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Suppose a bank has a 20 percent reserve ratio, $2500 in deposits, and it loans out all it can, given the reserve ratio. Which of the following describes the bank's assets?


A) It has $50 in reserves and $$2500 in loans.
B) It has $50 in reserves and $2450 in loans.
C) It has $500 in reserves and $2000 in loans.
D) It has $500 in reserves and $2500 in loans.

E) None of the above
F) C) and D)

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Who determines the amount of money in the economy?


A) The Bank of Canada controls the money supply precisely.
B) The amount of money in the economy does not depend on the behaviour of depositors.
C) The amount of money in the economy depends in part on the behaviour of banks.
D) The Minister of Finance determines the amount of money in the economy by law.

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

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C

What is meant by the term "lender of last resort?" In what circumstances might the Bank of Canada be a lender of last resort?

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A "lender of last resort" is a lender to those who cannot borrow anywhere else. The Bank might loan funds to a solvent bank that is experiencing a bank run and so doesn't have enough cash on hand to meet depositors' demands.

What does the legal tender requirement imply?


A) People are more likely to accept the dollar as a medium of exchange.
B) The government must hold enough gold to redeem all currency.
C) People may not make trades with anything else.
D) It is illegal to hold foreign currencies.

E) None of the above
F) C) and D)

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Credit cards are not a medium of exchange and so are not important for analyzing the monetary system.

A) True
B) False

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Which of the following best describes the consequences of an increase in reserve requirements?


A) The reserve ratio increases, the money multiplier increases, and the money supply increases.
B) The reserve ratio increases, the money multiplier decreases, and the money supply decreases.
C) The reserve ratio decreases, the money multiplier increases, and the money supply increases.
D) The reserve ratio decreases, the money multiplier decreases, and the money supply increases.

E) None of the above
F) A) and D)

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Which of the following characterizes currency?


A) It has intrinsic value.
B) It has no intrinsic value.
C) It may be used as a medium of exchange but is not legal tender.
D) It performs all the functions of money except providing a unit of account.

E) None of the above
F) All of the above

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The Bank of Canada is a privately operated commercial bank.

A) True
B) False

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The banking system has $20 million in reserves and has a reserve requirement of 20 percent. Bankers previously did not hold any excess reserves, but difficult economic times make them decide that it is prudent to hold 25 percent of deposits as reserves. Other things equal, by how much must the Bank of Canada increase bank reserves to keep the money supply the same?


A) $4 million
B) $5 million
C) $20 million
D) No action by the Bank of Canada is necessary.

E) B) and D)
F) None of the above

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What is the approximate amount of currency per person in Canada?


A) $275
B) $858
C) $1025
D) $2052

E) A) and B)
F) A) and C)

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D

Which of the following is the function of debit cards?


A) They defer payments.
B) They are equivalent to credit cards.
C) They are included in M2.
D) They are used as a method of payment.

E) A) and B)
F) A) and D)

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How can the Bank of Canada increase the money supply?


A) by conducting open market sales and raising the bank rate
B) by conducting open market sales and lowering the bank rate
C) by conducting open market purchases and raising the bank rate
D) by conducting open market purchases and lowering the bank rate

E) A) and B)
F) A) and C)

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The banking system has $20 million in reserves and has a reserve requirement of 20 percent. The public holds $20 million in currency. Bankers previously did not hold any excess reserves, but difficult economic times make them decide that it is prudent to hold 25 percent of deposits as reserves. At the same time, the public decides to deposit $6.7 million in currency into the banking system. Other things equal, what must the Bank of Canada do to bank reserves to keep the money supply the same?


A) reduce reserves by $6.7 million
B) reduce reserves by $5 million
C) increase reserves by $3 million
D) No action by the Bank of Canada is necessary.

E) All of the above
F) C) and D)

Correct Answer

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Suppose that the reserve ratio is 5 percent and that a bank has $3000 in deposits. What are its required reserves?


A) $150
B) $50
C) $1500
D) $500

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

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


A) It does not change the money supply.
B) It increases the money supply.
C) It decreases the money supply.
D) It has an indeterminate effect on the money supply.

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

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When the Bank of Canada wants to change the money supply, which of the following does it most frequently do?


A) It changes the bank rate.
B) It changes the reserve requirement.
C) It conducts open market operations.
D) It changes the amount of transfers such as unemployment benefits, child allowances, or other social assistance payments.

E) A) and B)
F) All of the above

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Assume that banks do not hold excess reserves. The banking system has $50 million in reserves and has a reserve requirement of 10 percent. The public holds $20 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?


A) 10 percent
B) 9.1 percent
C) 9 percent
D) 8.1 percent

E) A) and C)
F) A) and B)

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When was the Bank of Canada Act first enacted?


A) 1935
B) 1867
C) 1984
D) 1934

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

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Who chairs the Board of Directors of the Bank of Canada?


A) the Governor of the Bank of Canada
B) the Prime Minister
C) the Minister of Finance
D) the Governor General

E) C) and D)
F) All of the above

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The use of money allows trade to be roundabout.

A) True
B) False

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