Class Chapt 9 money

Question 1

3 caractristics of money?

Answer 1

• Medium of exchange
• Unit of account
• Store of value

Question 2

What are the 2 official measures of money?

Answer 2

M1 and M2

Question 3

What includes M1?

Answer 3

Currency + chequable deposits

Question 4

What includes M2?

Answer 4

Currency + chequable deposits + all other deposits

Question 5

4 types of assets for a Chartered Bank?

Answer 5

• Reserves
• Liquid Assets
• Securities
• Loans

Question 6

Example of liquid Asset?

Answer 6

• Government Treasury bills
• Commercial bills

Question 7

Example of securities?

Answer 7

Mortgage Baked securities

Question 8

Functions of the Bank of Canada?

Answer 8

• Sole issuer of currency
• Banker to banks and government
• Lender of last resource

Question 9

Biggest liability of the bank of Canada?

Answer 9

Bank of Canda notes in circulation

Question 10

Biggest Assets of the bank of Canada?

Answer 10

Canadian government securities

Question 11

Bank of Canada’s Two main policy tools?

Answer 11

• Open market operations
• Bank rate

Question 12

What is a Bank of Canada open market operation?

Answer 12

Is the purchase or sale of government securities

Question 13

Do “open market operations” influence banks’ reserves? True or False

Answer 13

True

Question 14

What is the Bank rate

Answer 14

Is the rate at which banks leand to each other and

Question 15

What is the equation for money creation of banks?

Answer 15

MB = R + C

Question 16

Explain: MB = R + C

Answer 16

Mb = Monetary Base (of Bank of Canada)
R = Reserves (desired reserve ratio that a bank has)
C = Currensy holdings (desired money hold buy people)

Question 17

What is the currency drain ratio?

Answer 17

Is the amount of money created that does not go back to the bank as deposits

Question 18

What is the money multiplier (MM)

Answer 18

ratio of the change in the quantity of money to the change in the monetary base

Question 19

The quantity of money created depends on ?

Answer 19

the desired reserve ratio (r) and the currency drain ratio (c)

Question 20

The smaller these ratios, the larger is the money multiplier? True or False

Answer 20

True

Question 21

4 facts that Influence on Money Holding

Answer 21

• The price level
• The nominal interest rate
• Real GDP
• Financial innovation

Question 22

what is Nominal money?

Answer 22

is the amount of money measured in dollars.

Question 23

what is Real money?

Answer 23

Nominal money ÷ Price level

Question 24

A rise in the price level increases the quantity of nominal money but doesn’t change the quantity of real money that people plan to hold. True or False?

Answer 24

True

Question 25

What is The Nominal Interest Rate?

Answer 25

The interest paid by bonds

Question 26

Example of finatial inovation?

Answer 26

ATM, Debit card, Internet banking

Question 27

What is The demand for money?

Answer 27

the relationship between the quantity of real money demanded and the nominal interest rate (when all other influences on the amount of money that people wish to hold remain the same.)

Question 28

If the market interest rate goes up, the previous bond price goes?

Answer 28

down

Question 29

If the market interest rate goes down,the previous bond price will go

Answer 29

up, (because this bond more attractive).

Question 30

A debit card is

Answer 30

not money.

Question 31

Which one of the following items is not included in the M1 definition of money? A) currency outside banks. B) personal chequable deposits C) non-personal chequable deposits D) fixed term deposits

Answer 31

D) fixed term deposits

Question 32

The amount of real money people want to hold will decrease if either real GDP________ or the interest rate ________.

Answer 32

decreases; rises

Question 33

Bonds offer a(n)

Answer 33

fixed stream of payments and a fixed time period.

Question 34

Reserves held by Canadian banks represent ________ percent of the value of all demand deposits.

Answer 34

less than 1

Question 35

an increase in real GDP moves the money demand curve to the?

Answer 35

right

Question 36

An increase in the Monetary Base moves the money supply curve to the?

Answer 36

right

Question 37

if Real GDP is $2,000 billion, the price level is 120 what is Nominal GDP

Answer 37

2000 * 1.2 = 2,400 billion

Question 38

Does the number of loans issued by chartered banks affect the size of the monetary base?

Answer 38

They do not affect the size of the monetary base