29 Questions
What is the main goal of any bank?
To maximize the wealth of its owners
Under which Act are credit unions typically organized?
Cooperative Credit Association Act of 1991
What distinguishes a caisse populaire from a regular credit union?
Caisse populaires are based in Quebec
How do banks balance profit and prudence?
By ensuring deposit interest rates exceed loan interest rates
What kind of organization is a credit union?
Cooperative organization
What is the economic function of banks?
Creating money
What is the main role of the Bank of Canada?
Setting monetary policy
In the context of money, what does 'unit of account' refer to?
A measure for stating prices
What problem does barter face, making it less efficient than using money?
Double coincidence of wants
How does money simplify comparisons according to Table 8.1?
By providing an agreed measure for prices
What is the primary purpose of money as a store of value?
To be held for a time and later exchanged
What happens to the interest rate when the quantity of money is increased by 10 percent according to the text?
Falls
How does the real interest rate change when people buy bonds?
Falls
What happens to consumption expenditure and investment when the real interest rate falls?
Increase
In the new long-run equilibrium after a 10 percent rise in the price level, what has not changed according to the text?
Real GDP
According to the quantity theory of money, what does an increase in the quantity of money bring in the long run?
Equal percentage increase in price level
Which formula is used to represent the velocity of circulation according to the text?
$V = PY ÷ M$
What is the primary aim of financial innovation in the context of depository institutions?
To lower the cost of deposits
What are the two main influences on financial innovation according to the text?
Economic environment and technology
What role does the Bank of Canada play as the lender of last resort?
It makes loans when the banking system is lacking reserves
Why is the Bank of Canada considered the sole issuer of bank notes?
Because it has a monopoly on issuing bank notes
Which assets make up the Bank of Canada's balance sheet as mentioned in the text?
Government securities and reserve loans
In what capacity does the Bank of Canada act as a banker, as stated in the text?
Banker to depository institutions and the government
What are the largest and most important assets on the Bank of Canada's balance sheet?
Canadian government securities
Which of the following forms the monetary base according to the text?
Bank of Canada notes outside the Bank of Canada
What is an open market operation according to the text?
Purchase or sale of government securities by the Bank of Canada in the open market
Which entity holds newly created reserves when the Bank of Canada buys securities?
Banks
What are the main policy tools used by the Bank of Canada to achieve its objectives?
Open market operations and Bank rate
According to Table 8.3 in June 2017, what are the sources of the monetary base?
Bank of Canada's assets
Study Notes
- Money is any commodity accepted as a means of payment, with functions including medium of exchange, unit of account, and store of value.
- Depository institutions in Canada include chartered banks, credit unions, and trust and mortgage loan companies, which aim to maximize wealth by balancing profit and prudence.
- The Bank of Canada serves as the central bank, regulating depository institutions, controlling the quantity of money, and acting as the sole issuer of bank notes.
- The Bank of Canada's balance sheet consists of assets such as government securities and liabilities like bank notes and deposits.
- The monetary base is formed by the Bank of Canada's liabilities, including bank notes, deposits, and coins, with open market operations used to change the monetary base.
- The Bank of Canada uses policy tools like open market operations and the bank rate to achieve its objectives.
- The quantity theory of money states that an increase in the money supply leads to a proportional increase in the price level in the long run, based on the velocity of circulation and the equation of exchange.
This quiz covers the concepts of financial innovation and the role of the Bank of Canada as the central bank. Topics include the aim of financial innovation, influences on financial innovation, and the functions of the Bank of Canada.
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