Q: If the currency-deposit ratio is 0.05 and the reserve-deposit ratio is 0.01, what is the total change in deposits resulting from a new cash deposit of $200?

$$\frac{1}{0.05+0.01} \times 200 = 3333.33$$

Q: Suppose the Bank of Canada purchases $1,000,000 in government securities from the public. If the reserve ratio is 5% and there is no cash drain, what is the maximum increase in deposits?

$$\frac{1}{0.05} \times 1,000,000 = 20,000,000$$

Q: If a bank receives a new deposit of $1,000 and the target reserve ratio is 20%, what is the maximum amount the bank can lend out?

$$1,000 - (0.20 \times 1,000) = 800$$

Question 1

Which of the following best describes the 'double coincidence of wants' problem in a barter economy?

Accepted Answer

It refers to the need for two parties to have exactly what the other wants in order to exchange goods directly.

Question 2

Which of the following is NOT a function of money?

Accepted Answer

Means of production

Question 3

According to Gresham’s Law, what happens when 'bad' (debased) money and 'good' (undebased) money circulate together?

Accepted Answer

Bad money drives good money out of circulation.

Question 4

Which statement best describes fiat money?

Accepted Answer

Fiat money is declared legal tender by the government and is not backed by a physical commodity.

Question 5

A commercial bank in Canada has a target reserve ratio of 10%. If a new cash deposit of $500 is made and there is no cash drain, what is the maximum possible increase in deposits in the banking system?

Accepted Answer

$5000

Question 6

Which formula correctly expresses the deposit expansion multiplier in a banking system with a target reserve ratio $$v$$?

Accepted Answer

$$\frac{1}{v}$$

Question 7

If the currency-deposit ratio is 0.05 and the reserve-deposit ratio is 0.01, what is the total change in deposits resulting from a new cash deposit of $200?

Accepted Answer

$$\frac{1}{0.05+0.01} 	imes 200 = 3333.33$$

Question 8

Which of the following is considered 'deposit money' in the modern Canadian banking system?

Accepted Answer

Bank deposits held at commercial banks

Question 9

What is the primary role of the Bank of Canada in the Canadian banking system?

Accepted Answer

It acts as the sole money-issuing authority and regulates the money supply.

Question 10

Which of the following assets is considered a 'money substitute' rather than money?

Accepted Answer

Credit cards

Question 11

Suppose the Bank of Canada purchases $1,000,000 in government securities from the public. If the reserve ratio is 5% and there is no cash drain, what is the maximum increase in deposits?

Accepted Answer

$$\frac{1}{0.05} 	imes 1,000,000 = 20,000,000$$

Question 12

Which of the following is NOT a basic function of the Bank of Canada?

Accepted Answer

Providing insurance for all commercial bank deposits

Question 13

Which measure of the money supply includes currency, chequable and non-chequable deposits at chartered banks, and similar deposits at non-chartered institutions?

Accepted Answer

M2+

Question 14

Why are cash reserves held by Canadian commercial banks typically quite small relative to their deposit liabilities?

Accepted Answer

Because only a small fraction of depositors want their money at any time

Question 15

Which of the following would dampen the deposit-creation process in the banking system?

Accepted Answer

A high currency-deposit ratio

Question 16

If a bank receives a new deposit of $1,000 and the target reserve ratio is 20%, what is the maximum amount the bank can lend out?

Accepted Answer

$$1,000 - (0.20 	imes 1,000) = 800$$

Question 17

Which of the following is a plausible risk associated with deposit insurance in the banking system?

Accepted Answer

It may encourage excessive risk-taking by banks.

Question 18

Which of the following statements about cryptocurrencies is correct according to the study materials?

Accepted Answer

Cryptocurrencies are a modern form of money but are not yet a major part of the official money supply.

Question 19

Which of the following best describes the difference between money and money substitutes?

Accepted Answer

Money substitutes serve as a temporary medium of exchange but are not a store of value.

Question 20

If the Bank of Canada wants to increase the money supply, which of the following actions would it most likely take?

Accepted Answer

Purchase government securities from the public

Money and Banking: Key Concepts in Macroeconomics

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