23. Whene ever actual reserves exceed desired reserves, the bank (a) will lend o

Question

23. Whene ever actual reserves exceed desired reserves, the bank (a) will lend out additional funds. (b) will go out of business (e) needs to call in loans. (d) will borrow funds from another bank. (e) will borrow funds from the Bank of Canada. that commercial banks do not keep excess reserves and that they all have a target reserve ratio of 5 currency in her bank account. As a result, which one of the following statements is correct? percent. Suppose that Ashley deposits $100 in Canadian k reserves would increase by $100, and the M1 money supply would increase Dyank reserves would increase by $10, and the MI money supply (a) Ban l money supply would increase by $2000 Bank by $100. reserves would decrease by S100, and the MI money supply would (c) (d) (e) decrease es would decrease by $100, and the M1 money supply would decrease S ree Bank reserv by $2000. None of the above. The Money Supply The measurement of the money supply varies with the type of deposits that are included. Three money supply measurements are outlined, the most narrowly defined is called MI. MI (currency plus chequable commercial bank deposits) concentrates on the medium-of-exchange function of money. Assets that fulfill adequately the store-of-value function and are readily converted into a medium of exchange but are not themselves a medium of exchange are called near money, and they are included in M2 and M2+. Instruments that serve as media of exchange but are not a store of value are usually called money substitutes. Different measures of the money supply include different types of deposits. The narrowly defined money supply, called M1, includes currency and (a) term deposits. (b) chequable deposits at commercial banks. (c) all deposits at commercial banks (d) personal savings and term deposits at all credit unions and trust companies. (e) foreign currency deposits. 25. A money substitute is something that serves as a (a) (b) (c) (d) (e) 26. store of value. unit of account. medium of exchange but not as a store of value. medium of exchange and also as a store of value. medium of exchange and a unit of account. 27. Which of the following would qualify as "near money (a) A chequable deposit at a commercial bank. (b) A Bank of Canada note. (c) A term deposit (d) A credit card (e) A loonie coin. e credit Posi CHAPTER 27: MONEY AND BANKING 259

Explanation / Answer

23) Ans)c) needs to call in loans

Reason- As it has extra reserves and can provide more loans to customers.

24)Ans) e) None of the above

Reason- As the reserves will increase by 5% of 100= 5$ and M1 will increase by 95$

25)Ans) b) chequeable deposit at commecial bank.

Reason- by definition of M1

26) Ans) d) medium of exchange and also a store of value.

Reason- The substitute should possess the quality of money and should have some value attched to it and should be a excange medium.

27) Ans) c) Term deposit

Reason-As it can be converted into cash easily.

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