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Exam 10: The Monetary System

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Question 91

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If a bank uses $80 of excess reserves to make a new loan when the reserve ratio is 25 percent, what happens to the money supply?

A) The money supply initially decreases by $80.
B) The money supply initially increases by $20.
C) The money supply will eventually increase by more than $20 but less than $80.
D) The money supply will eventually increase by $320.

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

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Question 92

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What is the difference between money and wealth?

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Money is defined as the set of...

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Question 93

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Which of the following is the role of money in an economy?

Ralph deposits half of his inheritance in a savings account at the bank. In doing so, Ralph is using money as a medium of exchange.

Which of the following is included in M2 but not in M1?

Suppose a bank uses $100 of its $500 excess reserves to make a new loan when the reserve ratio is 20 percent. How does this action by itself initially change the money supply?

If banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall, ceteris paribus.

When Arnold uses dollars to record his income and expenses, how is he using money?

During the early 1930s, there were a number of bank failures in the United States. What did this do to the money supply? The New York Federal Reserve Bank advocated open market purchases. Would these purchases have reversed the change in the money supply and helped banks? Explain.

Bottles of very fine wine are less liquid than demand deposits.

Which of the following best describes the consequences of a decrease in the reserve requirements in a fractional reserve system?

Explain how each of the following changes the money supply. a.the Bank of Canada buys bonds b.the Bank of Canada raises the bank rate c.the Bank of Canada raises the reserve requirement

Who owns the Bank of Canada?

Suppose Jeremiah deposits in a bank an amount of $1000 that he had been holding at home in a jar for a long time. a.If the banking system is 100 percent reserve, how does the money supply change? b.If the reserve requirement is 10 percent and the bank holds no excess reserves, how does the money supply change? c.If the reserve requirement is 10 percent and the bank holds an excess reserve of 2 percent, how does the money supply change?

As the reserve ratio increases, which of the following happens to the money multiplier?

What is the role of the Bank of Canada?

The money multiplier equals 1 divided by (1 - the reserve ratio).

Table 29-4 The following information pertains to the Bank of Edmonton. -Refer to Table 29-4.If the Bank of Canada requires banks to hold 5 percent of deposits as reserves, how much in excess reserves does the Bank of Edmonton now hold?

Which of the following lists contains only actions that increase the money supply?

If the Bank of Canada decreases reserve requirements, the money supply will increase.