Lecture 13 Flashcards
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
A) chequable deposits at the chartered banks.
B) savings accounts and demand loans.
C) chequable deposits and savings accounts at the chartered banks.
D) term deposits and money market funds.
E) chequable deposits at all financial institutions.
A) chequable deposits at the chartered banks.
The largest element of the Canadian money supply today is
A) paper money. B) the debt of the federal government. C) coins. D) bank deposits. E) gold.
D) bank deposits.
The concept of “near money” refers to
A) assets that fulfill the medium-of-exchange function but not the store of value function.
B) money substitutes such as credit cards.
C) assets that fulfill the temporary store-of-value function but not the medium-of-exchange function.
D) financial assets whose capital values are too unstable for them to be classified as money.
E) cheques on demand deposits.
E) cheques on demand deposits.
The biggest disadvantage of a barter system compared to one that uses money is that
A) commodities are difficult to use as a store of value.
B) it is difficult to find goods to trade in a barter system that satisfy the needs of society.
C) each trade requires a double coincidence of wants.
D) all commodities are difficult to transport and therefore inefficient for exchange.
E) a standardized unit of account cannot exist in a barter system.
C) each trade requires a double coincidence of wants.
When you are estimating your monthly income and expenses, money is being used as
A) a unit of account. B) a medium of exchange. C) a money substitute. D) a standard unit of deferred payment. E) a store of value.
A) a unit of account.
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?
A) decrease of $5000 B) increase of $5000 C) decrease of $10 000 D) decrease of $1000 E) increase of $10 000
E) increase of $10 000
Doug is saving money in order to purchase a new snowboard next winter. This represents using money as
A) method of barter. B) a store of value. C) a medium of deferred payment. D) a medium of exchange. E) a unit of account.
B) a store of value.
A commercial bank’s actual reserve ratio is the
A) ratio of Canadian dollars to foreign currencies that it holds on its books.
B) fraction of its deposit liabilities that are backed by gold.
C) fraction of its deposit liabilities that it actually holds as gold, other precious metal or cash in its own vaults.
D) fraction of its deposit liabilities that it actually holds as reserves, either as cash or as deposits with the Bank of Canada.
E) ratio of chequable deposits to term deposits that it holds on its books.
D) fraction of its deposit liabilities that it actually holds as reserves, either as cash or as deposits with the Bank of Canada.
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
A) $0.01. B) $0.10. C) $1.00. D) $10.00. E) $100.00.
D) $10.00.
What do we mean in our current banking system when we say that a currency is “fractionally backed”?
A) The currency is partially backed by the nation’s supply of gold.
B) All paper currency is convertible to gold.
C) Banks have many more claims outstanding against them than they have reserves available to pay those claims.
D) A bank’s currency is fractionally backed by its supply of gold.
E) Banks maintain a fixed fraction of their outstanding deposits as cash deposits with the central bank.
C) Banks have many more claims outstanding against them than they have reserves available to pay those claims.
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) $1500 B) $1387.50 C) $1464 D) $1462.50 E) $1410
E) $1410
A bank run is unlikely to occur in Canada today because
A) if necessary, the central bank can provide all the reserves that are necessary to avoid this situation.
B) banking is done mostly electronically.
C) there is relatively little demand for cash at present.
D) the commercial banks hold enough government securities that are convertible into cash.
E) the commercial banks are required by law to maintain 100% of their deposits in cash.
A) if necessary, the central bank can provide all the reserves that are necessary to avoid this situation.
Other things being equal, a rise in the price level will
A) stabilize the value of money.
B) have no effect on the value of money.
C) increase the purchasing power of money.
D) decrease the purchasing power of money.
E) increase the value of money.
D) decrease the purchasing power of money.
Refer to Table 26-3. What are the reserves held by Bank West?
A) $21 000 B) $1200 C) $19 800 D) $500 E) $700
B) $1200
Most Canadians accept Canadian dollars in payment for goods and services in Canada because they have confidence that the dollar
A) is fully backed by the British pound sterling.
B) will be accepted in the future.
C) is fully convertible into gold.
D) is accepted by foreigners as more stable than their own currency.
E) is fully convertible into American dollars at a set exchange rate.
B) will be accepted in the future.
