Question 1

The purchasing power of the dollar:

Accepted Answer

A)   has been increasing in recent years because of economic growth.
B)   varies directly with the cost-of-living index.
C)   is inversely related to the level of aggregate demand.
D)   is the reciprocal of the price level.E) A) and C)
F) B) and D)

Question 2

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:

Accepted Answer

A)   is 10 percent.
B)   is 12.5 percent.
C)   is 20 percent.
D)   cannot be determined from this information.E) B) and D)
F) All of the above

Question 3

The multiple by which the chartered banking system can expand the supply of money is equal to the reciprocal of:

Accepted Answer

A)   the MPS.
B)   its actual cash reserves.
C)   its excess reserves.
D)   the desired reserve ratio.E) A) and B)
F) A) and C)

Question 4

The following is a consolidated balance sheet for the chartered banking system.All figures are in billions.Assume that the desired reserve ratio is 20 percent.
 
-Refer to the above information.The amount of excess reserves is:

Accepted Answer

A)   $20 billion.
B)   $60 billion.
C)   $120 billion.
D)   $600 billion.E) B) and C)
F) C) and D)

Question 5

The following balance sheet is for the First National Bank.Assume the reserve ratio is 15 percent. 
Refer to the above data.This bank can make new loans of up to:

Accepted Answer

A)   $50,000
B)   $41,000
C)   $27,000
D)   $32,000E) All of the above
F) A) and C)

Question 6

If actual reserves in the banking system are $50,000,excess reserves are $5,000,and demand deposits are $225,000,then the money multiplier:

Accepted Answer

A)   is 10.
B)   is 5.
C)   is 4.
D)   cannot be determined from this information.E) A) and B)
F) A) and C)

Question 7

Chartered banks create money when they:

Accepted Answer

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.E) All of the above
F) None of the above

Question 8

The following is information about a banking system: new currency deposited in the system = $40 billion;desired reserve ratio = 20%;excess reserves prior to the new currency deposit = $0.
-Refer to the above information.The banking system will be able to expand the money supply through loans by:

Accepted Answer

A)   $160 billion.
B)   $200 billion.
C)   $40 billion.
D)   $128 billion.E) All of the above
F) A) and C)

Question 9

The multiple by which the chartered banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to:

Accepted Answer

A)   the reciprocal of the desired reserve ratio.
B)   1 minus the desired reserve ratio.
C)   the reciprocal of the income velocity of money.
D)   1/MPS.E) A) and B)
F) A) and C)

Question 10

Near-monies are important:

Accepted Answer

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.E) A) and D)
F) All of the above

Question 11

The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent.
 
-Refer to the above information.This chartered bank has excess reserves of:

Accepted Answer

A)   $0
B)   $3,000
C)   $12,000
D)   $5,000E) C) and D)
F) B) and C)

Question 12

When a borrower repays a loan of $4000,either in cash or by cheque,the supply of money is reduced by $4000.

Accepted Answer

A) True 
 B)False

Question 13

Fiat money is valuable because:

Accepted Answer

A)   it is backed by gold.
B)   it is fractionally backed by gold.
C)   it is generally acceptable.
D)   it is convertible to gold.E) All of the above
F) A) and B)

Question 14

Purchasing common stock by writing a cheque best exemplifies money serving as a:

Accepted Answer

A)   store of value.
B)   unit of account.
C)   medium of exchange.
D)   index of satisfaction.E) None of the above
F) A) and B)

Question 15

When a bank has a cheque drawn and cleared against it:

Accepted Answer

A)   excess reserves in the banking system decline.
B)   the nation's total money supply falls.
C)   the bank's balance sheet does not change.
D)   the amount of desired reserves the bank has will fall.E) All of the above
F) A) and B)

Question 16

The amount that a chartered bank can lend is determined by its:

Accepted Answer

A)   desired reserves.
B)   excess reserves.
C)   outstanding loans.
D)   outstanding demand deposits.E) B) and C)
F) All of the above

Question 17

When a consumer wants to compare the price of one product with another,money is primarily functioning as a:

Accepted Answer

A)   store of value.
B)   unit of account.
C)   chequable deposit.
D)   medium of exchange.E) A) and C)
F) A) and B)

Question 18

When a cheque is cleared against a bank,it will lose:

Accepted Answer

A)   cash and securities.
B)   demand deposits and cash reserves.
C)   reserves and stock shares.
D)   loans and demand deposits.E) B) and D)
F) C) and D)

Question 19

The following balance sheet is for the First Edmonton Bank.All figures are in millions.
 
-Refer to the above information.If this bank finds that it has excess reserves of $6,the desired ratio must be:

Accepted Answer

A)   10 percent.
B)   12 percent.
C)   14 percent.
D)   20 percent.E) C) and D)
F) A) and D)

Question 20

When cash is deposited in a demand-deposit account in a chartered bank:

Accepted Answer

A)   the money supply increases.
B)   the money supply decreases.
C)   the composition of the money supply changes.
D)   the composition of the money supply does not change.E) A) and D)
F) B) and D)

Exam 14: Money, Banking, and Money Creation

If actual reserves in the banking system are $50,000,excess reserves are $5,000,and demand deposits are $225,000,then the money multiplier:

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The following is a consolidated balance sheet for the chartered banking system.All figures are in billions.Assume that the desired reserve ratio is 20 percent. -Refer to the above information.The amount of excess reserves is:

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When a borrower repays a loan of $4000,either in cash or by cheque,the supply of money is reduced by $4000.

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When a cheque is cleared against a bank,it will lose:

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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:

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Fiat money is valuable because:

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Purchasing common stock by writing a cheque best exemplifies money serving as a:

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The following balance sheet is for the First Edmonton Bank.All figures are in millions. -Refer to the above information.If this bank finds that it has excess reserves of $6,the desired ratio must be:

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Near-monies are important:

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The multiple by which the chartered banking system can expand the supply of money is equal to the reciprocal of:

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The purchasing power of the dollar:

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The following balance sheet is for the First National Bank.Assume the reserve ratio is 15 percent. Refer to the above data.This bank can make new loans of up to:

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When a consumer wants to compare the price of one product with another,money is primarily functioning as a:

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When cash is deposited in a demand-deposit account in a chartered bank:

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Chartered banks create money when they:

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The following is information about a banking system: new currency deposited in the system = $40 billion;desired reserve ratio = 20%;excess reserves prior to the new currency deposit = $0. -Refer to the above information.The banking system will be able to expand the money supply through loans by:

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When a bank has a cheque drawn and cleared against it:

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The amount that a chartered bank can lend is determined by its:

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The multiple by which the chartered banking system can increase the supply of money on the basis of each dollar of excess reserves is equal to:

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The following balance sheet shows the assets and liabilities of the ABC National Bank.Assume the desired reserve ratio is 20 percent. -Refer to the above information.This chartered bank has excess reserves of:

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