Question 1

Which of the following is NOT one of the four primary functions of money?

Accepted Answer

Source of credit

Question 2

Suppose the desired reserve ratio ($$r) in $$the banking system is 10%. If the Bank of Canada injects $$\5$$,000$ in new reserves, what is the maximum possible increase in chequing account deposits according to the simple deposit multiplier?

Accepted Answer

$$\50$$,000$

Question 3

Which of the following assets would NOT be considered money according to the M1+ definition in Canada?

Accepted Answer

Credit card balances

Question 4

Why is fiat money only acceptable as long as households and firms have confidence in it?

Accepted Answer

Because its value depends on the belief that it will not lose much value while being held

Question 5

Which of the following is a characteristic that an asset must have to serve as money?

Accepted Answer

It must be divisible

Question 6

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

Accepted Answer

Sell government securities in open market operations

Question 7

According to the quantity theory of money, if the money supply grows at 8% per year, real GDP grows at 3% per year, and velocity is constant, what is the predicted inflation rate?

Accepted Answer

5%

Question 8

Which of the following best describes the process of securitization?

Accepted Answer

Loans are transformed into financial assets that can be bought and sold

Question 9

During a bank panic, what role does the Bank of Canada play?

Accepted Answer

It acts as a lender of last resort to solvent banks

Question 10

Which of the following is a direct result of banks gaining reserves?

Accepted Answer

They make new loans and the money supply expands

Question 11

Which of the following is NOT included in the broadest measure of the money supply (M2++) in Canada?

Accepted Answer

Credit card balances

Question 12

If a bank receives a $2,000 deposit and the desired reserve ratio is 20%, how much can the bank lend out?

Accepted Answer

$1,600

Question 13

Which of the following statements about the shadow banking system is TRUE?

Accepted Answer

It includes investment banks and money market mutual funds

Question 14

Which of the following would cause the real-world deposit multiplier to be less than the simple deposit multiplier?

Accepted Answer

Consumers keep some currency out of the bank

Question 15

Which of the following is an example of commodity money?

Accepted Answer

Gold coins used in trade

Question 16

If the velocity of money ($$V) is 4$$, the money supply ($$M) is$$ $$\500$ billion, and real GDP (Y$) is $$\$$1,000$$ billion, what is the price level ($$P$$)?

Accepted Answer

$$P = 2$$

Question 17

Which of the following best explains why hyperinflation occurs?

Accepted Answer

Central banks increase the money supply much faster than real GDP grows

Question 18

Which of the following is a liability for a commercial bank?

Accepted Answer

Deposits from customers

Question 19

Which of the following is a reason why credit cards are NOT considered money?

Accepted Answer

They represent a short-term loan, not a store of value

Question 20

If the Bank of Canada sets the upper limit of the operating band for the overnight interest rate, what is this rate called?

Accepted Answer

Bank rate

Money, Banks, and the Bank of Canada: Foundations of the Monetary System

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