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ECON 1010 Study Guide - Quiz Guide: Royal Canadian Mint, Nominal Interest Rate, Real Interest Rate


Department
Economics
Course Code
ECON 1010
Professor
Scott Cawfield
Study Guide
Quiz

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Chapter 24 – Quiz Bank
Chapter 24 Quiz Bank Version A
Question Answers
A depository institution
takes deposits from --
Households and firms
The deposits of the
following three types of
depository institutions make
up the nation’s money: -----
Chartered banks, credit unions and caisses populaires and trust
and mortgage loan companies
The Canadian M1 multiplier
is ---- than the Canadian M2
multiplier
Smaller
The currency drain ratio for
M1 is ---- than for M2 and
the banks’ reserve ratio for
M1 is --- than for M2
Larger; larger
Money serves as a ---- Medium of exchange, which means that is generally accepted
in exchange for goods and services
The money multiplier can be
calculated as ----, where C is
currency, D is deposits and
R is banks’ reserves
(1 + C/D) DIVIDED (R/D + C/D)
The money multiplier is the
ratio of the change in the
quantity of – to the change
in the quantity of ---
Money; monetary base
Depository institutions
provide four benefits, which
are ----
Creating liquidity, lowering the cost of borrowing, lowering the
cost of monitoring borrowers and pooling risk
Choose the correct statement Deposits are money, cheques are not money and credit cards
are not money
On the average in Canada,
the inflation rate and the
money growth rate minus
real GDP growth rate ---
Rise and fall together
When the Bank of Canada
buys securities from a bank,
a sequence of events begins.
The events are listed below.
Number each event in the
order in which it occurs
1 – bank have excess reserves
2 – banks lend excess reserves
3 – the quantity of money increases
4 – new money is used to make payments
5 – some of the new money remains on deposit
6 – some of the new money is a currency drain
7 – desired reserves increase because deposits have increased
8 – excess reserves decrease
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The liabilities of the Bank of
Canada are ----, and these
liabilities along with ----
make up the monetary base
Bank of Canada notes and depository deposits; coins issued by
the Royal Canadian Mint
Choose the statement that is
incorrect
A chartered bank is a private firm, chartered under the Bank
Act of 1936 to receive deposits and make loans
In an economy, there is $125
million in currency held
outside banks, $300 million
in currency held inside the
banks, $150 million in
chequable deposits, $500
million in non-chequable,
non-personal deposits,
$2,000 million non-
chequable, person deposits,
and $1,000 million in fixed
term deposits
The value of M1 is --- and
the value of M2 is ---
$275 million; $4,075 million
The demand for the money
is the relationship between
the quantity of real money
demanded and the ---- when
all other influences on the
amount of money that
people wish to hold remain
the same
Nominal interest rate
When the nominal interest
rate rises, the opportunity
cost of holding money ----
and the quantity of real
money demanded ---
Rises; decreases
Suppose the Bank of Canada
increases the quantity of
money.
In the long run, supply and
demand in the --- market
determines the real interest
rate
The ---- adjusts to make the
quantity of real money
supplied equal to the
quantity demanded
Loanable funds; price level
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Suppose the potential GDP
and the velocity of
circulation are constant.
What is the change in the
price level in the long run if
the quantity of money
increases by 1 percent a
year?
If the quantity of money increases by 1 percent a year, in the
long run the change in the price level is 1 percent a year
An increase in real GDP ---
the demand for money and
financial innovation ----
Increases; might increase the demand for some types of
deposits and decrease the demand for others
A central bank is ----
The central bank in Canada
is ----
A public authority that supervises other banks and financial
institutions, financial markets and the payments system, and
conducts monetary policy;
The Bank of Canada
The ratio of reserves to
deposits that a bank plans to
hold is its ----
If a bank has $10 million in
actual reserves and $8
million in desired reserves,
then it has ---
Desired reserve ratio; excess reserves
The figure shows the
demand for money curve in
Epsilon. The quantity of
money is $3.1 trillion
If the interest rate is 5
percent, people will --
buy bonds, bid up their price and the interest rate will fall
Suppose the Bank of Canada
buys $50 million of
government securities from
the Royal Bank.
The Bank of Canada’s total
assets ---- and its total
Increase by $50 million; increase by $50 million
Do not change; do not change
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