Question 1

Figure 15-1  
-Refer to Figure 15-1. At which interest rate is there an excess money supply?

Accepted Answer

A)  0 percent 
B)  2 percent 
C)  3 percent 
D)  4 percent 
A)  0 percent 
B)  2 percent 
C)  3 percent 
D)  4 percent

Question 2

Figure 15-1  
-Refer to Figure 15-1. What will happen if the current interest rate is 4 percent?

Accepted Answer

A)  People will buy more bonds, which drives interest rates down. 
B)  People will sell more bonds, which drives interest rates up. 
C)  People will buy more bonds, which drives interest rates up. 
D)  People will sell more bonds, which drives the interest rates down. 
A)  People will buy more bonds, which drives interest rates down. 
B)  People will sell more bonds, which drives interest rates up. 
C)  People will buy more bonds, which drives interest rates up. 
D)  People will sell more bonds, which drives the interest rates down.

Question 3

Figure 15-1  
-Refer to Figure 15-1. What is most likely to happen if the interest rate is equal to 4?

Accepted Answer

A)  There is an excess demand for money, and the interest rate will fall. 
B)  There is an excess supply of money, and the interest rate will rise. 
C)  There is an excess demand for money, and the interest rate will rise. 
D)  There is an excess supply of money, and the interest rate will fall. 
A)  There is an excess demand for money, and the interest rate will fall. 
B)  There is an excess supply of money, and the interest rate will rise. 
C)  There is an excess demand for money, and the interest rate will rise. 
D)  There is an excess supply of money, and the interest rate will fall.

Question 4

If expected inflation is constant and the nominal interest rate increases, how does the real interest rate change?

Accepted Answer

A)  It increases by more than the change in the nominal interest rate. 
B)  It increases by the change in the nominal interest rate. 
C)  It decreases by the change in the nominal interest rate. 
D)  It decreases by more than the change in the nominal interest rate. 
A)  It increases by more than the change in the nominal interest rate. 
B)  It increases by the change in the nominal interest rate. 
C)  It decreases by the change in the nominal interest rate. 
D)  It decreases by more than the change in the nominal interest rate.

Question 5

If at some interest rate the quantity of money supplied is greater than the quantity of money demanded, what will people desire to do and what happens to the interest rate?

Accepted Answer

A)  People will sell interest-bearing assets, causing the interest rate to decrease. 
B)  People will sell interest-bearing assets, causing the interest rate to increase. 
C)  People will buy interest-bearing assets, causing the interest rate to decrease. 
D)  People will buy interest-bearing assets, causing the interest rate to increase. 
A)  People will sell interest-bearing assets, causing the interest rate to decrease. 
B)  People will sell interest-bearing assets, causing the interest rate to increase. 
C)  People will buy interest-bearing assets, causing the interest rate to decrease. 
D)  People will buy interest-bearing assets, causing the interest rate to increase.

Question 6

According to liquidity-preference theory, what is the opportunity cost of holding money?

Accepted Answer

A)  the interest rate on bonds 
B)  the inflation rate 
C)  the cost of currency exchange 
D)  the difference between the inflation rate and the interest rate on bonds 
A)  the interest rate on bonds 
B)  the inflation rate 
C)  the cost of currency exchange 
D)  the difference between the inflation rate and the interest rate on bonds

Question 7

For Canada, the most important reason for the downward slope of the aggregate demand curve is the real exchange-rate effect.

Accepted Answer

A) True 
 B)False

Question 8

How do open-market sales affect the price level and real GDP?

Accepted Answer

A)  They increase the price level and real GDP. 
B)  They decrease the price level and real GDP. 
C)  They increase the price level and decrease real GDP. 
D)  They decrease the price level and increase real GDP. 
A)  They increase the price level and real GDP. 
B)  They decrease the price level and real GDP. 
C)  They increase the price level and decrease real GDP. 
D)  They decrease the price level and increase real GDP.

Question 9

The wealth effect helps explain the downward slope of the aggregate-demand curve. How important is this effect and why?

Accepted Answer

A)  It is relatively important in Canada because expenditures on consumer durables is very responsive to changes in wealth. 
B)  It is relatively important in Canada because consumption spending is a large part of GDP. 
C)  It is relatively unimportant in Canada because money holdings are a small part of consumer wealth. 
D)  It is relatively unimportant in Canada because it takes a large change in wealth to make a significant change in interest rates. 
A)  It is relatively important in Canada because expenditures on consumer durables is very responsive to changes in wealth. 
B)  It is relatively important in Canada because consumption spending is a large part of GDP. 
C)  It is relatively unimportant in Canada because money holdings are a small part of consumer wealth. 
D)  It is relatively unimportant in Canada because it takes a large change in wealth to make a significant change in interest rates.

Question 10

Which statement does NOT accurately explain the slope of the aggregate-demand curve?

Accepted Answer

A)  When interest rates fall, Phil decides to buy some new farm equipment. 
B)  The exchange rate falls, so Americans import more wheat from Canada. 
C)  Jake feels wealthier because of the price drop, so he decides to buy a new pick-up truck. 
D)  With prices down and wages fixed by contract, Rocky's gravel pit decides to lay off workers. 
A)  When interest rates fall, Phil decides to buy some new farm equipment. 
B)  The exchange rate falls, so Americans import more wheat from Canada. 
C)  Jake feels wealthier because of the price drop, so he decides to buy a new pick-up truck. 
D)  With prices down and wages fixed by contract, Rocky's gravel pit decides to lay off workers.

Question 11

If the stock market crashes, what would be the effect on aggregate demand and how could the Bank of Canada offset those effects?

Accepted Answer

A)  aggregate demand increases; by increasing the money supply 
B)  aggregate demand increases; by decreasing the money supply 
C)  aggregate demand decreases; by increasing the money supply 
D)  aggregate demand decreases; by decreasing the money supply 
A)  aggregate demand increases; by increasing the money supply 
B)  aggregate demand increases; by decreasing the money supply 
C)  aggregate demand decreases; by increasing the money supply 
D)  aggregate demand decreases; by decreasing the money supply

Question 12

For the Canadian economy, what is the least important of the three reasons for the downward slope of the aggregate-demand curve?

Accepted Answer

A)  wealth effect 
B)  interest-rate effect 
C)  exchange-rate effect 
D)  real-wage effect 
A)  wealth effect 
B)  interest-rate effect 
C)  exchange-rate effect 
D)  real-wage effect

Question 13

In a small open economy with a flexible exchange rate, what does a monetary injection cause?

Accepted Answer

A)  It causes the dollar to appreciate. 
B)  It causes net exports to decline. 
C)  It causes an additional decrease in demand for Canadian-produced goods that is not realized in a closed economy. 
D)  It causes a shift of the aggregate demand curve farther to the right than in a closed economy. 
A)  It causes the dollar to appreciate. 
B)  It causes net exports to decline. 
C)  It causes an additional decrease in demand for Canadian-produced goods that is not realized in a closed economy. 
D)  It causes a shift of the aggregate demand curve farther to the right than in a closed economy.

Question 14

What was Alan Greenspan, the former U.S. Federal Reserve Chairman, referring to when he called it "irrational exuberance"?

Accepted Answer

A)  the pharmaceutical industry 
B)  the U.S. House of Representatives 
C)  the stock market 
D)  small town America 
A)  the pharmaceutical industry 
B)  the U.S. House of Representatives 
C)  the stock market 
D)  small town America

Question 15

What is the effect of a stock market boom, and how could the Bank of Canada offset that effect?

Accepted Answer

A)  Aggregate demand increases, which Bank of Canada could offset by increasing the money supply. 
B)  Aggregate supply increases, which Bank of Canada could offset by increasing the money supply. 
C)  Aggregate demand increases, which Bank of Canada could offset by decreasing the money supply. 
D)  Aggregate supply increases, which Bank of Canada could offset by decreasing the money supply. 
A)  Aggregate demand increases, which Bank of Canada could offset by increasing the money supply. 
B)  Aggregate supply increases, which Bank of Canada could offset by increasing the money supply. 
C)  Aggregate demand increases, which Bank of Canada could offset by decreasing the money supply. 
D)  Aggregate supply increases, which Bank of Canada could offset by decreasing the money supply.

Question 16

Which statement is consistent with the long-run theories studied?

Accepted Answer

A)  In the long run, output responds to the aggregate demand and supply of goods and services; the interest rate adjusts to balance the supply and demand for money; and the price level adjusts to balance the supply and demand for loanable funds. 
B)  In the long run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money. 
C)  In the long run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level is stuck. 
D)  In the long run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money. 
A)  In the long run, output responds to the aggregate demand and supply of goods and services; the interest rate adjusts to balance the supply and demand for money; and the price level adjusts to balance the supply and demand for loanable funds. 
B)  In the long run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money. 
C)  In the long run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level is stuck. 
D)  In the long run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.

Question 17

If at some interest rate the quantity of money demanded is greater than the quantity of money supplied, what will people desire to do and what will happen to the interest rate?

Accepted Answer

A)  People will sell interest-bearing assets, causing the interest rate to decrease. 
B)  People will sell interest-bearing assets, causing the interest rate to increase. 
C)  People will buy interest-bearing assets, causing the interest rate to decrease. 
D)  People will buy interest-bearing assets, causing the interest rate to increase. 
A)  People will sell interest-bearing assets, causing the interest rate to decrease. 
B)  People will sell interest-bearing assets, causing the interest rate to increase. 
C)  People will buy interest-bearing assets, causing the interest rate to decrease. 
D)  People will buy interest-bearing assets, causing the interest rate to increase.

Question 18

Why are monetary authorities concerned about stock market booms?

Accepted Answer

A)  because the booms decrease consumption spending 
B)  because the booms decrease investment spending 
C)  because the booms increase consumption spending 
D)  because the booms increase government deficit 
A)  because the booms decrease consumption spending 
B)  because the booms decrease investment spending 
C)  because the booms increase consumption spending 
D)  because the booms increase government deficit

Question 19

When the Bank of Canada sells government bonds, how do the reserves of the banking system change and what happens to the money supply?

Accepted Answer

A)  The reserves increase, so the money supply increases. 
B)  The reserves increase, so the money supply decreases. 
C)  The reserves decrease, so the money supply increases. 
D)  The reserves decrease, so the money supply decreases. 
A)  The reserves increase, so the money supply increases. 
B)  The reserves increase, so the money supply decreases. 
C)  The reserves decrease, so the money supply increases. 
D)  The reserves decrease, so the money supply decreases.

Question 20

Use the money market to explain why the aggregate demand curve slopes downward.

Accepted Answer

When the price level falls, people need

Figure 15-1 -Refer to Figure 15-1. At which interest rate is there an excess money supply?

Figure 15-1 -Refer to Figure 15-1. What will happen if the current interest rate is 4 percent?

Figure 15-1 -Refer to Figure 15-1. What is most likely to happen if the interest rate is equal to 4?

If expected inflation is constant and the nominal interest rate increases, how does the real interest rate change?

If at some interest rate the quantity of money supplied is greater than the quantity of money demanded, what will people desire to do and what happens to the interest rate?

According to liquidity-preference theory, what is the opportunity cost of holding money?

For Canada, the most important reason for the downward slope of the aggregate demand curve is the real exchange-rate effect.

How do open-market sales affect the price level and real GDP?

The wealth effect helps explain the downward slope of the aggregate-demand curve. How important is this effect and why?

Which statement does NOT accurately explain the slope of the aggregate-demand curve?

If the stock market crashes, what would be the effect on aggregate demand and how could the Bank of Canada offset those effects?

For the Canadian economy, what is the least important of the three reasons for the downward slope of the aggregate-demand curve?

In a small open economy with a flexible exchange rate, what does a monetary injection cause?

What was Alan Greenspan, the former U.S. Federal Reserve Chairman, referring to when he called it "irrational exuberance"?

What is the effect of a stock market boom, and how could the Bank of Canada offset that effect?

Which statement is consistent with the long-run theories studied?

If at some interest rate the quantity of money demanded is greater than the quantity of money supplied, what will people desire to do and what will happen to the interest rate?

Why are monetary authorities concerned about stock market booms?

When the Bank of Canada sells government bonds, how do the reserves of the banking system change and what happens to the money supply?

Use the money market to explain why the aggregate demand curve slopes downward.

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

Figure 15-1 -Refer to Figure 15-1. At which interest rate is there an excess money supply?

Figure 15-1 -Refer to Figure 15-1. What will happen if the current interest rate is 4 percent?

Figure 15-1 -Refer to Figure 15-1. What is most likely to happen if the interest rate is equal to 4?

If expected inflation is constant and the nominal interest rate increases, how does the real interest rate change?

If at some interest rate the quantity of money supplied is greater than the quantity of money demanded, what will people desire to do and what happens to the interest rate?

According to liquidity-preference theory, what is the opportunity cost of holding money?

For Canada, the most important reason for the downward slope of the aggregate demand curve is the real exchange-rate effect.

How do open-market sales affect the price level and real GDP?

The wealth effect helps explain the downward slope of the aggregate-demand curve. How important is this effect and why?

Which statement does NOT accurately explain the slope of the aggregate-demand curve?

If the stock market crashes, what would be the effect on aggregate demand and how could the Bank of Canada offset those effects?

For the Canadian economy, what is the least important of the three reasons for the downward slope of the aggregate-demand curve?

In a small open economy with a flexible exchange rate, what does a monetary injection cause?

What was Alan Greenspan, the former U.S. Federal Reserve Chairman, referring to when he called it "irrational exuberance"?

What is the effect of a stock market boom, and how could the Bank of Canada offset that effect?

Which statement is consistent with the long-run theories studied?

If at some interest rate the quantity of money demanded is greater than the quantity of money supplied, what will people desire to do and what will happen to the interest rate?

Why are monetary authorities concerned about stock market booms?

When the Bank of Canada sells government bonds, how do the reserves of the banking system change and what happens to the money supply?

Use the money market to explain why the aggregate demand curve slopes downward.

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