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1 | |
A fractional reserve banking system... |
| | A) | Will hold back 100% of the deposit liabilities as reserves |
| | B) | Will hold back none of the deposit liabilities as reserves. |
| | C) | Will hold back less than 100% of the deposit liabilities as reserves |
| | D) | None of the above |
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2 | |
In the past, one of the risks of the fractional reserve banking system was... |
| | A) | Reduced profits due to less lending |
| | B) | That a bank might not be able to cover its deposits in the unlikely event that everyone showed up at the same time to withdraw their money. |
| | C) | That the money supply would be reduced. |
| | D) | None of the above |
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3 | |
If a business deposits $50,000 in the Bank of Nova Scotia, then this will appear on the balance sheet as... |
| | A) | A $50,000 increase in cash and a $50,000 increase in capital stock |
| | B) | A $50,000 increase in cash and a $50,000 increase in reserves |
| | C) | A $50,000 increase in cash and a $50,000 increase in demand deposits. |
| | D) | None of the above |
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4 | |
If XYZ bank has a desired reserve ratio of 15%, what, approximately, would its demand deposits equal if its desired reserves were $100,000? |
| | A) | $15,000 |
| | B) | $1,500,000 |
| | C) | $670,000 |
| | D) | $500,000 |
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5 | |
Suppose that XYZ bank currently has demand deposits of $40,000 and desired reserves=actual reserves=$4,000. If Bob McKenzie comes into XYZ bank and deposits an inheritance of $5,000, what is the new level of desired reserves? |
| | A) | $900 |
| | B) | $1,000 |
| | C) | $4,500 |
| | D) | $500 |
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6 | |
In the above question, what is bank XYZ's level of excess reserves? |
| | A) | $900 |
| | B) | $4,500 |
| | C) | $1,000 |
| | D) | $500 |
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7 | |
Which of the following is true of the banking system? |
| | A) | Excess reserves are lent out to a bank's clients, and this action creates money. |
| | B) | An increase in the desired reserves can reduce the amount of money that can be created by the banking system. |
| | C) | If a cheque is drawn on a bank, then both reserves and demand deposits will decrease in the bank upon which the cheque was drawn. |
| | D) | All of the above are correct |
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8 | |
When a bank makes a loan to a business, which of the following changes will occur in its balance sheet? |
| | A) | Both demand deposits and reserves will decrease |
| | B) | Loans will increase and reserves will increase |
| | C) | Loans will increase and demand deposits will increase |
| | D) | Loans will increase and reserves will decrease |
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9 | |
Which of the following banking transactions will "destroy" money (i.e. reduce the money supply)? |
| | A) | A business takes out a loan |
| | B) | A business pays back a loan. |
| | C) | A business puts $2,000 in a bank. |
| | D) | None of the above |
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10 | |
When a chartered bank buys Government of Canada bonds from the public, |
| | A) | The bank's securities and demand deposits both increase, as does the money supply. |
| | B) | The bank's securities and demand deposits both decrease, as does the money supply. |
| | C) | The bank's securities increase, but demand deposits decrease, causing the money supply to decrease. |
| | D) | None of the above |
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11 | |
Which of the following chartered bank actions will effectively reduce the money supply? |
| | A) | An increase in chartered bank loans to the public |
| | B) | The chartered bank buys Government of Canada bonds from the public. |
| | C) | The chartered bank sells Government of Canada bonds to the public |
| | D) | None of the above |
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12 | |
For a chartered bank, the opportunity cost of tying up more cash and reserves in profit-generating activities such as making loans and buying securities is... |
| | A) | Higher profits |
| | B) | Lost interest |
| | C) | Reduced liquidity |
| | D) | None of the above |
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13 | |
Which of the following is not an assumption of the textbook's multiple-deposit expansion model of the banking system? |
| | A) | The desired reserve ratio is the same for all chartered banks. |
| | B) | Initially, all chartered banks in the system are meeting their desired reserve ratio, so that there are no excess reserves. |
| | C) | Any excess reserves that are acquired are lent to one borrower, who writes a cheque for the entire amount of the loan and deposits it in another bank. |
| | D) | Borrowers may spend some of their loans on goods and services, so that only a fraction of the original loan is deposited in another bank |
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14 | |
Considering the last question, bank A can now expand its loans by... |
| | A) | $45 |
| | B) | $5 |
| | C) | $50 |
| | D) | $35 |
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15 | |
Consider the previous question. If bank A now lends out its excess reserves to a single borrower, who writes a cheque on them, and places it in bank B, then |
| | A) | Bank A's reserves and demand deposits will fall by the amount of the cheque. |
| | B) | Bank B's reserves and demand deposits will increase by the amount of the cheque. |
| | C) | Bank B will hold back 10% of the new deposit in reserves, and lend the excess reserves to another borrower. |
| | D) | All of the above are correct. |
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16 | |
Thinking of question no. 14, what is the total amount of money created as a result of Fred's initial $50 deposit in bank A? |
| | A) | $500 |
| | B) | $200 |
| | C) | $450 |
| | D) | $650 |
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17 | |
The greater the desired reserve ratio... |
| | A) | The greater the money multiplier and the greater the increase in the money supply. |
| | B) | The smaller the money multiplier, and the greater the increase in the money supply. |
| | C) | The smaller the money multiplier and the smaller the increase in the money supply. |
| | D) | None of the above |
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18 | |
What would the desired reserve ratio have to be so that a $1,000 increase in deposits would generate a further $11,500 increase in demand deposits as it passes through the banking system? |
| | A) | 7% |
| | B) | 8% |
| | C) | 10% |
| | D) | 15% |
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19 | |
Suppose that a bank currently has no excess reserves. If it faces a 25% reserve ratio, and a customer withdraws $200 from the bank, what is the effect on the banking system's money supply after this change has worked its way through the banking system? |
| | A) | As a result of the withdrawl, the money supply will increase by $600 |
| | B) | As a result of the withdrawal, the money supply will decrease by $50 |
| | C) | As a result of the withdrawal, the money supply will increase by $200 |
| | D) | As a result of the withdrawal, the money supply will decrease by $600 |
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20 | |
Suppose that Glen Mercer goes into bank A and borrows $1,000. Instead of putting the entire $1,000 cheque in bank B, Glen spends $400 on a vintage record collection, and then places the remaining amount in bank B. If all banks in the system have a reserve ratio of 20%, then... |
| | A) | The total increase in demand deposits in the banking system will be the same as if Glen had placed the full $1,000 loan in bank B. |
| | B) | The total increase in demand deposits in the banking system will be less than if Glen had placed the full $1,000 loan in bank B |
| | C) | The total increase in demand deposits in the banking system will be greater than if Glen had placed the full $1,000 loan in bank B |
| | D) | None of the above |
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21 | |
If all banks in the banking system decide to reduce their desired reserve ratio from 15% to 10%, then... |
| | A) | The money multiplier would decrease, and the money supply (demand deposits) would increase |
| | B) | The money multiplier would increase, and the money supply would decrease |
| | C) | The money multiplier would decrease, and the money supply would decrease. |
| | D) | The money multiplier would increase and the money supply would increase |
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22 | |
Which of the following is true of profit-maximizing bankers? |
| | A) | In a prosperous economy, bankers will attempt to expand lending as much as possible, because of low default risk |
| | B) | If there is the threat of recession, bankers will tend to reduce lending, partially due to fear of loan defaults. |
| | C) | Individual banks' actions tend to be pro-cyclical, in that they move with the business cycle. |
| | D) | All of the above |
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23 | |
From the bank's point of view, demand deposits are part of which section on its balance sheet? |
| | A) | Assets |
| | B) | Liabilities |
| | C) | Net Worth |
| | D) | None of the above |
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2002 McGraw-Hill Higher Education