Question 1

If the Bank of Canada conducts open-market sales, how do the money supply and the aggregate demand change?

Accepted Answer

A)  The money supply increases, and aggregate demand shifts right. 
B)  The money supply increases, and aggregate demand shifts left. 
C)  The money supply decreases, and aggregate demand shifts right. 
D)  The money supply decreases, and aggregate demand shifts left. 
A)  The money supply increases, and aggregate demand shifts right. 
B)  The money supply increases, and aggregate demand shifts left. 
C)  The money supply decreases, and aggregate demand shifts right. 
D)  The money supply decreases, and aggregate demand shifts left.

Question 2

Which of the following factors mostly determines the lag problem associated with monetary policy?

Accepted Answer

A)  the fact that business firms make investment plans far in advance 
B)  the political system of checks and balances that slows down the process of determining monetary policy 
C)  the time it takes for changes in government spending to affect the interest rate 
D)  growth in the money supply is too slow 
A)  the fact that business firms make investment plans far in advance 
B)  the political system of checks and balances that slows down the process of determining monetary policy 
C)  the time it takes for changes in government spending to affect the interest rate 
D)  growth in the money supply is too slow

Question 3

Which action might we logically expect to result from rising stock prices?

Accepted Answer

A)  increased household wealth leading to increased consumption spending 
B)  firms sell fewer shares of new stock 
C)  firms spend less on investment 
D)  people will save more and consume less 
A)  increased household wealth leading to increased consumption spending 
B)  firms sell fewer shares of new stock 
C)  firms spend less on investment 
D)  people will save more and consume less

Question 4

In the short run, a decrease in the money supply causes interest rates and aggregate demand to do what?

Accepted Answer

A)  It causes interest rates to increase and aggregate demand to shift right. 
B)  It causes interest rates to increase and aggregate demand to shift left. 
C)  It causes interest rates to decrease and aggregate demand to shift right. 
D)  It causes interest rates to decrease and aggregate demand to shift left. 
A)  It causes interest rates to increase and aggregate demand to shift right. 
B)  It causes interest rates to increase and aggregate demand to shift left. 
C)  It causes interest rates to decrease and aggregate demand to shift right. 
D)  It causes interest rates to decrease and aggregate demand to shift left.

Question 5

Which of the following is an effect of a decrease in the interest rate?

Accepted Answer

A)  it induces firms to invest less 
B)  it induces households to increase consumption 
C)  people put more money in their savings accounts 
D)  it leads to the appreciation of the exchange rate 
A)  it induces firms to invest less 
B)  it induces households to increase consumption 
C)  people put more money in their savings accounts 
D)  it leads to the appreciation of the exchange rate

Question 6

According to the theory of liquidity preference, what does a decrease in the price level cause the interest rate and investment to do?

Accepted Answer

A)  It causes both the interest rate and investment to rise. 
B)  It causes both the interest rate and investment to fall. 
C)  It causes the interest rate to rise and investment to fall. 
D)  It causes the interest rate to fall and investment to rise. 
A)  It causes both the interest rate and investment to rise. 
B)  It causes both the interest rate and investment to fall. 
C)  It causes the interest rate to rise and investment to fall. 
D)  It causes the interest rate to fall and investment to rise.

Question 7

Stock prices often rise when the Bank of Canada raises interest rates.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following shifts money demand to the left?

Accepted Answer

A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate 
A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate

Question 9

How does a stock market boom affect household spending, and how would the Bank of Canada offset the effects on the price level and real GDP?

Accepted Answer

A)  household spending increases; the Bank of Canada would increase the money supply 
B)  household spending increases; the Bank of Canada would decrease the money supply 
C)  household spending decreases; the Bank of Canada would increase the money supply 
D)  household spending decreases; the Bank of Canada would decrease the money supply 
A)  household spending increases; the Bank of Canada would increase the money supply 
B)  household spending increases; the Bank of Canada would decrease the money supply 
C)  household spending decreases; the Bank of Canada would increase the money supply 
D)  household spending decreases; the Bank of Canada would decrease the money supply

Question 10

In recent years, what has been the predominant method used by the Bank of Canada to alter the money supply?

Accepted Answer

A)  bank reserves 
B)  the monetary growth rate 
C)  the exchange rate 
D)  the bank rate 
A)  bank reserves 
B)  the monetary growth rate 
C)  the exchange rate 
D)  the bank rate

Question 11

If the interest rate is below a central bank's target, what should the central bank do?

Accepted Answer

A)  buy bonds to increase the money supply 
B)  buy bonds to decrease the money supply 
C)  sell bonds to increase the money supply 
D)  sell bonds to decrease the money supply 
A)  buy bonds to increase the money supply 
B)  buy bonds to decrease the money supply 
C)  sell bonds to increase the money supply 
D)  sell bonds to decrease the money supply

Question 12

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)  an increase in the bank rate 
B)  an increase in the price level 
C)  an increase in the money supply 
D)  a decrease in interest rates 
A)  an increase in the bank rate 
B)  an increase in the price level 
C)  an increase in the money supply 
D)  a decrease in interest rates

Question 13

When the interest rate increases, how do the opportunity cost of holding money and the quantity of money demanded change?

Accepted Answer

A)  The opportunity cost of holding money increases, so the quantity of money demanded increases. 
B)  The opportunity cost of holding money increases, so the quantity of money demanded decreases. 
C)  The opportunity cost of holding money decreases, so the quantity of money demanded increases. 
D)  The opportunity cost of holding money decreases, so the quantity of money demanded decreases. 
A)  The opportunity cost of holding money increases, so the quantity of money demanded increases. 
B)  The opportunity cost of holding money increases, so the quantity of money demanded decreases. 
C)  The opportunity cost of holding money decreases, so the quantity of money demanded increases. 
D)  The opportunity cost of holding money decreases, so the quantity of money demanded decreases.

Question 14

If there is excess money demand, what will people do and what happens to the interest rate?

Accepted Answer

A)  People will deposit more into interest-bearing accounts, and the interest rate will fall. 
B)  People will deposit more into interest-bearing accounts, and the interest rate will rise. 
C)  People will withdraw money from interest-bearing accounts, and the interest rate will fall. 
D)  People will withdraw money from interest-bearing accounts, and the interest rate will rise. 
A)  People will deposit more into interest-bearing accounts, and the interest rate will fall. 
B)  People will deposit more into interest-bearing accounts, and the interest rate will rise. 
C)  People will withdraw money from interest-bearing accounts, and the interest rate will fall. 
D)  People will withdraw money from interest-bearing accounts, and the interest rate will rise.

Question 15

In the long run, what do changes in the money supply affect?

Accepted Answer

A)  price level 
B)  output 
C)  unemployment rates 
D)  tax rates 
A)  price level 
B)  output 
C)  unemployment rates 
D)  tax rates

Question 16

According to liquidity-preference theory, why is the money-demand curve downward sloping?

Accepted Answer

A)  because interest rates rise as the Bank of Canada reduces the quantity of money demanded 
B)  because interest rates fall as the Bank of Canada reduces the supply of money 
C)  because people will want to hold less money as the cost of doing so falls 
D)  because people will want to hold more money as the cost of doing so falls 
A)  because interest rates rise as the Bank of Canada reduces the quantity of money demanded 
B)  because interest rates fall as the Bank of Canada reduces the supply of money 
C)  because people will want to hold less money as the cost of doing so falls 
D)  because people will want to hold more money as the cost of doing so falls

Question 17

In a small open economy with a flexible exchange rate, what does a monetary injection by the Bank of Canada cause?

Accepted Answer

A)  the dollar to depreciate 
B)  net exports to fall 
C)  an additional decrease in demand for Canadian-produced goods that is not realized in a closed economy 
D)  a shift of the aggregate demand curve to the right but less than in a closed economy 
A)  the dollar to depreciate 
B)  net exports to fall 
C)  an additional decrease in demand for Canadian-produced goods that is not realized in a closed economy 
D)  a shift of the aggregate demand curve to the right but less than in a closed economy

Question 18

What is characteristic of aggregate demand in Canada?

Accepted Answer

A)  The real exchange-rate effect is nonexistent. 
B)  The interest-rate effect is relatively small. 
C)  The wealth effect is the most important. 
D)  The interest-rate effect is relatively large. 
A)  The real exchange-rate effect is nonexistent. 
B)  The interest-rate effect is relatively small. 
C)  The wealth effect is the most important. 
D)  The interest-rate effect is relatively large.

Question 19

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)  an increase in the price level 
B)  an increase in the money supply 
C)  a decrease in the price level 
D)  a decrease in the money supply 
A)  an increase in the price level 
B)  an increase in the money supply 
C)  a decrease in the price level 
D)  a decrease in the money supply

Question 20

In a small open economy with a flexible exchange rate, what does a monetary contraction by the Bank of Canada cause?

Accepted Answer

A)  the dollar to depreciate 
B)  net exports to fall 
C)  an additional increase in demand for Canadian-produced goods that is not realized in a closed economy 
D)  a shift of the aggregate demand curve further to the right than in a closed economy 
A)  the dollar to depreciate 
B)  net exports to fall 
C)  an additional increase in demand for Canadian-produced goods that is not realized in a closed economy 
D)  a shift of the aggregate demand curve further to the right than in a closed economy

If the Bank of Canada conducts open-market sales, how do the money supply and the aggregate demand change?

Which of the following factors mostly determines the lag problem associated with monetary policy?

Which action might we logically expect to result from rising stock prices?

In the short run, a decrease in the money supply causes interest rates and aggregate demand to do what?

Which of the following is an effect of a decrease in the interest rate?

According to the theory of liquidity preference, what does a decrease in the price level cause the interest rate and investment to do?

Stock prices often rise when the Bank of Canada raises interest rates.

Which of the following shifts money demand to the left?

How does a stock market boom affect household spending, and how would the Bank of Canada offset the effects on the price level and real GDP?

In recent years, what has been the predominant method used by the Bank of Canada to alter the money supply?

If the interest rate is below a central bank's target, what should the central bank do?

Which of the following shifts aggregate demand to the left?

When the interest rate increases, how do the opportunity cost of holding money and the quantity of money demanded change?

If there is excess money demand, what will people do and what happens to the interest rate?

In the long run, what do changes in the money supply affect?

According to liquidity-preference theory, why is the money-demand curve downward sloping?

In a small open economy with a flexible exchange rate, what does a monetary injection by the Bank of Canada cause?

What is characteristic of aggregate demand in Canada?

Which of the following shifts aggregate demand to the left?

In a small open economy with a flexible exchange rate, what does a monetary contraction by the Bank of Canada cause?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 15: The Influence of Monetary Policy on Aggregate Demand

If the Bank of Canada conducts open-market sales, how do the money supply and the aggregate demand change?

Which of the following factors mostly determines the lag problem associated with monetary policy?

Which action might we logically expect to result from rising stock prices?

In the short run, a decrease in the money supply causes interest rates and aggregate demand to do what?

Which of the following is an effect of a decrease in the interest rate?

According to the theory of liquidity preference, what does a decrease in the price level cause the interest rate and investment to do?

Stock prices often rise when the Bank of Canada raises interest rates.

Which of the following shifts money demand to the left?

How does a stock market boom affect household spending, and how would the Bank of Canada offset the effects on the price level and real GDP?

In recent years, what has been the predominant method used by the Bank of Canada to alter the money supply?

If the interest rate is below a central bank's target, what should the central bank do?

Which of the following shifts aggregate demand to the left?

When the interest rate increases, how do the opportunity cost of holding money and the quantity of money demanded change?

If there is excess money demand, what will people do and what happens to the interest rate?

In the long run, what do changes in the money supply affect?

According to liquidity-preference theory, why is the money-demand curve downward sloping?

In a small open economy with a flexible exchange rate, what does a monetary injection by the Bank of Canada cause?

What is characteristic of aggregate demand in Canada?

Which of the following shifts aggregate demand to the left?

In a small open economy with a flexible exchange rate, what does a monetary contraction by the Bank of Canada cause?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters