows.The change in deposits is equal to

In reality,the reserve ratio for Canadian commercial banks is approximately %,which means that the deposit creation process is .

Northern Bank: Balance Sheet Assets Liabilities Reserves $800 Deposits $10 000 Loans $11 200 Capital $2000 $12 000 $12 000 TABLE 26-6 -Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must and .