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When the Bank of Canada buys $100 worth of bonds from First National Bank, reserves in
the banking system ____.
A) increase by $100
B) increase by more than $100
C) decrease by $100
D) decrease by more than $100
Answer: A
Diff: 1 Type: MC Page Ref: 378 - 379
Skill: Applied
Objective List: 16.2 Discern who controls the monetary base and what causes it to change
When the Bank of Canada sells $100 worth of bonds to First National Bank, reserves in the
banking system ____.
A) increase by $100
B) increase by more than $100
C) decrease by $100
D) decrease by more than $100
Answer: C
Diff: 1 Type: MC Page Ref: 380
Skill: Applied
Objective List: 16.2 Discern who controls the monetary base and what causes it to change
If a person selling bonds to the Bank of Canada cashes the Bank's cheque, then reserves
____ and currency in circulation ____, everything else held constant.
A) remain unchanged; declines
B) remain unchanged; increases
C) decline; remains unchanged
D) increase; remains unchanged
Answer: B
Diff: 2 Type: MC Page Ref: 378 - 380
Skill: Recall
Objective List: 16.2 Discern who controls the monetary base and what causes it to change
The effect of an open market purchase on reserves differs depending on how the seller of the
bonds keeps the proceeds. If the proceeds are kept in ____, the open market purchase has no
effect on reserves; if the proceeds are kept as ____, reserves increase by the amount of the
open market purchase.
A) deposits; deposits
B) deposits; currency
C) currency; deposits
D) currency; currency
Answer: C
Diff: 2 Type: MC Page Ref: 380
Skill: Recall
Objective List: 16.2 Discern who controls the monetary base and what causes it to change