The reservedeposit ratios of the banks in a country are dete

The reserve-deposit ratios of the banks in a country are determined

a.

Entirely by the country’s central bank.

b.

Entirely by the country’s deposit insurance entity.

c.

By the business policies of the banks and the country’s bank regulation procedures.

d.

Preferences of the country’s households about the form of money they wish to hold.

QUESTION 2

An economy’s money supply is ________ to the average reserve ratio of its banks.

a.

unrelated

b.

directly related

c.

inversely related

d.

ambiguously related (directly or inversely, depending on the situation)

QUESTION 3

A bank’s balance sheet shows the following information:

Deposits

$7,000

Reserves

$700

Securities

$3,300

Debt

$2,300

Loans

$6,000

What is the bank\'s leverage ratio?

a.

0.05

b.

0.07

c.

0.09

d.

0.10

e.

0.23

QUESTION 4

The leverage ratios of U.S. banks are much lower than those of their peers in Canada. What is the implication of this difference in leverage ratios for the relative cost of intermediation and the stability of the banking systems in the two countries?

a.

The cost of intermediation and the stability of the banking systems are lower in the US.

b.

The cost of intermediation and the stability of the banking systems are higher in the US.

c.

The cost of intermediation is higher and the stability of the banking systems is lower in the US.

d.

The cost of intermediation is lower and the stability of the banking systems is higher in the US.

QUESTION 7

When the central bank increases the money supply, the LM curve

a.

becomes flatter.

b.

becomes steeper.

c.

remains unchanged.

d.

may become flatter or steeper depending on the situation.

	a.	Entirely by the country’s central bank.
	b.	Entirely by the country’s deposit insurance entity.
	c.	By the business policies of the banks and the country’s bank regulation procedures.
	d.	Preferences of the country’s households about the form of money they wish to hold.

Solution

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