Question : 111) Suppose that the cash drain in the banking system : 1384450

111) Suppose that the cash drain in the banking system increases during holiday periods. As a result,

A) the capacity of the banking system to create deposit money is dampened during holiday periods.

B) the capacity of the banking system to create deposit money is increased during holiday periods.

C) commercial banks decrease their target reserve ratios.

D) changes in reserves will result in no change in deposits during holiday periods.

E) the money supply will automatically increase.

112) When discussing the banking system, a cash drain of 5% means that

A) 5% of an initial new deposit to the banking system is paid in banking fees and is therefore not available for the creation of new deposit money.

B) depositors wish to hold 5% of the value of their deposits in cash.

C) 5% of an initial new deposit to the banking system is payable as a financial services tax.

D) 95% of an initial new deposit is maintained as cash reserves by the commercial bank.

E) depositors wish to hold 95% of the value of their deposits in cash.

113) In reality, the reserve ratio for Canadian commercial banks is close to ________%, which means that the deposit creation process is ________.

A) 0.1; extremely powerful

B) 5; powerful

C) 20; similar to that discussed in the text

D) 50; weak

E) 100; very weak

114) Suppose a student deposits into a downtown bank a $200 cheque that she received from her parents in the suburbs. This transaction alone would

A) decrease the money supply.

B) not change the money supply.

C) increase the money supply by an indeterminate amount.

D) increase the money supply by $1000 if the target reserve ratio was 20%.

E) decrease the money supply by $1000 if the target reserve ratio was 20%.

115) The money supply in Canada is measured using M1, M2, M2+, and M3. The reason there are so many measures of the money supply is that

A) the Bank of Canada wants to confuse the general public.

B) different kinds of bank accounts represent different functions of money, and so the various measures are used to reflect these different functions.

C) the money supply is too large to have only one measurement.

D) only the newer and broader measurements are correct but the older measurements are still used so that historical comparisons are possible.

E) it is a convenient way for provincial and federal governments to hide their budgetary surpluses.

116) Until recently, and for many years, the common definition of the money supply used by the Bank of Canada was M1, which included currency in circulation plus

A) chequable deposits at the chartered banks.

B) chequable deposits and savings accounts at the chartered banks.

C) savings accounts and demand loans.

D) term deposits and money market funds.

E) chequable deposits at all financial institutions.

117) As a measure of the Canadian money supply, M2+ is defined as currency in circulation plus

A) all chequable deposits.

B) notice deposits at all financial institutions.

C) savings deposits at the chartered banks and non-bank financial institutions.

D) term deposits and money market funds at all financial institutions.

E) term deposits, money market funds and personal savings accounts.

118) The main distinction between M2 and M2+ is that M2+ also includes

A) deposits at trust companies, caisse populaires and foreign-currency accounts.

B) coins in circulation.

C) money market mutual funds held by the Bank of Canada.

D) paper currency.

E) deposits at financial institutions other than the chartered banks.

119) The concept of “near money” refers to

A) money substitutes such as credit cards.

B) cheques on demand deposits.

C) financial assets whose capital values are too unstable for them to be classified as money.

D) assets that fulfill the temporary store-of-value function but not the medium-of-exchange function.

E) assets that fulfill the medium-of-exchange function but not the store of value function.

120) Credit cards are considered to be “money substitutes” instead of money because

A) they are not acceptable to pay for purchases.

B) they cannot serve as a temporary medium of exchange.

C) the only function of money they can perform is to serve as a store of value.

D) money must eventually be used to pay for the transaction.

E) credit card accounts are not chequable.

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July 1, 2023

Multiple Choice Questions

66.A merchandiser:

A.Earns net income by buying and selling merchandise.

B.Receives fees only in exchange for services.

C.Earns profit from commissions only.

D.Earns profit from fares only.

E.Buys products from consumers.

67.Cost of goods sold:

A.Is another term for merchandise sales.

B.Is the term used for the expense of buying and preparing merchandise for sale.

C.Is another term for revenue.

D.Is also called gross margin.

E.Is a term only used by service firms.

68.A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:

A.$(417,000).

B.$695,000.

C.$278,000.

D.$417,000.

E.$973,000.

69.A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals:

A.$(217,000).

B.$375,000.

C.$157,500.

D.$217,500.

E.$532,500.

70.The following statements regarding gross profit are true except:

A.Gross profit is also called gross margin.

B.Gross profit less other operating expenses equals income from operations.

C.Gross profit is not calculated on the multiple-step income statement.

D.Gross profit must cover all operating expenses to yield a return for the owner of the business.

E.Gross profit equals net sales less cost of goods sold.

71.The following statements regarding merchandise inventory are true except:

A.Merchandise inventory is reported on the balance sheet as a current asset.

B.Merchandise inventory refers to products a company owns and intends to sell.

C.Merchandise inventory may include the costs of freight in and making them ready for sale.

D.Merchandise inventory appears on the balance sheet of a service company.

E.Purchasing merchandise inventory is part of the operating cycle for a business.

72.The following statements are true regarding the operating cycle of a merchandising company except:

A.The operating cycle begins with the purchase of merchandise.

B.The operating cycle is shortened by credit sales.

C.The operating cycle ends with the collection of cash from the sale of merchandise.

D.The operating cycle can vary in length among different merchandising companies.

E.The operating cycle sometimes involves accounts receivable.

73.Merchandise inventory:

A.Is a long-term asset.

B.Is a current asset.

C.Includes supplies the company will use in future periods.

D.Is classified with investments on the balance sheet.

E.Must be sold within one month.

74.The operating cycle for a merchandiser that sells only for cash moves from:

A.Purchases of merchandise to inventory to cash sales.

B.Purchases of merchandise to inventory to accounts receivable to cash sales.

C.Inventory to purchases of merchandise to cash sales.

D.Accounts receivable to purchases of merchandise to inventory to cash sales.

E.Accounts receivable to inventory to cash sales.

75.The current period's ending inventory is:

A.The next period's beginning inventory.

B.The current period's cost of goods sold.

C.The prior period's beginning inventory.

D.The current period's net purchases.

E.The current period's beginning inventory.