Principles of Macroeconomics Canadian 7Th Edition Mankiw Test Bank Full Chapter PDF

Principles Of Macroeconomics
Canadian 7th Edition Mankiw Test Bank

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Chapter 10 - The Monetary System

1. What is the role of money in an economy?
a. Money serves as a person’s wealth.
b. Money allows people to save
c. Money is an investment asset.
d. Money allows greater specialization.
ANSWER: d
2. What is a characteristic of paper money?

a. It has a high intrinsic value.
b. It hinders efficient allocation of resources.
c. It is valuable because it is generally accepted in trade.
d. It is valuable only because of the legal tender requirement.
ANSWER: c
3. Which statement best defines barter?

a. It is an exchange of goods for money.
b. It is an exchange of money for foreign currency.
c. It is a generally accepted legal tender.
d. It is a transaction that requires a double coincidence of wants.
ANSWER: d
4. When Arnold uses dollars to record his income and expenses, how is he using money?
a. as a unit of account
b. as a means of payment
c. as a store of value
d. as a medium of exchange
ANSWER: a
5. What is a generally accepted medium of exchange?

a. a plane ticket
b. federal government bonds
c. diamonds
d. currency
ANSWER: d
6. Which statement best illustrates the unit of account function of money?

a. You list prices for candy sold on your website, www.sweettooth.com, in dollars.
b. You pay for your NHL tickets with dollars.
c. You keep $10 in your backpack for emergencies.
d. You sell a used copy of your textbook for $40.
ANSWER: a
7. Mia puts money into a piggy bank so she can spend it later. Which function of money does this illustrate?
a. store of value
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b. medium of exchange
c. unit of account
d. wealth
ANSWER: a
8. Which statement best illustrates the medium of exchange function of money?

a. You keep some money hidden in your shoe.
b. Your recent tax assessment has valued your condo at $200,000..
c. You pay for your double latte using currency.
d. You lend $25 to your friend.
ANSWER: c
9. What do economists use the word “money” to refer to?

a. income generated by the production of goods and services
b. those assets regularly used to buy goods and services
c. the value of a person’s assets
d. the value of stocks and bonds
ANSWER: b
10. Which statement best defines liquidity?

a. It is the ease with which an asset is converted to the medium of exchange.
b. It is a measurement of the intrinsic value of commodity money.
c. It is the ability of an asset to retain purchasing power.
d. It refers to how many times a dollar changes hands in a given year.
ANSWER: a
11. Which of the following ranks assets from most to least liquid?
a. currency, diamonds, stocks
b. currency, stocks, diamonds
c. diamonds, currency, stocks
d. diamonds, stocks, currency
ANSWER: b
12. What is current Canadian currency?

a. fiat money with intrinsic value
b. fiat money with no intrinsic value
c. commodity money with intrinsic value
d. commodity money with no intrinsic value
ANSWER: b
13. What characterizes fiat money?

a. It has no intrinsic value.
b. It is backed by gold.
c. It has intrinsic value equal to its value in exchange.
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d. It is an illiquid asset.
ANSWER: a
14. What characterizes commodity money?

a. It is money that is backed by gold.
b. It is the principal type of money in use today.
c. It is money with intrinsic value.
d. It is comprised of receipts created in international trade that are used as a medium of exchange.
ANSWER: c
15. What 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.
ANSWER: b
16. Which of the following has intrinsic value?

a. a gold coin
b. a twenty-dollar bill
c. a bank account
d. a personal cheque
ANSWER: a
17. 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.
ANSWER: a
18. Which of the following does M1+ include?

a. currency
b. savings deposits
c. travellers’ cheques
d. foreign currency accounts
ANSWER: a
19. Which of the following is included in M1+?

a. government bonds
b. demand deposits
c. savings deposits
d. travellers’ cheques
ANSWER: b
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20. Which of the following is included in M2 but not in M1+?

a. currency
b. demand deposits
c. savings deposits
d. gold
ANSWER: c
21. Which of the following is included in M2 but not in M1+?

a. demand deposits
b. corporate bonds
c. currency
d. term deposits
ANSWER: d
22. Which of the following is included in the M2 definition of the money supply?
a. credit cards
b. term deposits
c. corporate bonds
d. foreign currency accounts
ANSWER: b
23. Which of the following is included in M1+?

a. credit cards
b. debit cards
c. currency
d. nonpersonal demand deposits
ANSWER: c
24. Which of the following is included in M2?

a. gold
b. mortgages
c. currency
d. investment accounts
ANSWER: c
25. What is a credit card?

a. a form of money
b. a form of saving
c. a form of investing
d. a form of payment
ANSWER: d
26. How does M1 compare with M2?

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a. M1+ is smaller and less liquid than M2.
b. M1+ is smaller but more liquid than M2.
c. M1+ is larger than and less liquid than M2.
d. M1+ is larger than but more liquid than M2.
ANSWER: b
27. What is a debit card?

a. a form of money
b. a means of payment
c. a form of investment
d. a means of borrowing
ANSWER: b
28. Which statement best characterizes credit cards?

a. They are a payment form of money.
b. They are part of the M1+ money supply.
c. They are a method of deferring payment.
d. They are a unit of account.
ANSWER: c
29. What is the fundamental function of credit cards?

a. Credit cards are used for deferring payments.
b. Credit cards are used as store of value.
c. Credit cards are used for increasing the money supply.
d. Credit cards are used as investment assets.
ANSWER: a
30. What 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.
ANSWER: d
31. Which account balance is included in M1+?

a. a chequing account
b. a credit card account
c. a term savings account
d. a stock investment
ANSWER: a
32. If currency is $50 billion, chequable deposits $700 billion, other minor, less liquid categories $300 billion, and credit
card debt $500 billion, how much is M1+?
a. $750 billion
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b. $1000 billion
c. $1050 billion
d. $1550 billion
ANSWER: a
33. What is the approximate amount of currency per person in Canada?

a. $558
b. $1025
c. $1674
d. $2457
ANSWER: d
34. Which statement might explain why Canada has so much currency per person?
a. Canadian citizens are holding a lot of foreign currency.
b. Currency may be a preferable store of wealth for criminals.
c. People use credit and debit cards more frequently.
d. Much of Canadian currency is held by foreigners.
ANSWER: b
35. What is the average currency holding of Canadian dollars relative to Canadian population?
a. $457
b. $1457
c. $2457
d. $3457
ANSWER: c
36. What does the calculated amount of currency per person in Canada suggest?
a. People tend to hold too much currency.
b. Most payments are made in cash.
c. People do not trust banks.
d. There is a significant illegal activity.
ANSWER: d
37. Which agency is responsible for regulating the money supply in Canada?
a. the Currency and Securities Commission
b. the Bank of Canada
c. the TD Bank
d. the Canadian Payments Association
ANSWER: b
38. What does the Bank of Canada NOT do?

a. control the supply of money
b. control the value of money
c. make loans to individuals
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d. regulate the banking system
ANSWER: c
39. Who appoints the members of the Board of Directors at the Bank of Canada?
a. the Governor General
b. the Minister of Finance
c. the Director of the IMF
d. the Prime Minister
ANSWER: b
40. For how long is the governor of the Bank of Canada appointed?
a. a two-year term
b. a five-year term
c. a seven-year term
d. a life term
ANSWER: c
41. Who owns the Bank of Canada?

a. private individuals
b. the Queen
c. the chartered banks
d. the federal government of Canada
ANSWER: d
42. When was the Bank of Canada Act first enacted?

a. 1867
b. 1934
c. 1935
d. 1984
ANSWER: b
43. 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
ANSWER: a
44. Which organization plays the role of a central bank in Canada?

a. TD Canada Trust
b. the Canadian Imperial Bank of Commerce
c. the Bank of Canada
d. the Royal Bank of Canada
ANSWER: c
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45. What is the role of the Bank of Canada?

a. to lend money to large companies
b. to make monetary policy
c. to raise taxes
d. to oversee government spending
ANSWER: b
46. What is a role of the Minister of Finance with respect to the Bank of Canada or the banking system?
a. to control all activities of the Bank of Canada
b. to issue the governor of the Bank of Canada a written directive to resign
c. to issue currency
d. to maintain the stability of the banking system
ANSWER: b
47. What is one of the functions of the Bank of Canada?

a. to maximize profits on behalf of its shareholders
b. to issue currency
c. to convert currency into gold
d. to bail out troubled commercial banks
ANSWER: b
48. What is a characteristic of Scotiabank?

a. It can issue currency.
b. It is part of the “big 5” commercial banks group.
c. It acts as a central bank for Nova Scotia.
d. It is owned by the Canadian government.
ANSWER: b
49. What is the reason behind the seven-year appointment for the governor of Bank of Canada?
a. It makes the system compatible with the ones in other countries.
b. It confers stability to the financial system.
c. It allows the governor time to implement changes and to analyze the results of those changes.
d. It insulates the governor from political pressure.
ANSWER: d
50. What happens in a 100-percent-reserve banking system?

a. Banks can create money by issuing currency.
b. Banks can create money by lending out reserves.
c. Banks can lend money to their customers.
d. Banks hold as many reserves as they hold deposits.
ANSWER: d
51. How do deposits and reserves appear on a bank’s T-account?

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a. Both deposits and reserves are assets.
b. Both deposits and reserves are liabilities.
c. Deposits are assets, and reserves are liabilities.
d. Reserves are assets, and deposits are liabilities.
ANSWER: d
52. Suppose that the reserve ratio is 9 percent and that a bank has $2000 in deposits. What are its required reserves?
a. $100
b. $120
c. $140
d. $180
ANSWER: d
53. Suppose that the reserve ratio is 7 percent and that a bank has $3000 in deposits. What are its required reserves?
a. $50
b. $210
c. $510
d. $1200
ANSWER: b
54. Suppose a bank has a 10 percent reserve ratio, $3000 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 $30 in reserves and $2700 in loans.
b. It has $30 in reserves and $2970 in loans.
c. It has $300 in reserves and $2700 in loans.
d. It has $300 in reserves and $3000 in loans.
ANSWER: c
55. Suppose a bank has a 6 percent reserve ratio, $4000 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 $800 in reserves and $16,000 in loans.
b. It has $240 in reserves and $3760 in loans.
c. It has $240in reserves and $4000 in loans.
d. It has $800 in reserves and $3200 in loans.
ANSWER: b
56. Suppose a bank has $10,000 in deposits and $6000 in loans. What is its reserve ratio?
a. 3 percent
b. 7 percent
c. 40 percent
d. 70 percent
ANSWER: c
57. Suppose a bank has $200,000 in deposits and $150,000 in loans. What is its reserve ratio?
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a. 1 percent
b. 5 percent
c. 10 percent
d. 25 percent
ANSWER: d
58. If you deposit $100 into a demand deposit at a bank, what does this action do to the money supply?
a. It increases the money supply by more than $100.
b. It increases the money supply by less than $100.
c. It decreases the money supply by more than $100.
d. It decreases the money supply by less than $100.
ANSWER: a
59. When a bank loans out $1000, what happens to the money supply in the long term?
a. It increases by $1000.
b. It decreases by $1000.
c. It increases by more than $1000.
d. It decreases by more than $1000.
ANSWER: c
60. What is most likely to happen under a fractional reserve banking system?
a. Banks hold more reserves than deposits.
b. Banks generally lend out a majority of the funds deposited.
c. Banks cause the money supply to fall by lending out reserves.
d. Banks only accept savings deposits.
ANSWER: b
61. If the reserve ratio is 10 percent and a bank receives a new deposit of $800, which of the following will this bank most
likely do?
a. It will increase its required reserves by $8000.
b. It will make new loans of $8000.
c. It will be able to make new loans of $800.
d. It will initially see its total reserves increase by $800.
ANSWER: d
62. If the reserve ratio is 10 percent and a bank receives a new deposit of $20, what happens to the bank’s reserves in the
longer term?
a. increase by $2
b. increase by $18
c. increase by $20
d. increase by $200
ANSWER: a
63. If the reserve ratio is 5 percent and a bank receives a new deposit of $500, by how much can the bank increase its new
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loans?
a. by $21
b. by $279
c. by $475
d. by $500
ANSWER: c
64. If you deposit $5000 into First Hawkeye Bank, what will the bank most likely do?
a. It will eventually increase its required reserves by the reserve ratio times $5000.
b. It will be able to lend out $5000 times the reserve ratio.
c. It will initially see reserves increase by $5000 divided by the reserve ratio.
d. It will be able to lend out $5000.
ANSWER: a
65. A central bank raised the reserve requirement ratio from 8 percent to 10 percent. Other things the same, how does the
money multiplier change?
a. It increases by 2.
b. It decreases by 2.
c. It increases by 2.5
d. It decreases by 2.5
ANSWER: d
Table 10-1
First Bank of Dawson City
Assets: Liabilities:
Reserves $15.00 Deposits $100.00
Loans $85.00
66. Refer to the Table 10-1. What is the reserve ratio?

a. 0 percent
b. 15 percent
c. 85 percent
d. 100 percent
ANSWER: b
67. Refer to the Table 10-1. If $1000 is deposited into the First Bank of Dawson City, what will happen?
a. Reserves will decrease by $800.
b. Liabilities will decrease by $1000.
c. Assets will increase by $1000.
d. Reserves will increase by $800.
ANSWER: c
68. Refer to the Table 10-1. If $400 is deposited into the First Bank of Dawson City, what will happen?
a. The bank will be able to make additional loans totalling $400.
b. Excess reserves initially increase by $400.
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c. Required reserves initially increase by $8000.
d. Excess reserves initially increase by $340.
ANSWER: d
Table 10-2
Last Bank of Panorama Springs
Reserves $25,000 Deposits $175,000
Loans $150,000
69. Refer to the Table 10-2. If the reserve requirement is 12 percent, what is the state of this bank?
a. It can make a new loan of $17,500.
b. It has less reserves than required.
c. It has excess reserves of less than $5000.
d. It has excess reserves of more than $5000.
ANSWER: c
70. Refer to the Table 10-2. If the reserve requirement is 10 percent and then someone deposits $50,000 into the bank,
what is the bank’s reserve position?
a. It will have $75,000 in excess reserves.
b. It will have $52,500 in excess reserves.
c. It will need to raise reserves by $5000.
d. It will have excess reserves of $2500.
ANSWER: b
71. Refer to the Table 10-2. If the reserve requirement is 30 percent, what is this bank’s reserve position?
a. It has $29,000 of excess reserves.
b. It needs $10,000 more in reserves to meet its reserve requirement.
c. It needs $27,500 more in reserves to meet its reserve requirement.
d. It just meets its reserve requirement.
ANSWER: c
72. Refer to the Table 10-2. If the Last Bank of Panorama Springs is holding $4000 in excess reserves, what is the reserve
requirement?
a. 8 percent
b. 9 percent
c. 10 percent
d. 12 percent
ANSWER: d
Table 10-3
The following information pertains to the Bank of Kamloops.
Reserves $120 Deposits $1200
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Loans $1080
73. Refer to the Table 10-3. If the Bank of Kamloops has loaned out all the money it wants, given its deposits, what is its
reserve ratio?
a. 1 percent
b. 5 percent
c. 10 percent
d. 15 percent
ANSWER: c
74. Refer to the Table 10-3. Assume that the Bank of Kamloops is holding the required percent of deposits as reserves.
Also, assume all other banks hold only the required percent of deposits as reserves, and that people hold only deposits and
no currency. What is the money multiplier?
a. 1
b. 5
c. 10
d. 15
ANSWER: c
75. Refer to the Table 10-3. If the Bank of Canada requires banks to hold 5 percent of deposits as reserves, how much in
excess reserves does the Bank of Kamloops now hold?
a. $5
b. $25
c. $60
d. $65
ANSWER: c
76. Refer to the Table 10-3. Assume that all other banks hold only the required 5 percent of deposits as reserves and
people hold only deposits and no currency. If the Bank of Kamloops decides to hold exactly 5 percent in reserves, by how
much would the economy’s money supply increase?
a. $500
b. $1200
c. $1500
d. $2000
ANSWER: b
Table 10-4
The following information pertains to the Bank of Moncton.
Reserves $7000 Deposits $140,000
Loans $133,000
77. Refer to the Table 10-4. If the Bank of Moncton has lent out all the money it can, then what is its reserve ratio?
a. 1 percent
b. 5 percent
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c. 10 percent
d. 15 percent
ANSWER: b
78. Refer to the Table 10-4. Assume that all banks hold the same reserve ratio as the Bank of Moncton. What is the money
multiplier?
a. 12.5
b. 15
c. 17.5
d. 20
ANSWER: d
79. Refer to the Table 10-4. If the Bank of Canada requires a reserve ratio of 4 percent, how much in excess reserves does
the Bank of Moncton now hold?
a. $1200
b. $1400
c. $2880
d. $3000
ANSWER: b
80. Refer to the Table 10-4. Assume that all other banks hold only the required 4 percent of deposits as reserves, and that
people hold only deposits and no currency. If the Bank of Moncton decides to hold reserves of 4 percent, by how much
would the economy’s money supply increase?
a. $30,000
b. $35,000
c. $42,000
d. $45,000
ANSWER: b
81. Refer to the Table 10-4. If all banks hold only the required 4 percent of deposits as reserves, then what is the money
multiplier?
a. 5
b. 10
c. 15
d. 25
ANSWER: d
82. If a bank uses $100 of excess reserves to make a new loan when the reserve ratio is 25 percent, what happens to the
money supply in the very short term?
a. It decreases by $100.
b. It increases by $25.
c. It decreases by $25.
d. It increases by $100.
ANSWER: d

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83. Suppose a bank uses $200 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?
a. The money supply increases by $40.
b. The money supply decreases by $40.
c. The money supply increases by $200.
d. The money supply decreases by $200.
ANSWER: c
84. As the reserve ratio increases, what happens to the money multiplier and money supply?
a. The money multiplier increases, but the money supply does not change.
b. The money multiplier does not change, but the money supply increases.
c. The money multiplier and the money supply both increase.
d. The money multiplier and the money supply both decrease.
ANSWER: d
85. If the central bank lowered the reserve requirement, what happens to the money multiplier and the money supply?
a. The money multiplier increases, but the money supply decreases.
b. The money multiplier decreases, but the money supply increases.
c. The money multiplier and the money supply both increase.
d. The money multiplier and the money supply both decrease.
ANSWER: c
86. If the reserve ratio is 10 percent, how much is the money multiplier?
a. 1/10
b. 9/10
c. 10
d. 100
ANSWER: c
87. If the reserve ratio is 20 percent, how much is the money multiplier?
a. 2
b. 4
c. 5
d. 8
ANSWER: c
88. If the reserve ratio decreased from 20 percent to 10 percent, which of the following would happen to the money
multiplier?
a. It would rise from 10 to 20.
b. It would rise from 5 to 10.
c. It would fall from 10 to 5.
d. It would fall from 20 to 5.
ANSWER: b

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89. If the reserve ratio is 20 percent, how much new money can $1000 of excess reserves create?
a. $500
b. $5000
c. $50,000
d. $500,000
ANSWER: b
90. If the reserve ratio is 15 percent, by how much will an additional $1000 of reserves increase the money supply?
a. $1176
b. $1275
c. $5667
d. $6667
ANSWER: d
91. In Wellville, the money supply is $80,000 and reserves are $12,800. Assuming that people hold only deposits and no
currency, and that banks hold only required reserves, what is the required reserve ratio?
a. 12 percent
b. 14.5 percent
c. 16 percent
d. 29 percent
ANSWER: c
92. At one time, the country of Aquilonia had no banks, but had currency of $10 million. Then a banking system was
established with a reserve requirement of 10 percent. The people of Aquilonia deposited half of their currency into the
banking system. If banks do not hold excess reserves, what is Aquilonia’s money supply now?
a. $10 million
b. $11 million
c. $50 million
d. $55 million
ANSWER: d
93. At one time, the country of Freedonia had no banks, but had currency of $40 million. Then a banking system was
established with a reserve requirement of one-third. The people of Freedonia now keep half their money in the form of
currency and half in the form of bank deposits. If banks do not hold excess reserves, how much currency do the people of
Freedonia now hold?
a. $13.33 million
b. $20 million
c. $33.34 million
d. $36.36 million
ANSWER: c
94. At one time, the country of Sylvania had no banks, but had currency of $10 million. Then a banking system was
established with a reserve requirement of 20 percent. The people of Sylvania now keep half their money in the form of
currency and half in the form of bank deposits. If banks do not hold excess reserves, how much currency do the people of
Sylvania now hold?
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a. $2 million
b. $5 million
c. $9 million
d. $12 million
ANSWER: c
95. Suppose the banking system has $10 million in reserves and the reserve ratio is 25 percent. Then bankers decide to
decrease the reserve ratio to 20 percent. How does this decision eventually change the money supply?
a. increases by $0.5 million
b. increases by $5 million
c. increases by $10 million
d. increases by $20 million
ANSWER: c
96. Suppose the reserve ratio is 25 percent and the public holds $10 million in cash. Then the public decides to withdraw
$5 million from the banks. How does the money supply eventually change?
a. falls by $5 million
b. falls by $10 million
c. falls by $20 million
d. falls by $35 million
ANSWER: c
97. When the Bank of Canada wants to change the money supply, what does it most frequently do?
a. It changes the bank rate.
b. It changes the reserve requirement.
c. It changes its open-market operations.
d. It changes the amount of currency in circulation.
ANSWER: c
98. If the reserve ratio is 100 percent, how much will the money supply eventually increase if there is a deposit of $500 of
paper money in a bank?
a. $0-
b. $500
c. $1000
d. $5000
ANSWER: a
99. Which list contains only actions that increase the money supply?
a. lowering the bank rate; raising the reserve requirement ratio
b. lowering the bank rate; lowing the reserve requirement ratio
c. raising the bank rate; raising the reserve requirement ratio
d. raising the bank rate; lowering the reserve requirement ratio
ANSWER: b

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a. raising the bank rate; making open-market purchases
b. raising the bank rate; making open-market sales
c. lowering the bank rate; making open-market purchases
d. lowering the bank rate; making open-market sales
ANSWER: c
a. making open-market purchases; raising the reserve requirement ratio
b. making open-market purchases; lowering the reserve requirement ratio
c. making open-market sales; raising the reserve requirement ratio
d. making open-market sales; lowering the reserve requirement ratio
ANSWER: b
102. Which list contains only actions that decrease the money supply?
a. lowering the bank rate; raising the reserve requirement ratio
b. lowering the bank rate; lowering the reserve requirement ratio
c. raising the bank rate; raising the reserve requirement ratio
d. raising the bank rate; lowering the reserve requirement ratio
ANSWER: c
a. raising the bank rate; making open-market purchases
b. raising the bank rate; making open-market sales
c. lowering the bank rate; making open-market purchases
d. lowering the bank rate; making open-market sales
ANSWER: b
a. making open-market purchases; raising the reserve requirement ratio
b. making open-market purchases; lowering the reserve requirement ratio
c. making open-market sales; raising the reserve requirement ratio
d. making open-market sales; lowering the reserve requirement ratio
ANSWER: c
105. Which list ranks the Bank of Canada’s monetary policy tools from most to least frequently used?
a. bank rate changes; open-market transactions; reserve requirement changes
b. bank rate changes; reserve requirement changes; open-market transactions
c. open-market transactions; bank rate changes; reserve requirement changes
d. open-market transactions; reserve requirement changes; bank rate changes
ANSWER: c
106. If a central bank wanted to increase the money supply, what would it most likely do?
a. It would make open-market purchases and lower the bank rate.
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b. It would make open-market sales and lower the bank rate.
c. It would make open-market purchases and raise the bank rate.
d. It would make open-market sales and raise the bank rate.
ANSWER: a
107. Which statement best explains the role of the Bank of Canada?
a. It maintains a target exchange rate.
b. It determines the bank rate.
c. It makes loans to large corporations.
d. It controls the government budget deficit.
ANSWER: b
108. Which of the following is NOT a tool of monetary policy?

a. open-market operations
b. reserve requirements
c. changing the bank rate
d. increasing the tax rate
ANSWER: d
109. What do the Bank of Canada’s policy decisions have an important influence on?
a. both the rate of inflation and the level of employment in the short run
b. the rate of inflation in the long run and the level of employment in the short run
c. the rate of inflation in the short run and the level of employment in the long run
d. both the rate of inflation and the level of employment in both the short run and the long run
ANSWER: b
110. To increase the money supply, what could the Bank of Canada do?
a. sell government bonds
b. increase the bank rate
c. decrease the reserve requirement
d. decrease the money multiplier
ANSWER: c
111. How does the Bank of Canada conduct open-market transactions?

a. It prints new currency.
b. It buys or sells government bonds from or to the public.
c. It lowers the bank rate.
d. It increases its lending to chartered banks.
ANSWER: b
112. How could the Bank of Canada increase the money supply?
a. by selling government bonds
b. by decreasing the bank rate
c. by increasing the reserve requirement
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d. by increasing the bank rate
ANSWER: b
113. How could the Bank of Canada decrease the money supply?
a. by buying government bonds
b. by decreasing the bank rate
c. by decreasing the reserve requirement
d. by increasing the bank rate
ANSWER: d
114. When the Bank of Canada conducts open-market purchases, how do commercial banks’ assets most likely change?
a. Reserves increase, and banks increase lending.
b. Reserves increase, and banks decrease lending.
c. Reserves decrease, and banks increase lending.
d. Reserves decrease, and banks decrease lending.
ANSWER: a
115. Which statement best describes the process of open-market sales conducted by the Bank of Canada?
a. The Bank of Canada sells Treasury bills, which increases the money supply.
b. The Bank of Canada sells Treasury bills, which decreases the money supply.
c. The Bank of Canada borrows from member banks, which increases the money supply.
d. The Bank of Canada lends money to member banks, which decreases the money supply.
ANSWER: b
116. Which statement best describes the consequences of open-market sales conducted by the Bank of Canada?
a. Bank reserves increase, and the money supply increases.
b. Bank reserves increase, and the money supply decreases.
c. Bank reserves decrease, and the money supply increases.
d. Bank reserves decrease, and the money supply decreases.
ANSWER: d
117. Which statement best describes the process of open-market purchases conducted by the Bank of Canada?
a. The Bank of Canada buys Treasury bills, which increases the money supply.
b. The Bank of Canada buys Treasury bills, which decreases the money supply.
ANSWER: a
118. Which statement best describes the outcomes of open-market purchases conducted by the Bank of Canada?
a. Bank reserves increase, and the money supply increases.
b. Bank reserves increase, and the money supply decreases.
ANSWER: a
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119. 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
ANSWER: d
120. How may the Bank of Canada influence the price level?
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
ANSWER: d
121. Which of the following is quantitative easing?

a. The Bank of Canada sells short-term government securities.
b. The Bank of Canada sells long-term government securities.
c. The Bank of Canada buys long-term government securities.
d. The Bank of Canada buys short-term government securities.
ANSWER: b
122. Which of the following is a sterilization operation that supports the Canadian dollar?
a. The Bank of Canada sells U.S. dollars and buys government bonds.
b. The Bank of Canada buys U.S. dollars and sells government bonds.
c. The Bank of Canada sells both U.S. dollars and government bonds.
d. The Bank of Canada buys both U.S. dollars and government bonds.
ANSWER: a
123. When the Bank of Canada decreases the bank rate, banks will borrow more from the Bank of Canada. Which
statement best describes the outcomes of this process?
a. Banks lend more to the public, and so the money supply will decrease.
b. Banks lend less to the public, and so the money supply will decrease.
c. Banks lend more to the public, and so the money supply will increase.
d. Banks lend less to the public, and so the money supply will increase.
ANSWER: c
124. In a fractional reserve banking system, how does an increase in the reserve requirement change the money
multiplier?
a. The money multiplier increases by a higher percentage change than the increase in the reserve ratio.
b. The money multiplier decreases by a higher percentage change than the increase in the reserve ratio.
c. The money multiplier increases by a lower percentage change than the increase in the reserve ratio.
d. The money multiplier decreases by a lower percentage change than the increase in the reserve ratio.
ANSWER: d
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125. Which statement best describes the outcomes of a decrease in the reserve requirement in a fractional reserve system?
a. Both the money multiplier and the money supply increase.
b. Both the money multiplier and the money supply decrease.
c. The money multiplier increases, but the money supply decreases.
d. The money multiplier decreases, but the money supply increases.
ANSWER: a
126. Which statement best defines reserve requirements?

a. They are regulations concerning the amount banks are allowed to borrow from the central bank.
b. They are regulations concerning the amount of reserves banks must hold against deposits.
c. They are regulations concerning reserves banks must hold based on the number and type of loans they make.
d. They are regulations concerning the interest rate at which banks can borrow from the central bank.
ANSWER: b
127. What is a bank’s capital?

a. the bank’s reserves
b. the bank’s deposits
c. the bank’s debt
d. the bank’s equity
ANSWER: d
128. Which statement best describes the outcomes of a decrease in reserve requirements?
a. The reserve ratio decreases, the money multiplier decreases, and the money supply decreases.
b. The reserve ratio increases, the money multiplier increases, and the money supply increases.
c. The reserve ratio decreases, the money multiplier increases, and the money supply increases.
d. The reserve ratio increases, the money multiplier decreases, and the money supply decreases.
ANSWER: c
129. Which statement best describes the outcome of a decrease in the bank rate?
a. Banks will borrow less from Bank of Canada, so reserves increase.
b. Banks will borrow less from Bank of Canada, so reserves decrease.
c. Banks will borrow more from Bank of Canada, so reserves increase.
d. Banks will borrow more from Bank of Canada, so reserves decrease.
ANSWER: c
130. Which statement best describes the outcome of an increase in the bank rate?
a. Banks will borrow more from Bank of Canada, so reserves increase.
b. Banks will borrow more from Bank of Canada, so reserves decrease.
c. Banks will borrow less from Bank of Canada, so reserves increase.
d. Banks will borrow less from Bank of Canada, so reserves decrease.
ANSWER: d
131. Which statement best defines the bank rate?

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a. It is the interest rate the Bank of Canada charges banks.
b. It is one divided by the difference between one and the reserve ratio.
c. It is the interest rate banks receive on reserve deposits with Bank of Canada.
d. It is the interest rate that banks charge on overnight loans to other banks.
ANSWER: a
132. What is the interest rate the Bank of Canada charges on loans it makes to banks?
a. the prime rate
b. the federal repayment rate
c. the bank rate
d. the dividend debt
ANSWER: c
133. In a fractional reserve banking system with no excess reserves and no currency holdings, suppose the central bank
buys $100 million of bonds. Which statement best describes the effects of this open-market operation?
a. Reserves and the money supply increase by less than $100 million.
b. Reserves increase by $100 million, and the money supply increases by $100 million.
c. Reserves increase by $100 million, and the money supply increases by more than $100 million.
d. Both reserves and the money supply increase by more than $100 million.
ANSWER: c
134. Suppose the reserve ratio is 4 percent, banks do not hold excess reserves, people do not hold currency, and the Bank
of Canada purchases $25 million of government bonds. Which statement best describes the effects of Bank of Canada’s
purchase?
a. Bank reserves increase by $25 million, and the money supply eventually increases by $500 million.
b. Bank reserves decrease by $25 million, and the money supply eventually increases by $500 million.
c. Bank reserves increase by $25 million, and the money supply eventually decreases by $500 million.
d. Bank reserves decrease by $25 million, and the money supply eventually decreases by $500 million.
ANSWER: a
135. Suppose the reserve ratio is 10 percent and banks do not hold excess reserves. Under these circumstances, suppose
the Bank of Canada sells $60 million of bonds to the public. Which statement best describes the effects of this open-
market operation?
b. Bank reserves increase by $60 million, and the money supply eventually increases by $800 million.
c. Bank reserves decrease by $60 million, and the money supply eventually decreases by $600 million.
ANSWER: c
136. Suppose the reserve ratio is 20 percent and banks do not hold excess reserves. Suppose the Bank of Canada sells $10
million of bonds to the public. Which statement best describes the effects of this open-market operation?
b. Bank reserves increase by $10 million, and the money supply eventually increases by $50 million.
c. Bank reserves decrease by $1 million, and the money supply eventually increases by $10 million.

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ANSWER: d
137. Suppose the public decides to hold more currency and fewer deposits in banks. Which statement describes the effects
of this decision?
a. Bank reserves decrease, and the money supply eventually decreases.
b. Bank reserves decrease, but the money supply does not change.
c. Bank reserves increase, and the money supply eventually increases.
d. Bank reserves increase, but the money supply does not change.
ANSWER: a
138. During recessions, banks typically choose to hold more excess reserves relative to their deposits. Which statement
best describes the effects of the increase in reserves?
a. The money multiplier increases, and the money supply increases.
b. The money multiplier decreases, and the money supply decreases.
c. The money multiplier does not change, but the money supply increases.
d. The money multiplier does not change, but the money supply decreases.
ANSWER: b
139. During wars, the public tends to hold relatively more currency and relatively fewer deposits. Which statement best
describes the effects of this increase in currency holdings?
a. Reserves would decrease, and the money supply would increase.
b. Reserves and the money supply would decrease.
c. Reserves would increase, but the money supply would be unchanged.
d. Reserves would decrease, but the money supply would be unchanged.
ANSWER: b
140. 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.
ANSWER: c
141. How does currency contribute to the money supply?

a. Currency held by the public and by banks is part of the money supply.
b. Currency held by the public is part of the money supply, but currency held by banks is not.
c. Currency held by the public is not part of the money supply, but currency held by banks is.
d. Currency held by the public or banks is not part of the money supply since it is not included in M1.
ANSWER: b
142. Assume that banks do not hold excess reserves. The banking system has $20 million in reserves and has a reserve
requirement of 20 percent. The public holds $10 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?
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a. 16 percent
b. 18.2 percent
c. 20 percent
d. 25 percent
ANSWER: a
143. 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. 8.1 percent
b. 9.1 percent
c. 9.7 percent
d. 10 percent
ANSWER: b
144. A bank has (in millions): $200 reserves, $800 loans, $400 securities, $1200 deposits, $100 debt, and $200 capital.
How much is the bank’s leverage ratio?
a. 0.07
b. 0.17
c. 7
d. 14
ANSWER: c
145. A bank has (in millions): $200 reserves, $800 loans, $400 securities, $1000 deposits, and $100 debt. How much is
the bank’s capital?
a. $300 million
b. $600 million
c. $1000 million
d. $1400 million
ANSWER: a
146. A bank has (in millions): $200 assets, $140 deposits, and $40 debt. If the bank’s assets decrease by 10 percent, by
how much does the bank’s capital change?
a. It decreases by 100 percent.
b. It decreases by 5 percent.
c. It increases by 100 percent.
d. It increases by 5 percent.
ANSWER: a
147. Which statement best explains whether bank runs are a problem for the economy?
a. They are not a problem because bank runs will affect neither the money supply nor the money multiplier.
b. Bank runs are only a problem for insolvent banks.
c. They are a problem, but they can be neither prevented nor stopped by a central bank.

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d. Bank runs are a problem because bank failures may spread to healthy banks.
ANSWER: d
148. How can the Bank of Canada directly protect a bank during a bank run?
a. by increasing reserve requirements
b. by selling government bonds to the bank
c. by lending reserves to the bank
d. by increasing the overnight rate
ANSWER: c
149. What happened during the Great Depression in the early 1930s?
a. the Great Depression was as bad in Canada as it was in the United States.
b. more banks in Canada closed than in the United States
c. the money supply rose sharply.
d. the value of Canadian exports increased considerably.
ANSWER: a
150. In the nineteenth century, when there were often bank runs caused by crop failures, banks would make relatively
fewer loans and hold relatively more excess reserves. By itself, which action should the banks have taken?
a. They should have increased both the money multiplier and the money supply.
b. They should have decreased the money multiplier and increased the money supply.
c. They should have increased the money multiplier and decreased the money supply.
d. They should have decreased both the money multiplier and the money supply.
ANSWER: d
151. Which statement best describes bank runs today?

a. Bank runs are uncommon because of the high required reserve ratio.
b. Bank runs are uncommon because of CDIC deposit insurance.
c. Bank runs are common because of the low required reserve ratio.
d. Bank runs are common because the CDIC is inefficient.
ANSWER: b
152. Which statement best explains the role of the Canadian Deposit Insurance Corporation (CDIC)?
a. The CDIC protects depositors in the event of bank failures.
b. The CDIC protects commercial banks in the event of mortgage defaults
c. The CDIC determines the bank rate.
d. The CDIC determines the reserve requirement.
ANSWER: a
153. How has the Bank of Canada historically viewed changes in reserve requirements to control the money supply?
a. It has been gradually lowering the reserve requirements to keep inflation rates low.
b. It has traditionally made frequent changes in order to stabilize the economy.
c. It has been reluctant to make frequent changes as this would disrupt the business of banking.
d. It has been gradually increasing the reserve requirements to keep inflation rates low.
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ANSWER: c
154. Since 1994, what was phased out as a tool used by the Bank of Canada to control the money supply?
a. changing reserve requirements
b. changing the overnight rate
c. open-market operations
d. foreign exchange market operations
ANSWER: a
155. Why was changing of reserve requirements phased out as a tool used by the Bank of Canada to control the money
supply?
a. to make the rules the same for all financial institutions since only credit unions were required to hold reserves
b. to make the rules the same for all financial institutions since only commercial banks were required to hold
reserves
c. because Canada was the only country still imposing reserve requirements on its financial institutions
d. because the Bank of Canada was using it too frequently, causing disruption in the banks
ANSWER: b
156. In an economy that relies on barter, trade requires a double coincidence of wants.
a. True
b. False
a. True
b. False
ANSWER: True
157. The use of money allows trade to be roundabout.

a. True
b. False
a. True
b. False
ANSWER: True
158. Joe wants to trade eggs for sausage. Lashonda wants to trade eggs for orange juice. Joe and Lashonda have a double
coincidence of wants.
a. True
b. False
a. True
b. False
ANSWER: False
159. Gary’s wealth is $1 million. Economists would say that Gary has $1 million worth of money.
a. True
b. False
a. True
b. False
ANSWER: False
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160. Marc puts prices on surfboards and skateboards at his sporting goods store. He is using money as a unit of account.
a. True
b. False
a. True
b. False
ANSWER: True
161. 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.
a. True
b. False
a. True
b. False
ANSWER: False
162. Bottles of very fine wine have less liquidity than demand deposits.
a. True
b. False
a. True
b. False
ANSWER: True
163. When the Soviet Union began breaking up in the late 1980s, cigarettes began replacing the ruble as the medium of
exchange, even though the ruble was legal tender. The cigarettes provide an example of fiat money.
a. True
b. False
a. True
b. False
ANSWER: False
164. In order for currency to be widely used as a medium of exchange, it is sufficient for the government to designate it as
legal tender.
a. True
b. False
a. True
b. False
ANSWER: False
165. M1+ includes savings deposits.

a. True
b. False
a. True
b. False
ANSWER: False
166. M2 is both larger and more liquid than M1+.

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a. True
b. False
a. True
b. False
ANSWER: False
167. Credit cards are not a medium of exchange and so are not important for analyzing the monetary system.
a. True
b. False
a. True
b. False
ANSWER: False
168. The Bank of Canada is a privately operated commercial bank.

a. True
b. False
a. True
b. False
ANSWER: False
169. The Bank of Canada was created in 1934 in the wake of the Great Depression.
a. True
b. False
a. True
b. False
ANSWER: True
170. The Bank of Canada is run by the Board of Directors, which is appointed by the Minister of Finance.
a. True
b. False
a. True
b. False
ANSWER: True
171. Monetary policy is determined by the Bank of Canada’s governor.

a. True
b. False
a. True
b. False
ANSWER: False
172. If the Bank of Canada buys bonds in the open market, the money supply decreases.
a. True
b. False
a. True
b. False

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ANSWER: False
173. Banks could not change the money supply if they were required to hold all deposits in reserve.
a. True
b. False
a. True
b. False
ANSWER: True
174. The money multiplier equals 1 divided by (1 – the reserve ratio).

a. True
b. False
a. True
b. False
ANSWER: False
175. As banks create money, they create wealth.

a. True
b. False
a. True
b. False
ANSWER: False
176. The money supply of Hooba is $10,000 under a 100 percent reserve banking system. If Hooba decreases the reserve
requirement to 10 percent, the money supply could increase by no more than $9000.
a. True
b. False
a. True
b. False
ANSWER: False
177. If the Bank of Canada decreases reserve requirements, the money supply will increase.
a. True
b. False
a. True
b. False
ANSWER: True
178. An increase in reserve requirements raises the reserve ratio and decreases the money supply.
a. True
b. False
a. True
b. False
ANSWER: True
179. If banks decide to hold a smaller part of their deposits as excess reserves, the money supply will fall, other things
equal.
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a. True
b. False
a. True
b. False
ANSWER: False
180. Economists argue that the move from barter to money increased trade and production. How is this possible?
ANSWER: The use of money allows people to trade more easily. When it is easier to trade what one produces, people
specialize. The specialization creates greater production.
181. What is the difference between money and wealth?

ANSWER: Money is defined as the set of assets in the economy that people regularly use to buy goods and services from
other people. Wealth includes all assets, both monetary and nonmonetary.
182. Which of the three functions of money are met by each of the following assets in the Canadian economy?
a. paper dollar
b. precious metals
c. collectibles such as baseball cards, stamps, and antiques
ANSWER: a. medium of exchange, store of value, unit of account
b. store of value
c. store of value
183. Are credit cards and debit cards money? What's the difference between credit and debit cards?
ANSWER: Neither credit cards nor debit cards are money, but credit cards are very different from debit cards. Credit
cards are not a medium of exchange, but are a means of deferring payment. Debit cards allow the user
immediate access to deposits in a bank account, which are part of the money supply.
184. What is the difference between commodity money and fiat money? Why do people accept fiat currency in trade for
goods and services?
ANSWER: Commodity money has “intrinsic value,” or value in uses other than as money. Fiat money is established as
money by government. It has very little, if any, intrinsic value. Although fiat currency has no intrinsic value,
people accept it in trade when they are confident that others will also accept it. The government’s decree that
fiat currency serves as legal tender increases this confidence.
185. What does the text mean by, and how does it answer the question, “Where is all the currency?"
ANSWER: The amount of currency per person is about $2174. Most people carry far less than this with them. The
question is, “Where is the rest of the currency?” Foreigners and criminals hold some. Criminals use currency
because it makes it harder for the government to trace their activities than if they used bank accounts. So they
may hold above-average amounts of currency.
186. What is meant by the term “lender of last resort”? In what circumstances might the Bank of Canada be a lender of
last resort?
ANSWER: 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.
187. Which two of the ten principles of economics imply that the Bank of Canada can profoundly affect the economy?
ANSWER: 1. Prices rise when the government prints too much money.
2. There is a short-run tradeoff between inflation and unemployment.
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188. Explain why banks can influence the money supply if the required reserve ratio is less than 100 percent.
ANSWER: When the reserve requirement is less than 100 percent, banks can lend out deposits. The money they lend out
is redeposited. In this way, deposits can be greater than reserves. Since deposits are greater under fractional-
reserve banking and since deposits are part of the money supply, the money supply will be greater under
fractional-reserve banking.
189. If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.
ANSWER: (1/0.20) × $100 = $500.
190. What is the difference between the reserve ratio and the reserve requirement? Which is generally larger?
ANSWER: The reserve ratio is the percent of deposits that banks hold as reserves. The reserve requirement is the
minimum percent of deposits that banks must hold in reserve by law. To maintain some liquidity, banks
generally hold more reserves than required so that the reserve ratio is larger than the reserve requirement.
191. Draw a simple T-account for First National Bank of Me, which has $8000 of deposits, a reserve ratio of 10 percent,
and excess reserves of $300.
ANSWER: First National Bank of Me
Reserves $1100 Deposits $8000
Loans $6900
192. Explain how each of the following actions 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.
ANSWER: a. If the Bank of Canada buys bonds, it pays for them with money. So there is more money.
b. If the Bank of Canada raises the bank rate, banks will borrow less from the bank, and so have fewer
reserves, which decreases the money supply.
c. If the Bank of Canada raises the reserve requirement, banks will have to hold more of their deposits as
reserves and so will have less to lend out. With less to lend out, deposits and the money supply decrease.
193. Describe the two things that limit the precision of the Bank of Canada’s control of the money supply and explain
how each limits that control.
ANSWER: First, the Bank of Canada does not control the amount of currency that households choose to hold relative to
deposits. If households decide to hold relatively more currency, banks have fewer reserves and the money
supply decreases. Second, the Bank of Canada cannot control the amount banks choose to hold as excess
reserves. If bankers decide to lend out less of their deposits, the money supply will decrease.
194. During the early 1930s, there were a number of bank failures. What did this do to the money supply? The central
banks advocated open-market purchases. Would these purchases have reversed the change in the money supply and
helped banks? Explain.
ANSWER: Bank failures cause people to lose confidence in the banking system so that deposits fall and banks have less
to lend. Further, under these circumstances, banks are probably more cautious about lending. Both of these
reactions would tend to decrease the money supply. Open-market purchases increase bank reserves and so
may offset the decrease in the money supply. The increase in reserves would also have provided banks with
greater liquidity to meet the demands of customers who wanted to make withdrawals.
195. Suppose an economy has no money, and people use gold for all payments.
a. Discuss the effects of economic growth (an increase in the amount of goods and services that the economy produces) on
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prices.
b. What happens to prices when more gold becomes available, say due to new openings of gold mines?
c. Who determines the economy’s money supply?
d Discuss the advantages and disadvantages of such a “gold standard” economy.
ANSWER: a. If the amount of goods and services available for purchase increases, but the amount of gold “money”
remains the same, prices must decrease. In other words, the value of the unit of gold becomes higher in terms
of the goods and services that it can buy.
b. When the amount of gold in the economy increases, while the production of goods and services remains the
same, prices must increase; the economy experiences inflation.
c. Based on the answer to part b, one can easily see that the money supply is determined by the amount of gold
in the economy. Thus, the country’s “monetary policy” is determined by geologists and gold mine owners
rather than governments.
d. The advantage of a “gold standard” economy is that the tools of monetary policy cannot be abused by
governments in financial trouble. The disadvantage is that the amount of gold money is not related to the
growth needs of the economy.
196. Suppose the value of bank notes issued by the Bank of Canada last year was $56 billion, while the money supply
(M2+) was about $1.3 trillion.
a. Assuming that half of the bank note value is in the hands of the population and the other half is in banks’ reserves, what
must have been the money multiplier?
b. What is the average bank reserve ratio corresponding to the money multiplier calculated in part a?
c. Now, let us assume that people hold one-tenth of their money (cash plus deposits) in cash and nine-tenths in bank
deposits. With the reserve ratio calculated above, what is the value of the bank notes in the banks’ reserves?
d. What is the value of the bank notes in circulation if the bank reserves are equal to the number you calculated in part c?
ANSWER: a. Let M be the money multiplier. This number must satisfy the equation 56/2 + (56/2) × M = 1300. The
solution is M = (2 × 1300 – 56)/56 = 45.4.
b. The reserve ratio corresponding to money multiplier determined above is r = 1/M = 1/45.4 = 0.022, or 2.2%.
c. Let R be the value of the bank notes in the banks’ reserves. This number must be such that R/0.022 =
(9/10)(56 – R + R/0.022). The solution to this equation is R = $9.3 billion.
d. The value of the bank notes in circulation is $56 billion – $9.3 billion = $46.7 billion.
197. In order to support the Canadian dollar, the Bank of Canada buys an amount of Euros from some major commercial
Canadian banks (a type of operation the Bank of Canada rarely undertakes).
a. What is the immediate and the long-term impact of this operation on the money supply?
b. If the Bank of Canada does not wish that the currency swap influence the money supply, what does it have to do?
ANSWER: a. Since the purchase is from major commercial banks, which have their reserve funds in the Bank of Canada’s
accounts, the payments go directly into these banks’ reserves, with no cash involved. As long as the money
stays in reserves (which may be for a very short time), the money supply is not affected because reserves are
not part of either M1+ or M2. Later, banks start making loans out of this excess reserve, and eventually the
money supply will increase by the initial amount times the money multiplier.
b. To sterilize the currency purchase, the Bank of Canada needs to sell other assets, such as Treasury bills. The
value of this sell should be equal to the amount initially paid for the currency. Through the reversed action of
the money multiplier, the money supply falls back to its initial level.
198. 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?

Name: Class: Date:

ANSWER: a. By definition, the money supply is currency in circulation plus deposits. (Reserves are not part of the money
supply.) If Jeremiah had been holding the $1000 in a jar for a long time, in effect this money was not “in
circulation,” and so it was not part of the money supply before being deposited in the bank. However, if the
banking system is 100 percent reserve, then all “deposits” are reserves; therefore, the money supply does not
change. If the money wasn’t held in a jar before, then the money supply would have decreased by $1000.
b. The money supply increases by $1000 × 10 = $10,000.
c. The effective reserve ratio is 12 percent, hence the money supply increases by $1000 × (1/0.12) = $833.
199. Heather receives a payment in cash of $400 and she deposits it in a bank.
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 reserve, 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?
ANSWER: a. Since the $400 had been in circulation before being deposited in the bank, and after being deposited it
remains in the bank’s reserve, the money supply decreases by $400.
b. The money supply decreases by $400 because the currency is not in the hands of the public anymore, but
increases by $400 × 10 = $4000. Thus, the net effect on the money supply is $4000 – 400 = $3600.
c. The money supply decreases by $400 and increases by $400 × 8.33 = $3332. The overall effect is an
increase in the money supply of $3332 – 400 = $2932.
200. Denote a bank’s assets by A, the bank’s debt (deposits plus debt issued by the bank) by D, and the bank’s capital by
C. Starting from the identity A = C + D and using the definition of leverage ratio L = A/C, show that the percentage
change in capital is equal to the leverage ratio times the percentage change in assets.
ANSWER: Let us denote an absolute (not percentage) change in assets by ?2-A and a change in capital by ?2-C. A change
in assets does not change D, since D is fixed (i.e., it does not depend on changes in assets). Consider the
identity A = C + D. Taking changes in this identity, and noticing that ?2-D = 0, we find that ?2-C = ?2-A.
Divide this equality by C: ?2-C/C = ?2-A/C; multiply the right-hand side by A/A. (This does not change
anything.) Rearranging the fractions, we get ?2-C/C = (?2-A/C) × (A/A), or ?2-C/C = (?2-A/A) × (A/C). In
this equality, ?2-C/C is the relative (percentage) change in capital, ?2-A/A is the relative (percentage) change
in assets, and A/C is the leverage ratio, L. Thus, the result shows that (Percentage change in capital) =
(Leverage ratio) × (Percentage change in assets), which is what we wanted to prove.
201. A bank has (in millions): $20 reserves, $80 loans, $40 securities, $120 deposits, and $10 debt. Calculate the bank’s
reserve ratio, assets, liabilities, capital, and leverage ratio.
ANSWER: Reserve ratio = Reserve / Deposits = 20/120 × 100 = 16.7 percent
Assets = Reserves + Loans + Securities = $20 + $80 + $40 = $140 million
Liabilities = Deposits + Debt = $120 + $10 = $130 million
Capital = Assets – Liabilities = $140 ?2- $130 = $10 million
Leverage ratio = Assets / Debt = 140/10 = 14
202. A bank has $200 reserves, $800 loans, $400 securities, $1200 deposits, and $100 debt.
a) Calculate the bank’s capital.
b) Calculate the bank’s leverage ratio.
c) Suppose there is a stock market boom, so that the bank’s assets increase by 2 percent. What is the percentage change in
the bank’s capital? What is the change in the bank’s capital in dollars?
d) Suppose that, instead of stock market boom, some borrowers default on their debt so that the bank’s assets decrease by
Name: Class: Date:

2 percent. How much is now the bank’s capital?
ANSWER: a) Capital = Assets – Deposits – Debt = $(200 + 800 + 400) ?2- $1200 ?2- $100 = $100
b) Leverage ratio = Assets / Capital = 1400/100 =14
c) An increase in assets by 2 percent increases capital by 14 × 2 = 28 percent, which is $100 x 0.28 = $28
d) A decrease of 2 percent in assets decreases capital by 14 × 2 = 28 percent, which is equal to $100 × 0.28 =
$28. Capital is now $100 minus $28, which is $72.
203. A bank has $100 reserves, $10,000 loans, $500 securities, $9000 deposits, and $1400 debt.
a) Calculate the bank’s capital.
b) Calculate the bank’s leverage ratio.
c) Suppose the bank’s securities are mainly mortgage-based bonds and a wave of mortgage defaults combined with a fall
in the stock market reduces the bank’s assets by 10 percent. What is the percentage and dollar-value change of the bank’s
capital? Is the bank solvent?
ANSWER: a) Capital = Assets – Deposits – Debt = $(100 + 10,000 + 500) ?2- $9000 ?- $1400 = $200
b) Leverage ratio = Assets / Capital = 10 600/200 = 53
c) If assets fall by 10 percent, the percentage change in capital is 53 × (?2-10) = ?2-530%, and the dollar
change is 10 percent of $10 600, or $1060, which decreases capital 530%, from $200 to ?-$860. The bank is
insolvent because its liabilities (deposit + debt) exceed its assets. If the bank’s creditors reclaim their credit,
the bank is bankrupt.
204. The bank of Hinton has $100 reserves, $10,000 long-term loans, $500 securities, $8800 deposits, and $1400 debt.
Due to a macroeconomic slowdown, many people lose their jobs and need to live off their savings for a while. Discuss the
possible effects of this situation on the bank of Hinton’s assets, liabilities, and capital. Is the bank insolvent? Use
numerical examples to illustrate your points.
ANSWER: If people use their savings, they withdraw money from the bank; the bank’s deposits decrease, say by $1000.
If the bank has made mainly long-term loans that cannot be reclaimed on short notice, the new withdrawals
need to be funded out of reserves and securities, which only sum up to $600. Although the bank would still be
able to pay the depositors in the long term, it has a short-term liquidity problem. The withdrawal of $1000
decreases both the bank’s assets and liabilities in the longer term. Therefore, the bank’s long-term capital does
not change. The bank of Hinton is not technically insolvent, but its survival depends on how long the
depositors and creditors are willing to wait for their money.

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ORANGE-CHOCOLATE CHIP
COOKIES
Follow recipe for Chocolate
Chip cookies and add 1 tsp.
grated orange rind to the
shortening mixture.
The glamorous Toll House cookies ... first
introduced to American homemakers in
3-IN-1 JUMBLES
1939 through my series of radio talks on
Choco-nut ... coco-nut ... date- “Famous Foods from Famous Eating
nut. Places.”
Follow recipe above—and

divide dough into three parts. Choco-Nut: To one part, add ½ sq.
unsweetened chocolate (½ oz.), melted, and drop whole nutmeats
(½ cup) into it ... coating each thoroughly. Coco-Nut: To another part,
add ½ cup moist shredded coconut. Date-Nut: Leave third part plain
... and drop nut-stuffed dates (14) into it ... coating each thoroughly.
Each coated date and each coated nut makes a cooky.
GLAZED ORANGE JUMBLES

Double-orange flavor.... Sure to win favor.
Follow recipe above—mix into dough 1½ tsp. grated orange rind
and, if desired, 1 cup chopped nuts. Bake. While hot, dip tops of
cookies in orange glaze (⅓ cup sugar, 3 tbsp. orange juice, 1 tsp.
grated orange rind ... heated together).
BRAZIL OR PECAN JUMBLES

Follow recipe above—and stir into the dough 2 cups cut-up Brazil
or other nuts.
OLD-TIME CINNAMON JUMBLES

Made with buttermilk ... soft and cake-like.
“So easy ... that making them is a thrill for the girls in the Home Economics classes
each year,” according to Miss Sarah M. Knight of Buffalo, New York. And even her
little sixth-graders report making them with great success in their own homes!
Mix together thoroughly ...
½ cup soft shortening (part butter)

1 cup sugar
1 egg
Stir in ...
¾ cup buttermilk
1 tsp. vanilla
Sift together and stir in ...
2 cups sifted GOLD MEDAL Flour

½ tsp. soda
½ tsp. salt
Chill dough. Drop rounded teaspoonfuls about 2″ apart on lightly

greased baking sheet. Sprinkle with mixture of sugar and cinnamon
(¼ cup sugar and 1 tsp. cinnamon). Bake until set but not brown.
temperature: 400° (mod. hot oven).
time: Bake 8 to 10 min.
amount: About 4 doz. 2″ cookies.
Party specialties in answer to requests.
COCONUT MACAROONS ( Recipe) Moist, chewy, chock-full of

coconut.
Beat until fluffy (only ½ min.) ...
½ cup egg whites
Stir in ...
1¼ cups sugar
¼ tsp. salt
½ tsp. vanilla
Blend in ...
2½ cups moist shredded coconut
Drop rounded teaspoonfuls 2″ apart on ungreased wrapping paper

on baking sheet. Bake until set and delicately browned. (Illustrated
directions at bottom of page tell how to remove macaroons from
paper easily.) They spread during baking, so when they come from
oven shape into mounds by gathering in edges with fingers.
temperature: 325° (slow mod. oven).
amount: About 2½ doz. 1½″ macaroons.
CHOCOLATE-COCONUT MACAROONS
Follow recipe above—and add 2 sq. unsweetened chocolate (2
oz.), melted.
CHERRY-COCONUT MACAROONS
Follow recipe above—and add ½ cup chopped candied cherries.
ALMOND MACAROONS
Soften with hands ...
1 lb. almond paste (bought from bakery or made from recipe

below)
Work in ...
2 cups sugar
¼ tsp. salt
4 tbsp. GOLD MEDAL Flour
⅔ cup sifted confectioners’ sugar
⅔ cup egg whites, unbeaten
Drop teaspoonfuls 2″ apart on ungreased wrapping paper on baking

sheet. Pat tops lightly with fingers dipped in cold water. Bake until set
and delicately browned. Remove from paper.
amount: About 5 doz. 2″ macaroons.
ALMOND PASTE (1 lb.)

Grind 2 cups blanched almonds, thoroughly dried (not toasted),
through finest knife of food grinder. Then grind twice more. Mix in 1½
cups sifted confectioners’ sugar. Blend in ¼ cup egg whites,
unbeaten, and 2 tsp. almond extract. Mold into ball. Let age in tightly
covered container in refrigerator at least 4 days.
WHEATIES-COC’N’T
MACAROONS
Follow recipe above—
except, in place of 2½ cups
coconut, use 2 cups wheaties
and 1 cup coconut. Bake 12 to
15 min.
PEANUT MACAROONS
Thin, wafery.
Remove paper with baked
Beat until lemon-colored (5 macaroons on it. Lay a wet towel
min.) ... on the hot baking sheet. Place
paper of macaroons on towel and
1 egg (large) let stand 1 minute. Steam will
loosen macaroons. Slip off with
Gradually beat in ... spatula.
⅔ cup sugar
1 tsp. water
Mix together and gently fold in ...
1 tbsp. GOLD MEDAL Flour

⅓ tsp. salt
⅓ tsp. baking powder
Add and mix just enough to blend in ...
1⅓ cups finely ground roasted peanuts (1 cup shelled, brown

husks removed)
Drop teaspoonfuls 2″ apart on ungreased wrapping paper on baking

sheet. Bake until set and delicately browned. Remove from paper
immediately.
amount: About 3 doz. 2″ macaroons.
refrigerator COOKIES Mix when
convenient ...
HOW TO MAKE REFRIGERATOR COOKIES (preliminary steps on

pp. 14-15)
1 Press and mold with hands into a 2 Wrap in waxed paper ... twisting
long roll, even and smooth, and as big ends to hold the roll in shape. Or
around as you want your cookies to press into a waxed cardboard carton
be. (butter or ice cream carton).
3 Chill roll of dough until it is firm 4 Slice with a thin knife, very sharp, to
enough to slice easily. To speed up insure neat slices with uncrumbled
chilling, place in freezing edges. Return unused dough to
compartment. refrigerator so it can remain stiff.
REFRIGERATOR COOKIES ( Recipe)

Melt-in-the-mouth, rich, and crispy.
1 cup soft shortening

½ cup sugar
½ cup brown sugar
2 eggs
Sift together and stir in
2¾ cups sifted GOLD MEDAL Flour

½ tsp. soda
1 tsp. salt
*2 to 3 tsp. cinnamon
*Or use 1½ tsp. vanilla (add with eggs).

Mix thoroughly with hands. Press and mold into a long smooth roll
about 2½″ in diameter. Wrap in waxed paper, and chill until stiff
(several hours or overnight). With a thin, sharp knife, cut in thin
slices ⅛″ to ¹⁄₁₆″ thick. Place slices a little apart on ungreased baking
sheet. Bake until lightly browned.
amount: About 6 doz. 2½″ cookies.
★ NUT REFRIGERATOR COOKIES

Nut-lovers really go for these cookies.
Follow recipe above—and mix into dough ½ cup cut-up blanched
almonds or black walnuts or other nuts.
DATE-NUT REFRIGERATOR COOKIES

Follow recipe above—using both cinnamon and vanilla. Mix into
dough ½ cup finely chopped nuts and ½ cup finely cut dates.
ORANGE-ALMOND REFRIGERATOR COOKIES

Follow recipe above—but omit cinnamon. Stir 1 tbsp. grated
orange rind into shortening mixture. Mix into dough ½ cup cut-up
blanched almonds.
CHOCOLATE REFRIGERATOR COOKIES

Follow recipe above—but omit the cinnamon. Blend 2 sq.
unsweetened chocolate (2 oz.), melted and cooled, into the
shortening mixture.
for an elegant dessert: Make a roll by
arranging the chocolate or ginger cookies (see
p. 23) side by side with sweetened whipped
cream between. Spread whipped cream over
top and sides of roll. Chill 6 to 8 hr. Slice
diagonally for gaily striped servings.
... slice and bake when convenient.
GINGER REFRIGERATOR COOKIES

Gingery favorites in jig-time!

1 cup sugar
2 eggs
½ cup black molasses
4½ cups sifted GOLD MEDAL Flour

1 tsp. soda
1 tsp. salt
1 tbsp. ginger (3 tsp.)
Mix thoroughly with hands. Press and mold into a long, smooth roll
(several hours or overnight). With thin, sharp knife, cut in thin slices
⅛″ to ¹⁄₁₆″ thick. Place slices a little apart on ungreased baking sheet.
Bake until lightly browned.
★ NEW NORTHLAND COOKIES

Crunchy, flavorful shortening-savers.
Languid days on the St. Lawrence; the pink, rocky cliffs and blue icebergs of
Labrador; and afternoon tea on deck. Such are the memories these cookies bring
to Ruth G. Anderson of our Staff who brought back the recipe after a cruise to the
Northland.
6 tbsp. soft shortening (part

butter)
1 cup brown sugar
Stir in ...
¼ cup cold water

1 tsp. soda
½ tsp. salt
½ tsp. cinnamon
Mix in ...
½ cup cut-up blanched almonds
Mix thoroughly with hands. Press and mold into a long smooth roll
Bake until lightly browned. Remove from pan immediately.
Snip off and bake ... for unexpected guests.
★ PETTICOAT TAILS
Richly delicate and dainty.
This recipe was brought from
France to Scotland by Mary,
Queen of Scots. The French
name “Petits Gateaux Tailles”
means—“little cakes cut off.”
But the name came to be
pronounced as it sounded to
the Scotch and English
—“Petticoat Tails.”
1 cup soft butter

1 cup sifted confectioners’ sugar
1 tsp. flavoring (vanilla, almond, wintergreen or rose)

¼ tsp. salt
about 2″ in diameter. Wrap in waxed paper, and chill until stiff
Bake until lightly browned.
OATMEAL REFRIGERATOR COOKIES

Nice and chewy, with a molasses-lemon tang.
Voted the best oatmeal cooky ever tasted ... when sent to our
Recipe Contest by Mrs. J. A. Gmeinder of St. Paul, Minnesota. The
distinguishing molasses-lemon
flavor was an idea from Mrs.
Richard Nugent, Brooklyn, New
York.
½ cup soft shortening

½ cup sugar
½ cup brown sugar
1 egg
1½ tsp. grated lemon rind
1½ tbsp. molasses
½ tsp. vanilla
⅞ cup (¾ cup plus 2 tbsp.) sifted GOLD MEDAL Flour

½ tsp. soda
½ tsp. salt
Mix in ...
1½ cups rolled oats
(several hours). With thin, sharp knife, cut in thin slices ⅛″ to ¹⁄₁₆″
thick. Place slices a little apart on ungreased baking sheet. Bake
until lightly browned.
PRETTY FOR PARTIES
to make Petticoat Tails match your color scheme: Tint the dough with
a few drops of red food coloring and use rose flavoring for a pink
party. Use wintergreen
flavoring and a few drops of
green coloring for a green
party.
miscellaneous COOKIES Popular through
the years ...
SNICKERDOODLES
Fun to say ... to sniff ... to eat!
Pat Roth of our Staff said, “It’s one of my happy childhood memories. My mother
would be baking when we came home from school and we would have
Snickerdoodles hot out of the oven with a glass of milk.”

1½ cups sugar
2 eggs

2 tsp. cream of tartar
1 tsp. soda
½ tsp. salt
Chill dough. Roll into balls the size of small walnuts. Roll in mixture
of 2 tbsp. sugar and 2 tsp. cinnamon. Place about 2″ apart on
ungreased baking sheet. Bake until lightly browned ... but still soft.
(These cookies puff up at first ... then flatten out with crinkled tops.)
GOLD COOKIES
Really awfully good ... and they use up those extra egg yolks!
½ cup soft shortening
1½ cups sugar
4 egg yolks
Stir in ...
2 tbsp. milk
1 tsp. vanilla

½ tsp. baking powder
¼ tsp. salt
Chill dough. Roll into balls the size of walnuts ... then roll balls in a
mixture of ¾ cup finely chopped nuts and 2 tsp. cinnamon. Place 3″
apart on ungreased baking sheet. Bake until golden brown ... but still
soft.
★ MOLASSES CRINKLES
Thick, chewy, with crackled, sugary tops.
When served at Mrs. Fred Fredell’s in St. Paul, Minnesota, they were so delicious I
begged the recipe. Thanks to her, thousands of homes have enjoyed these spicy
cookies.
¾ cup soft shortening

1 cup brown sugar
1 egg
¼ cup molasses

2¼ cups sifted GOLD MEDAL Flour
2 tsp. soda
¼ tsp. salt
½ tsp. cloves
1 tsp. cinnamon
1 tsp. ginger
Chill dough. Roll into balls the size of large walnuts. Dip tops in
sugar. Place, sugared-side-up, 3″ apart on greased baking sheet.
Sprinkle each cooky with 2 or 3 drops of water to produce a crackled
surface. Bake just until set but not hard.
temperature: 375° (quick mod. oven).
WASHBOARDS
Coconut-taffy bars.
1 cup soft shortening (half butter)

2 cups brown sugar
2 eggs
Stir in ...
1 tsp. soda dissolved in ¼ cup hot water

1 tsp. vanilla

1½ tsp. baking powder
¼ tsp. salt
Mix in ...
1 cup moist shredded coconut (cut up any long shreds)
Chill dough 2 hr. Roll into balls the size of walnuts. Place 2″ apart on
ungreased baking sheet. With fingers, flatten each ball into a 1½″ ×
2½″ oblong ¼″ thick. (And we do mean ¼ inch!) Press each cooky
lengthwise with tines of floured fork in washboard effect. Bake until
lightly browned.
amount: About 5 doz. 2″ × 3″ cookies.
BAR COOKIES Perennial favorites ...
cut in squares or bars.
HOW TO MAKE BAR COOKIES (preliminary steps on pp. 14-15)
1 Spread dough in 2 Cut into squares or

3 Remove from the pan
greased pan and bake as bars when slightly
with a wide spatula.
directed. cool.
BROWNIES ( Recipe) Chewy, fudgy squares ... everyone loves

them!
Melt together over hot water ...
2 sq. unsweetened chocolate (2 oz.)

⅓ cup shortening
Beat in ...
1 cup sugar
2 eggs
¾ cup sifted GOLD MEDAL Flour

½ tsp. baking powder
½ tsp. salt
Mix in ...
½ cup broken nuts
Spread in well greased 8″ square pan (8 × 8 × 2″). Bake until top has
dull crust. A slight imprint will be left when top is touched lightly with
finger. Cool slightly ... then cut into squares.
temperature: 350° (mod. oven).
amount: 16 2″ squares.
CHOCOLATE-FROSTED BROWNIES
“Lickin’ good!” ... youngsters say.
Follow recipe above—and spread cooled bars or squares before

cutting with
MARIE’S CHOCOLATE ICING

Melt over hot water 1 tbsp. butter and 1 sq. unsweetened chocolate
(1 oz.). Blend in 1½ tbsp. warm water. Stir and beat in about 1 cup
sifted confectioners’ sugar (until icing will spread easily).
DAINTY TEA BROWNIES

Picturesque ... very thin. A highlight of the silver teas at a Minneapolis church.
Follow recipe above—except chop nuts finely and spread dough
in two well greased oblong pans (9 × 13 × 2″). Sprinkle with ¾ cup
blanched and finely sliced green pistachio nuts. Bake 7 to 8 min. Cut
immediately into squares or diamonds. Remove from pan while
warm.
PLANTATION FRUIT BARS

Little sugar and shortening ... but delicious. Sent to us by Mrs. Charles Willard of
Chicago.
¼ cup soft shortening
½ cup sugar
1 egg
½ cup molasses
Stir in ...
½ cup milk

1½ tsp. baking powder
¼ tsp. soda
½ tsp. salt
Mix in ...
1 cup broken nuts

1 to 2 cups cut-up raisins or dates
Spread in greased oblong pan (9 × 13 × 2″). Bake. Cool slightly ...

spread with Lemon Icing (see below) and cut into bars.
temperature: 350° (mod. oven).
amount: 4 doz. 1″ × 2″ bars.
LEMON ICING (for Plantation Fruit Bars)

Gradually beat ½ cup sifted confectioners’ sugar into 1 stiffly beaten
egg white. Add dash of salt, ¼ tsp. lemon extract.
Confection-like squares for special entertaining.

Principles of Macroeconomics Canadian 7Th Edition Mankiw Test Bank Full Chapter PDF

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Principles Of Macroeconomics

Canadian 7th Edition Mankiw Test Bank

Chapter 10 - The Monetary System

2. What is a characteristic of paper money?

3. Which statement best defines barter?

5. What is a generally accepted medium of exchange?

6. Which statement best illustrates the unit of account function of money?

Chapter 10 - The Monetary System

8. Which statement best illustrates the medium of exchange function of money?

9. What do economists use the word “money” to refer to?

10. Which statement best defines liquidity?

12. What is current Canadian currency?

13. What characterizes fiat money?

Chapter 10 - The Monetary System

14. What characterizes commodity money?

15. What characterizes currency?

16. Which of the following has intrinsic value?

17. What does the legal tender requirement imply?

18. Which of the following does M1+ include?

19. Which of the following is included in M1+?

Chapter 10 - The Monetary System

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

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

23. Which of the following is included in M1+?

24. Which of the following is included in M2?

25. What is a credit card?

26. How does M1 compare with M2?

Chapter 10 - The Monetary System

27. What is a debit card?

28. Which statement best characterizes credit cards?

29. What is the fundamental function of credit cards?

30. What is the function of debit cards?

31. Which account balance is included in M1+?

Chapter 10 - The Monetary System

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

38. What does the Bank of Canada NOT do?

Chapter 10 - The Monetary System

41. Who owns the Bank of Canada?

42. When was the Bank of Canada Act first enacted?

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

44. Which organization plays the role of a central bank in Canada?

Chapter 10 - The Monetary System

45. What is the role of the Bank of Canada?

47. What is one of the functions of the Bank of Canada?

48. What is a characteristic of Scotiabank?

50. What happens in a 100-percent-reserve banking system?

51. How do deposits and reserves appear on a bank’s T-account?

Chapter 10 - The Monetary System

Chapter 10 - The Monetary System

Chapter 10 - The Monetary System

66. Refer to the Table 10-1. What is the reserve ratio?

Chapter 10 - The Monetary System

Chapter 10 - The Monetary System

Chapter 10 - The Monetary System

Copyright Cengage Learning. Powered by Cognero. Page 14

Chapter 10 - The Monetary System

Copyright Cengage Learning. Powered by Cognero. Page 15

Chapter 10 - The Monetary System

Chapter 10 - The Monetary System

Copyright Cengage Learning. Powered by Cognero. Page 17

Chapter 10 - The Monetary System

Chapter 10 - The Monetary System

108. Which of the following is NOT a tool of monetary policy?