Lecture 13 Flashcards
Most Canadians accept Canadian dollars in payment for goods and services in Canada because they have confidence that the dollar
A) is fully convertible into gold.
B) is fully backed by the British pound sterling.
C) is fully convertible into American dollars at a set exchange rate.
D) will be accepted in the future.
E) is accepted by foreigners as more stable than their own currency.
D
The biggest disadvantage of a barter system compared to one that uses money is that
A) it is difficult to find goods to trade in a barter system that satisfy the needs of society.
B) a standardized unit of account cannot exist in a barter system.
C) all commodities are difficult to transport and therefore inefficient for exchange.
D) commodities are difficult to use as a store of value.
E) each trade requires a double coincidence of wants.
E
If all the banks in the banking system collectively have $500 million in cash reserves, and have a target reserve ratio of 5%, the maximum amount of deposits the banking system can support is
A) $25 billion.
B) $100 billion.
C) $10 billion.
D) $10 million.
E) $100 million.
C
Suppose Bank ABC has a target reserve ratio of 2%. If Bank ABC receives a new deposit of $50 million it will immediately find itself with
A) excess cash reserves of $49.5 million.
B) excess cash reserves of $1 million.
C) excess cash reserves of $49 million.
D) no excess cash reserves.
E) excess cash reserves of $10 million.
C
The largest element of the Canadian money supply today is
A) bank deposits.
B) the debt of the federal government.
C) coins.
D) paper money.
E) gold.
A
What do we mean in our current banking system when we say that a currency is “fractionally backed”?
A) Banks have many more claims outstanding against them than they have reserves available to pay those claims.
B) A bank’s currency is fractionally backed by its supply of gold.
C) The currency is partially backed by the nation’s supply of gold.
D) All paper currency is convertible to gold.
E) Banks maintain a fixed fraction of their outstanding deposits as cash deposits with the central bank.
A
When discussing the banking system, a cash drain of 5% means that
A) depositors wish to hold 95% of the value of their deposits in cash.
B) 5% of an initial new deposit to the banking system is paid in banking fees and is therefore not available for the creation of new deposit money.
C) depositors wish to hold 5% of the value of their deposits in cash.
D) 5% of an initial new deposit to the banking system is payable as a financial services tax.
E) 95% of an initial new deposit is maintained as cash reserves by the commercial bank.
C
The function of money in an economy is to serve as
1) a unit of account;
2) a store of value;
3) a medium of exchange.
A) 1 and 2
B) 3 only
C) 2 and 3
D) 1, 2, and 3
E) 1 and 3
D
Suppose the rare event occurs that a major Canadian commercial bank is on the verge of insolvency and collapse due to volatile world credit markets. The likely initial response is
A) a bankruptcy filing overseen by the Superintendent of Financial Institutions.
B) the adoption of all of the bank’s liabilities by the Bank of Canada as the “lender of last resort.”
C) the provision of funds by the World Bank as the “lender of last resort.”
D) the provision of funds by the Bank of Canada as the “lender of last resort.”
E) the sale of the bank’s assets to the remaining commercial banks.
D
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 $10 000
B) decrease of $1000
C) decrease of $5000
D) increase of $5000
E) increase of $10 000
E
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
