Question 1

To implement the Friedman rule, the monetary authority needs to set the money growth rate so that

Accepted Answer

A) x = -r. B) x > r. C) x < -r. D) x = r. E) x = -r + i. A) x = -r. B) x > r. C) x < -r. D) x = r. E) x = -r + i.

Question 2

An increase in the inflation rate shifts the labour

Accepted Answer

A)  supply curve to the right. 
B)  supply curve to the left. 
C)  demand curve to the right. 
D)  demand curve to the left. 
E)  supply curve to the left and the output supply curve to the right. 
A)  supply curve to the right. 
B)  supply curve to the left. 
C)  demand curve to the right. 
D)  demand curve to the left. 
E)  supply curve to the left and the output supply curve to the right.

Question 3

The Diamond Dybvig model does not

Accepted Answer

A)  provide an account of bank runs in the 19th century United States. 
B)  provide an account of bank runs in Canada. 
C)  explain asset transformation. 
D)  explain why a financial intermediary is diversified. 
E)  show why a run can occur on an otherwise sound bank. 
A)  provide an account of bank runs in the 19th century United States. 
B)  provide an account of bank runs in Canada. 
C)  explain asset transformation. 
D)  explain why a financial intermediary is diversified. 
E)  show why a run can occur on an otherwise sound bank.

Question 4

In the Diamond Dybvig model, a bank run occurs when

Accepted Answer

A)  depositors think the bank managers have absconded with the bank's assets. 
B)  depositors see other depositors running on other banks. 
C)  depositors think that everyone else will request withdrawal. 
D)  depositors think the central bank cannot be trusted. 
E)  the banks suspends payments. 
A)  depositors think the bank managers have absconded with the bank's assets. 
B)  depositors see other depositors running on other banks. 
C)  depositors think that everyone else will request withdrawal. 
D)  depositors think the central bank cannot be trusted. 
E)  the banks suspends payments.

Question 5

Moral hazard is a problem in providing deposit insurance because insured banks are

Accepted Answer

A)  more likely to make bookkeeping errors. 
B)  overly cautious due to extra regulations adopted by the Canada Deposit Insurance Corporation. 
C)  more likely to provide bank managers with lavish perquisites. 
D)  encouraged to take on more risk. 
E)  more likely to offer interest rates on loans that are greater than market interest rates. 
A)  more likely to make bookkeeping errors. 
B)  overly cautious due to extra regulations adopted by the Canada Deposit Insurance Corporation. 
C)  more likely to provide bank managers with lavish perquisites. 
D)  encouraged to take on more risk. 
E)  more likely to offer interest rates on loans that are greater than market interest rates.

Question 6

According to Thomas Sargent, a key to stopping a hyperinflation is to

Accepted Answer

A)  reduce the money supply. 
B)  increase the money supply. 
C)  dramatically increase nominal interest rates. 
D)  gain control over fiscal policy by reducing the government deficit. 
E)  slow the economy by reducing government spending and/or raising taxes. 
A)  reduce the money supply. 
B)  increase the money supply. 
C)  dramatically increase nominal interest rates. 
D)  gain control over fiscal policy by reducing the government deficit. 
E)  slow the economy by reducing government spending and/or raising taxes.

Question 7

Some of the most renowned examples of hyperinflation occurred in Austria, Hungary, Germany and Poland shortly after

Accepted Answer

A)  the collapse of the Austro-Hungarian Empire. 
B)  World War I. 
C)  World War II. 
D)  the fall of the Berlin Wall. 
E)  the Great Depression. 
A)  the collapse of the Austro-Hungarian Empire. 
B)  World War I. 
C)  World War II. 
D)  the fall of the Berlin Wall. 
E)  the Great Depression.

Question 8

A consumer is said to be risk-averse when the consumer

Accepted Answer

A)  purchases assets with a zero nominal interest rate. 
B)  prefers to hold assets with more non-diversified risk. 
C)  prefers to hold assets with less non-diversified risk. 
D)  prefers to not purchase a portfolio of assets. 
E)  purchases assets with maturities of less than one year. 
A)  purchases assets with a zero nominal interest rate. 
B)  prefers to hold assets with more non-diversified risk. 
C)  prefers to hold assets with less non-diversified risk. 
D)  prefers to not purchase a portfolio of assets. 
E)  purchases assets with maturities of less than one year.

Question 9

In the Diamond-Dybvig model, the bank's deposit contract has the following important features:

Accepted Answer

A)  it allows a bank depositor to withdraw currency. 
B)  it insures depositors against the event that they consume early. 
C)  it implies that late consumers want to pose as early consumers. 
D)  it implies a bank run is prevented. 
E)  it gives more consumption to early consumers than later consumers. 
A)  it allows a bank depositor to withdraw currency. 
B)  it insures depositors against the event that they consume early. 
C)  it implies that late consumers want to pose as early consumers. 
D)  it implies a bank run is prevented. 
E)  it gives more consumption to early consumers than later consumers.

Question 10

The Diamond-Dybvig bank provides a useful social service because

Accepted Answer

A)  it is forced to do so by the government. 
B)  it is immune from bank runs. 
C)  it holds liquid assets. 
D)  it is well-diversified. 
E)  it participates in interbank markets. 
A)  it is forced to do so by the government. 
B)  it is immune from bank runs. 
C)  it holds liquid assets. 
D)  it is well-diversified. 
E)  it participates in interbank markets.

Question 11

The founding of the Canada Deposit Insurance Corporation (CDIC)was much later than deposit insurance arrangements in other countries because

Accepted Answer

A)  Canada's banking system started so much later. 
B)  Canada did not experience the episodes of widespread bank failure and banking panics. 
C)  Canada had a weak reactive government. 
D)  Canadian banks are so much smaller. 
E)  Canadian banks are relatively large and well diversified geographically. 
A)  Canada's banking system started so much later. 
B)  Canada did not experience the episodes of widespread bank failure and banking panics. 
C)  Canada had a weak reactive government. 
D)  Canadian banks are so much smaller. 
E)  Canadian banks are relatively large and well diversified geographically.

Question 12

The optimal trade-off between current consumption goods and future consumption goods is expressed as

Accepted Answer

A)  MRSC,C' = 1 + R. 
B)  MRSC,C' = 1 + r. 
C)  MRSC,C' = $ \frac{(1+R)}{(1+r)} $ 
D)  MRSC,C' = 1 + i. 
E)  MRS1,C' $ \frac{P^{\prime} w}{P^{\prime}(1+r)} $ 
A)  MRSC,C' = 1 + R. 
B)  MRSC,C' = 1 + r. 
C)  MRSC,C' = $ \frac{(1+R)}{(1+r)} $ 
D)  MRSC,C' = 1 + i. 
E)  MRS1,C' $ \frac{P^{\prime} w}{P^{\prime}(1+r)} $

Question 13

The cheque-clearing system is

Accepted Answer

A)  only found in the United States. 
B)  one mechanism by which consumers carry out exchanges. 
C)  one mechanism by which banks carry out exchanges with each other. 
D)  includes debit card transactions. 
E)  slowly being replaced by credit cards. 
A)  only found in the United States. 
B)  one mechanism by which consumers carry out exchanges. 
C)  one mechanism by which banks carry out exchanges with each other. 
D)  includes debit card transactions. 
E)  slowly being replaced by credit cards.

Question 14

A liquidity trap is where

Accepted Answer

A)  real interest rates are greater than nominal interest rates. 
B)  nominal interest rates are greater than real interest rates. 
C)  real interest rates are zero. 
D)  nominal interest rates on government securities are zero. 
E)  capital influences are less than capital outflows. 
A)  real interest rates are greater than nominal interest rates. 
B)  nominal interest rates are greater than real interest rates. 
C)  real interest rates are zero. 
D)  nominal interest rates on government securities are zero. 
E)  capital influences are less than capital outflows.

Question 15

The nominal interest rate affects the opportunity cost of leisure because

Accepted Answer

A)  of the delay in when a consumer works and when they can spend the wage income. 
B)  the substitution effect dominates the income effect. 
C)  the income effect dominates the substitution effect. 
D)  there is no delay in when the consumer works and can spend the wage income. 
E)  additional leisure requires the consumer to borrow. 
A)  of the delay in when a consumer works and when they can spend the wage income. 
B)  the substitution effect dominates the income effect. 
C)  the income effect dominates the substitution effect. 
D)  there is no delay in when the consumer works and can spend the wage income. 
E)  additional leisure requires the consumer to borrow.

Question 16

An alternative way to achieve some of the benefits if the Friedman rule would be to

Accepted Answer

A)  suspend paying interest on the national debt. 
B)  pay interest on the component of outside money held by financial institutions as deposits at the Bank of Canada. 
C)  adopt a fixed exchange rate. 
D)  prohibit the central bank from conducting open-market operations. 
E)  reduce inflation rates to zero. 
A)  suspend paying interest on the national debt. 
B)  pay interest on the component of outside money held by financial institutions as deposits at the Bank of Canada. 
C)  adopt a fixed exchange rate. 
D)  prohibit the central bank from conducting open-market operations. 
E)  reduce inflation rates to zero.

Question 17

Problems with the use of commodity money include all of the following except

Accepted Answer

A)  it is expensive to produce. 
B)  there is an opportunity of fraud in the production of commodity money. 
C)  bits could be clipped off coins and melted down without detection. 
D)  it carries a high opportunity cost because the commodity could not be diverted from other uses. 
E)  there are several good substitutes. 
A)  it is expensive to produce. 
B)  there is an opportunity of fraud in the production of commodity money. 
C)  bits could be clipped off coins and melted down without detection. 
D)  it carries a high opportunity cost because the commodity could not be diverted from other uses. 
E)  there are several good substitutes.

Question 18

Examples of financial intermediaries include

Accepted Answer

A)  insurance companies. 
B)  credit markets. 
C)  financial markets. 
D)  stock exchanges. 
E)  mutual funds. 
A)  insurance companies. 
B)  credit markets. 
C)  financial markets. 
D)  stock exchanges. 
E)  mutual funds.

Question 19

The Friedman rule describes optimal monetary policy and is

Accepted Answer

A)  always followed in practice by central banks. 
B)  too difficult to implement in practice. 
C)  never followed in practice by central banks. 
D)  a policy central banks would like to follow but do not know how to. 
E)  only followed by central banks during expansions. 
A)  always followed in practice by central banks. 
B)  too difficult to implement in practice. 
C)  never followed in practice by central banks. 
D)  a policy central banks would like to follow but do not know how to. 
E)  only followed by central banks during expansions.

Question 20

The most likely cause of a hyperinflation is

Accepted Answer

A)  central bank incompetence. 
B)  the inability to finance government spending through taxation or borrowing. 
C)  an acute shortage of natural resources. 
D)  over-aggressive labour unions. 
E)  rising commodity prices. 
A)  central bank incompetence. 
B)  the inability to finance government spending through taxation or borrowing. 
C)  an acute shortage of natural resources. 
D)  over-aggressive labour unions. 
E)  rising commodity prices.

To implement the Friedman rule, the monetary authority needs to set the money growth rate so that

An increase in the inflation rate shifts the labour

The Diamond Dybvig model does not

In the Diamond Dybvig model, a bank run occurs when

Moral hazard is a problem in providing deposit insurance because insured banks are

According to Thomas Sargent, a key to stopping a hyperinflation is to

Some of the most renowned examples of hyperinflation occurred in Austria, Hungary, Germany and Poland shortly after

A consumer is said to be risk-averse when the consumer

In the Diamond-Dybvig model, the bank's deposit contract has the following important features:

The Diamond-Dybvig bank provides a useful social service because

The founding of the Canada Deposit Insurance Corporation (CDIC)was much later than deposit insurance arrangements in other countries because

The optimal trade-off between current consumption goods and future consumption goods is expressed as

The cheque-clearing system is

A liquidity trap is where

The nominal interest rate affects the opportunity cost of leisure because

An alternative way to achieve some of the benefits if the Friedman rule would be to

Problems with the use of commodity money include all of the following except

Examples of financial intermediaries include

The Friedman rule describes optimal monetary policy and is

The most likely cause of a hyperinflation is

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Filters

Exam 18: Money, Inflation, and Banking: A Deeper Look

To implement the Friedman rule, the monetary authority needs to set the money growth rate so that

An increase in the inflation rate shifts the labour

The Diamond Dybvig model does not

In the Diamond Dybvig model, a bank run occurs when

Moral hazard is a problem in providing deposit insurance because insured banks are

According to Thomas Sargent, a key to stopping a hyperinflation is to

Some of the most renowned examples of hyperinflation occurred in Austria, Hungary, Germany and Poland shortly after

A consumer is said to be risk-averse when the consumer

In the Diamond-Dybvig model, the bank's deposit contract has the following important features:

The Diamond-Dybvig bank provides a useful social service because

The founding of the Canada Deposit Insurance Corporation (CDIC)was much later than deposit insurance arrangements in other countries because

The optimal trade-off between current consumption goods and future consumption goods is expressed as

The cheque-clearing system is

A liquidity trap is where

The nominal interest rate affects the opportunity cost of leisure because

An alternative way to achieve some of the benefits if the Friedman rule would be to

Problems with the use of commodity money include all of the following except

Examples of financial intermediaries include

The Friedman rule describes optimal monetary policy and is

The most likely cause of a hyperinflation is

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behaviour: The Work–Leisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity among Countries and Endogenous Growth

A Two-Period Model: The Consumption–Savings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model with Investment

A Monetary Intertemporal Model: Money, Banking, Prices, and Monetary Policy

Business Cycle Models with Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Filters