Download practice Money

ECONOMICS 101
COLUMBIA COLLEGE
Practice - Money
Suppose that the central bank buys $4 billion of bonds on the open market and the banks wish to hold reserves of 8
percent.
1. What is the largest amount the money supply could ultimately increase?
a) $4b b) $32b c) $50b d) $80b
2. What would the money multiplier be in this case?
a) 4 or less
b) more than 4 but not more than 8
c) more than 8 but not more than 12
d) more than 12
3. If when extra deposits are created customers increase their holdings of cash by 3 percent of those extra deposits,
the money multiplier
a) is unaffected
b) becomes larger
c) becomes smaller
d) can't tell what should happen
4. Suppose you sell a bond to the Bank of Canada for $10,000 and deposit the proceeds in your checking account. As a
direct result of this
a) M1 and M2 both increase
b) M1 increases and M2 decreases
c) M1 increases and M2 is unchanged
d) M1 is unchanged and M2 increases
5. The money multiplier tells us the ultimate increase in
a) the income level due to an increase in the money base
b) the money supply due to an increase in the money base.
c) the money supply due to an increase in the income level
d) the income level due to an increase in the money supply
6. Every dollar added to the total reserves of the monetary system
a) compels the financial institutions to reduce the value of their loans by one dollar.
b) enables the financial institutions to expand their loans by one dollar.
c) compels the financial institutions to reduce their loans by more than a dollar.
d) enables the financial institutions, taken as a whole, to expand their loans by more than a dollar.
7. A purchase of government bonds from the public by the Bank of Canada
a) takes reserves out of the monetary system.
b) reduces the money stock by the amount of the purchase.
c) increases the money stock directly and simultaneously increases the reserves of financial institutions.
d) has the effect of pulling wealth and therefore money out of the private sector.
8. The barter system of exchange is inefficient because
a) "fair" values cannot be defined without the use of money.
b) bargaining power is unequal between rich and poor.
c) double coincidence of wants may not exist.
d) markets do not exist.
e) all barter transactions take place at sunrise.
9.A liquid asset is an asset that
a) can be exchanged fairly quickly for other assets at a very low cost.
b) no one person or institution owns.
c) circulates through the economy until it reaches the same level everywhere.
d) has a less certain value than a solid asset.
10.When the public puts currency into savings deposits in chartered banks
a) M1 and M2 increase.
b) M1 and M2 decrease.
c) M2 increases but M1 does not change.
d) M1 decreases but M2 does not change.
11.The ability of financial institutions to expand the stock of money is limited by
a) the willingness of eligible borrowers to take out loans.
b) the quantity of reserves held by the financial institutions.
c) the desired reserve ratios of the financial institutions.
d) all of the above.
12. Money is
a) equivalent to barter.
b) currency plus credit cards plus debit cards.
c) the same as gold.
d) a means of payment.
e) currency plus coins.
13. Money's function as a unit of account can best be described as
a) an agreed measure for stating the prices of goods and services.
b) an entry in an accounting ledger.
c) a method of recording transactions.
d) a commodity that can be exchanged for another commodity.
e) a generally accepted medium of exchange.
14. Which of the following assets is the most liquid?
a) a Canada Savings Bond
b) a credit card
c) a house
d) cash
e) a line of credit
15. Which one of the following would not be considered a depository institution?
a) The Bank of Canada.
b) a credit union
c) a caisse populaire
d) a trust and mortgage loan company
e) The Bank of Montreal
16. The reserves of a bank include
a) the cash in its vault plus the value of its chequable deposits.
b) the cash in its vault plus any deposits held on account at the Bank of Canada.
c) the cash in its vault plus any gold held for the bank at the Bank of Canada.
d) all of its common stock holdings, the cash in its vault, and all deposits held on account with the Bank of
Canada.
e) the cash in its vault plus any deposits held on account with the Bank of Canada plus the value of any
government bonds that it holds.
17. The Bank of Canada does not do which of the following?
a) Supervise chartered banks.
b) Lend money to the public.
c) Act as a lender of last resort to banks.
d) Issue bank notes.
e) Hold government of Canada securities.
Fact 24.3.1
The Bank of Speedy Creek has chosen the following initial balance sheet:
1) Refer to Fact 24.3.1. Based on the Bank of Speedy Creek's initial balance sheet, what is its desired reserve ratio?
_____________________
2) Refer to Fact 24.3.1. Huck Finn comes along and deposits $10. After Huck's deposit, but before any other actions
occur, what happens to the total amount of money in the economy? _________