Chapter 26.3 Flashcards
A central bank can “create” money by
A) selling some of its foreign-currency reserves for domestic currency.
B) selling government Treasury bills to the commercial banks.
C) increasing the rate of inflation.
D) issuing its own Central Bank bonds.
E) purchasing government securities on the open market.
E
Which of the following examples constitutes a new deposit to the Canadian commercial banking system?
A) an individual transfers money from ShipShape Credit Union to Scotiabank
B) an individual immigrates to Canada and deposits money from abroad
C) an individual puts cash in a safety-deposit box
D) the Bank of Canada sells government securities to an individual or a firm
E) the Bank of Canada buys foreign currency from abroad
B
Which of the following examples constitutes a new deposit to the Canadian commercial banking system?
A) an individual transfers money from Ship Shape Credit Union to Scotiabank
B) an individual immigrates to Canada and maintains his existing deposits in a foreign bank
C) an individual puts cash in a safety-deposit box
D) the Bank of Canada buys government securities from a Canadian commercial bank
E) the Bank of Canada buys foreign currency from abroad
D
Refer to Table 26-2. Assume that Bank North is operating with no excess reserves. What is their actual reserve ratio? A) 12% B) 13.67% C) 15% D) 20% E) 25%
C
Refer to Table 26-2. What are the income-earning assets for Bank North? A) Reserves B) Loans C) Deposits D) Capital E) Liabilities
B
Refer to Table 26-2. If Bank North receives a new deposit of $400, its actual reserve ratio immediately becomes A) 7%. B) 15%. C) 25%. D) 29%. E) 35%.
D
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. A) $260 B) $272 C) $340 D) $400 E) $700
C
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: A) 300/0.136 = $2205.88. B) 400/0.15 = $2666.67. C) 400/0.12 = $3333.33. D) 700/0.12 = $5833.33. E) Not enough information to determine.
B
Refer to Table 26-3. What are the reserves held by Bank West? A) $500 B) $700 C) $1200 D) $19 800 E) $21 000
C
Refer to Table 26-3. Assume that Bank West is operating with no excess reserves. What is its actual reserve ratio? A) 2.5% B) 2.4% C) 5.7% D) 6% E) 10%
D
Refer to Table 26-3. If Bank West receives a new deposit of $1500, its actual reserve ratio immediately becomes A) 6%. B) 7.5%. C) 10%. D) 12.6%. E) 33.3%.
D
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. A) $1387.50 B) $1410 C) $1462.50 D) $1464 E) $1500
B
Refer to Table 26-3. Assume that Bank West 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 $1500 is deposited at Bank West, the total new deposits created in the banking system can be calculated as follows: A) 1500/0.06 = $25 000. B) 1500/0.025 = $60 000. C) 1500/0.024 = $62 500. D) 2000/0.025 = $80 000. E) 2000/0.06 = $33 333.
A
Refer to Table 26-4. Bank XYZ is immediately in a position to expand its loans by A) $1.25 million. B) $3.75 million. C) $5 million. D) $15 million. E) $20 million.
B
Refer to Table 26-4. If Bank XYZ increases its loans to the maximum extent possible with its new excess reserves, the second-generation banks will be able to expand their loans by A) $0.94 million. B) $1.00 million. C) $1.50 million. D) $2.81 million. E) $3.75 million.
D
Refer to Table 26-4. The maximum creation of new deposits by the banking system, including the dealer's original deposit at Bank XYZ, is A) $25 million. B) $22.5 million. C) $20 million. D) $15 million. E) $5 million.
C
Refer to Table 26-4. Suppose the public decides to hold 5% of their deposits in cash - that is, there is now a cash drain of 5%. As a result of the new deposit, the money supply would eventually A) increase by $16.67 million. B) increase by $20 million. C) decrease by $20 million. D) decrease by $16.67 million. E) decrease by $8.33 million.
A
Refer to Table 26-4. Suppose the public decides to hold 15% of their deposits in cash - that is, there is now a cash drain of 15%. As a result of the new deposit, the money supply would eventually A) increase by $3.75 million. B) increase by $12.50 million. C) decrease by $12.50 million. D) decrease by $20.00 million. E) not change.
B
Refer to Table 26-5. Bank XYZ is immediately in a position to A) decrease its loans by $100 million. B) decrease its loans by $10 million. C) decrease its loans by $9 million. D) increase loans by $9 million. E) increase loans by $10 million.
C
Refer to Table 26-5. Assume that Bank XYZ has decreased its loans and re-established its target reserve ratio. The second-generation banks in this scenario will
A) decrease their loans by $9.0 million.
B) decrease their loans by $8.1 million.
C) not have to change their loan positions.
D) increase their loans by $8.1 million.
E) increase their loans by $9.0 million.
B
Refer to Table 26-5. As a result of this withdrawal from the banking system, the Canadian banking system would eventually A) decrease its loans by $100 million. B) decrease its loans by $90 million. C) decrease its loans by $10 million. D) increase loans by $90 million. E) increase loans by $100 million.
A
Consider the creation of deposit money in the banking system. One implication of an increase in the cash drain to the public is that the
A) banking system cannot create any additional money following a new deposit.
B) amount of new money that can be created from a new source of reserves is increased.
C) desired ratio is reduced.
D) desired reserve ratio is increased.
E) banking system’s ability to create new money following a new deposit is reduced.
E
Suppose you found a $100 bill that was lost for many years under your grandmother's mattress and you decided to deposit this money in a commercial bank. If the target reserve ratio were 20% and all excess reserves were lent out, your new deposit of $100 would lead to an eventual expansion of the money supply of A) $120. B) $200. C) $500. D) $1200. E) $2000.
C
Suppose you found a $100 bill that was lost for many years under your grandmother's mattress. If the banking system has a cash drain of 5%, its target reserve ratio is 20%, and all excess reserves were lent out, your new deposit of the $100 bill would lead to an eventual expansion of the money supply of A) $20. B) $25. C) $200. D) $400. E) $500.
D