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How is money destroyed in the banking system?

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The process of money creation can be rev...

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What is a fractional reserve system?

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In order for banks to continue to do bus...

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Which of the following changes would clearly decrease the supply of money in the banking system?


A) an increase in the percentage of money people want to hold as currency, and an increase in the fraction of deposits banks want to hold as reserves
B) a decrease in the percentage of money people want to hold as currency, and a decrease in the fraction of deposits banks want to hold as reserves
C) a decrease in the percentage of money people want to hold as currency, and an increase in the fraction of deposits banks want to hold as reserves
D) an increase in the percentage of money people want to hold as currency, and a decrease in the fraction of deposits banks want to hold as reserves

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

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Assume that Loans R Us receives a new cash deposit of $100 000.With a 10 percent desired reserve ratio,this creates $10 000 of desired reserves and $90 000 of excess reserves.

A) True
B) False

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What impact would an increase in the reserves banks want to hold,together with people depositing currency into their demand deposit accounts,have on the money supply?


A) It would increase the money supply.
B) It would leave the money supply unchanged.
C) It would have an indeterminate effect on the money supply.
D) It would decrease the money supply.

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

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Scenario 11-1 A bank's assets consist of $500 000 in total reserves, $1 600 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $2 000 000 in demand deposits and $1 300 000 in capital. -Refer to Scenario 11-1.If the desired reserve ratio is 30 percent,what is the level of the bank's excess reserves?


A) Excess reserves are $500 000.
B) Excess reserves are $50 000.
C) Excess reserves are zero.
D) The bank has insufficient reserves to meet its desired reserve requirements.

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

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If a bank had demand deposits of $50 million and it desired a 25 percent reserve ratio,how much would it hold in reserve?


A) $12.5 million
B) $25 million
C) $37.5 million
D) $50 million

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

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If banks desired a 100 percent reserve ratio,how many times total reserves in the system equals the money supply?


A) 0.01
B) 0.1
C) 1
D) 10

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

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People continue to value money because they have confidence in its convertibility into goods and services.

A) True
B) False

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Scenario 11-2 A bank's assets consist of $1 000 000 in total reserves, $2 100 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $3 000 000 in demand deposits and $1 300 000 in capital. -Refer to Scenario 11-2.If the desired reserve ratio is 20 percent,what is the level of the bank's excess reserves and how much money could the excess reserves be used to create in the banking system as a result?


A) Excess reserves are $400 000 and could be used to create $400 000 in the banking system.
B) Excess reserves are $600 000 and could be used to create $3 000 000 in the banking system.
C) Excess reserves are $400 000 and could be used to create $2 000 000 in the banking system.
D) Excess reserves are $600 000 and could be used to create $600 000 in the banking system.

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

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Scenario 11-1 A bank's assets consist of $500 000 in total reserves, $1 600 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $2 000 000 in demand deposits and $1 300 000 in capital. -Refer to Scenario 11-1.If the desired reserve ratio is 20 percent,what is the level of the bank's excess reserves and how much money could the excess reserves be used to create in the banking system as a result?


A) Excess reserves are $100 000, leading to the creation of $100 000 in the banking system.
B) Excess reserves are $400 000, leading to the creation of $400 000 in the banking system.
C) Excess reserves are $100 000, leading to the creation of $500 000 in the banking system.
D) Excess reserves are $400 000, leading to the creation of $2 000 000 in the banking system.

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

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The higher the interest rate paid on term deposit and other nontransaction deposits,other things being equal,the less people would be expected to hold in demand deposits.

A) True
B) False

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A chartered bank has $1 000 000 of outstanding demand deposits and actual reserves of $300 000.If the desired reserve ratio is 20 percent,what is the maximum loan the bank can extend?


A) $100 000
B) $150 000
C) $300 000
D) $500 000

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

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Assume that the desired reserve ratio is 20 percent.First National Bank has vault cash and deposits with the Bank of Canada of $80 million,loans and securities of $320 million,and demand deposits of $400 million.Which of the following statements about First National is the most accurate?


A) It could extend a maximum of $40 million of additional loans.
B) It could extend a maximum of $20 million of additional loans.
C) It could extend a maximum of $10 million of additional loans.
D) It is not in a position to extend additional loans.

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

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If a bank had demand deposits of $80 million and it desired a 25 percent reserve ratio,what is the maximum amount of dollars' worth of loans it would be able to have?


A) $20 million
B) $40 million
C) $60 million
D) $80 million

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

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Say the desired reserve ratio is 20 percent.What is the effect of paying back a bank loan of $10 000?


A) It eliminates $2000 in money.
B) It adds $2000 in money.
C) It adds $10 000 in money.
D) It eliminates $10 000 in money.

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

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Why might a bank choose to hold secondary reserves,such as Canadian Treasury bills?


A) They pay lower interest rates than deposits at the Bank of Canada and are hard to convert into cash assets.
B) They pay higher interest rates than deposits at the Bank of Canada, even though they are hard to convert into assets.
C) They pay lower interest rates than deposits at the Bank of Canada, but are more easily converted into cash assets.
D) They pay higher interest rates than deposits at the Bank of Canada and are easily converted into cash assets.

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

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What effect would an increase in demand deposits combined with an equal decrease in currency in circulation have?


A) It would have no direct effect on M2 or M2+.
B) It would decrease M2 and increase M2+.
C) It would increase M2 and decrease M2+.
D) It would increase both M2 and M2+.

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

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What is money?


A) a highly illiquid asset
B) a widely used means of exchange in a barter economy
C) an object to be consumed
D) whatever is generally accepted in exchange for goods and services

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

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Which of the following actions will lead to an increase in the money supply?


A) You pay $10 000 in cash for a new motorcycle.
B) Your bank gives you a $10 000 loan by adding $10 000 to your chequing account.
C) You put $10 000 in cash in a safety deposit box.
D) You pay back a $10 000 loan that you owe to your bank.

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

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Showing 21 - 40 of 164

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