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Exam 10: The Monetary System

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Question 21

True/False

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In order for currency to be widely used as a medium of exchange,it is sufficient for the government to designate it as legal tender.

A) True
B) False

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Question 22

Multiple Choice

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Suppose the reserve ratio is 10 percent,banks do not hold excess reserves,people do not hold currency,and the Bank of Canada purchases $20 million of government bonds.Which of the following best describes the effects of Bank of Canada's purchase?

A) Bank reserves increase by $20 million, and the money supply eventually increases by $200 million.
B) Bank reserves decrease by $20 million, and the money supply eventually increases by $200 million.
C) Bank reserves increase by $20 million, and the money supply eventually decreases by $200 million.
D) Bank reserves decrease by $20 million, and the money supply eventually decreases by $200 million.

E) C) and D)
F) B) and D)

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Question 23

Multiple Choice

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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+?

Table 10-3 The following information pertains to the Bank of Edmonton. -Refer to the Table 10-3.Assume that the Bank of Edmonton 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?

If the reserve ratio is 15 percent,by how much will an additional $1000 of reserves increase the money supply?

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

If the central bank lowered the reserve requirement,what happens to the money multiplier and the money supply?

An increase in reserve requirements raises the reserve ratio and decreases the money supply.

Assume that banks do not hold excess reserves.The banking system has $20 million in reserves and has a reserve requirement of 20 percent.The public holds $10 million in currency.Then the public decides to withdraw $5 million in currency from the banking system.If the Bank of Canada wants to keep the money supply stable by changing the reserve requirement,then what will the new reserve requirement be?

The Bank of Canada is a privately operated commercial bank.

In an economy that relies on barter,trade requires a double coincidence of wants.

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

At one time,the country of Aquilonia had no banks,but had currency of $10 million.Then a banking system was established with a reserve requirement of 20 percent.The people of Aquilonia deposited half of their currency into the banking system.If banks do not hold excess reserves,what is Aquilonia's money supply now?

What is a debit card?

M2 is both larger and more liquid than M1+.

As banks create money,they create wealth.

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

If the reserve ratio is 10 percent,how much new money can $1000 of excess reserves create?

Gary's wealth is $1 million.Economists would say that Gary has $1 million worth of money.

Joe wants to trade eggs for sausage.Lashonda wants to trade eggs for orange juice.Joe and Lashonda have a double coincidence of wants.