Question 1

Which of the following quotations correctly describes the impact of monetary policy on the economy?

Accepted Answer

A) "The extra money pumped into the economy by the central bank is creating less exports." 
B) "House sales are down lots, due to the higher money growth." 
C) "Businesses are investing more, now that monetary policy has become less expansionary." 
D) "The extra money pumped into the economy by the central bank is creating more jobs." 
E) "The tightening of money growth is helping sell goods abroad." 
A) "The extra money pumped into the economy by the central bank is creating less exports." 
B) "House sales are down lots, due to the higher money growth." 
C) "Businesses are investing more, now that monetary policy has become less expansionary." 
D) "The extra money pumped into the economy by the central bank is creating more jobs." 
E) "The tightening of money growth is helping sell goods abroad." D

Question 2

The settlement balances rate is the

Accepted Answer

A) proportion of outstanding loans from banks that are resolved. 
B) interest rate paid to banks on their reserves held at the Bank of Canada. 
C) interest rate that the Bank of Canada charges the big banks on loans. 
D) ratio of the value securities sold by the Bank of Canada to securities outstanding. 
E) proportion of overnight inter- bank loans that are resolved. 
A) proportion of outstanding loans from banks that are resolved. 
B) interest rate paid to banks on their reserves held at the Bank of Canada. 
C) interest rate that the Bank of Canada charges the big banks on loans. 
D) ratio of the value securities sold by the Bank of Canada to securities outstanding. 
E) proportion of overnight inter- bank loans that are resolved. B

Question 3

The two parts of the inflation- control target are that the inflation- control target range will be _______ percent a year, and policy will aim at keeping the trend of inflation at _______ percent a year.

Accepted Answer

A) 0 to 2; 1 
B) 2 to 4; 3 
C) 1 to 3; 2 
D) - 1 to 1; 0 
E) 3 to 5; 4 
A) 0 to 2; 1 
B) 2 to 4; 3 
C) 1 to 3; 2 
D) - 1 to 1; 0 
E) 3 to 5; 4 C

Question 4

In the short run, lowering the overnight loans rate shifts the _______ curve _______ and _______ real GDP.

Accepted Answer

A) short- run aggregate supply; rightward; increases 
B) long- run aggregate supply; rightward; increases 
C) aggregate demand; leftward; increases 
D) aggregate demand; leftward; decreases 
E) aggregate demand; rightward; increases 
A) short- run aggregate supply; rightward; increases 
B) long- run aggregate supply; rightward; increases 
C) aggregate demand; leftward; increases 
D) aggregate demand; leftward; decreases 
E) aggregate demand; rightward; increases

Question 5

Choose the statement that is incorrect.

Accepted Answer

A) The last time the Bank of Canada created a recession was at the beginning of the 1990s when it was faced with the threat of ongoing double- digit inflation. 
B) The Bank of Canada's monetary policy is sensitive to the state of employment while maintaining its focus on achieving its inflation target. 
C) The Bank of Canada's strategy of inflation rate targeting that keeps the inflation rate low and stable makes the maximum possible contribution towards achieving full employment and sustained economic growth. 
D) The inflation- control target uses the Consumer Price Index as the measure of inflation. 
E) The Bank of Canada's strategy of inflation rate targeting has resulted in an unemployment rate that is 0.3 percent per year below the natural unemployment rate on average. 
A) The last time the Bank of Canada created a recession was at the beginning of the 1990s when it was faced with the threat of ongoing double- digit inflation. 
B) The Bank of Canada's monetary policy is sensitive to the state of employment while maintaining its focus on achieving its inflation target. 
C) The Bank of Canada's strategy of inflation rate targeting that keeps the inflation rate low and stable makes the maximum possible contribution towards achieving full employment and sustained economic growth. 
D) The inflation- control target uses the Consumer Price Index as the measure of inflation. 
E) The Bank of Canada's strategy of inflation rate targeting has resulted in an unemployment rate that is 0.3 percent per year below the natural unemployment rate on average.

Question 6

The headline "The Bank of Canada Has Cut the Bank Rate" suggests that the Bank of Canada is trying to

Accepted Answer

A) help banks make profits. 
B) increase the overnight loans rate. 
C) lower inflationary pressures. 
D) raise the value of the Canadian dollar. 
E) stimulate aggregate demand. 
A) help banks make profits. 
B) increase the overnight loans rate. 
C) lower inflationary pressures. 
D) raise the value of the Canadian dollar. 
E) stimulate aggregate demand.

Question 7

When the Bank of Canada fights inflation by implementing open market operations, the supply of loanable funds curve shifts _______ and the aggregate demand curve shifts _______.

Accepted Answer

A) rightward; rightward 
B) leftward; rightward 
C) leftward; leftward 
D) rightward; leftward 
E) leftward; leftward, and potential GDP decreases 
A) rightward; rightward 
B) leftward; rightward 
C) leftward; leftward 
D) rightward; leftward 
E) leftward; leftward, and potential GDP decreases

Question 8

To decrease aggregate demand, the Bank of Canada can

Accepted Answer

A) raise the overnight loans rate, which decreases the government budget deficit. 
B) lower the overnight loans rate, which increases the quantity of money. 
C) raise the overnight loans rate, which increases the quantity of money. 
D) raise the overnight loans rate, which decreases the quantity of money. 
E) lower the overnight loans rate, which decreases the quantity of money. 
A) raise the overnight loans rate, which decreases the government budget deficit. 
B) lower the overnight loans rate, which increases the quantity of money. 
C) raise the overnight loans rate, which increases the quantity of money. 
D) raise the overnight loans rate, which decreases the quantity of money. 
E) lower the overnight loans rate, which decreases the quantity of money.

Question 9

In response to an inflationary gap, the Bank of Canada

Accepted Answer

A) waits until the price level falls before acting. 
B) lowers the overnight loans rate by buying securities. 
C) lowers the overnight loans rate by selling securities. 
D) raises the overnight loans rate by selling securities. 
E) raises the overnight loans rate by buying securities. 
A) waits until the price level falls before acting. 
B) lowers the overnight loans rate by buying securities. 
C) lowers the overnight loans rate by selling securities. 
D) raises the overnight loans rate by selling securities. 
E) raises the overnight loans rate by buying securities.

Question 10

If the Bank of Canada lowers the overnight loans rate,

Accepted Answer

A) other short- term interest rates fall. 
B) other short- term interest rates rise. 
C) the exchange rate falls. 
D) the long- term interest rate falls. 
E) A, C, and D are correct. 
A) other short- term interest rates fall. 
B) other short- term interest rates rise. 
C) the exchange rate falls. 
D) the long- term interest rate falls. 
E) A, C, and D are correct.

Question 11

A monetary policy aimed at increasing domestic expenditure will

Accepted Answer

A) have no impact on interest rates nor on the exchange rate. 
B) have no impact on interest rates, but increase the exchange rate. 
C) increase interest rates and decrease the exchange rate. 
D) decrease interest rates and the exchange rate. 
E) decrease interest rates and increase the exchange rate. 
A) have no impact on interest rates nor on the exchange rate. 
B) have no impact on interest rates, but increase the exchange rate. 
C) increase interest rates and decrease the exchange rate. 
D) decrease interest rates and the exchange rate. 
E) decrease interest rates and increase the exchange rate.

Question 12

If the Bank of Canada buys government securities, all of the following happens except

Accepted Answer

A) net exports increase. 
B) bank reserves increase. 
C) the quantity of money increases. 
D) the supply of loanable funds increases. 
E) the bank rate rises. 
A) net exports increase. 
B) bank reserves increase. 
C) the quantity of money increases. 
D) the supply of loanable funds increases. 
E) the bank rate rises.

Question 13

To lower interest rates, the Bank of Canada can

Accepted Answer

A) raise the bank rate. 
B) raise the exchange rate. 
C) increase the treasury bill rate. 
D) buy government securities. 
E) decrease bank reserves. 
A) raise the bank rate. 
B) raise the exchange rate. 
C) increase the treasury bill rate. 
D) buy government securities. 
E) decrease bank reserves.

Question 14

An open market operation

Accepted Answer

A) refers to loans made by the Bank of Canada to chartered banks. 
B) refers to the Bank of Canada's sales and purchases of corporate stock. 
C) refers to the purchase or sale of Canadian currency in exchange for foreign currency. 
D) is the purchase or sale of government of Canada securities by the Bank of Canada from or to a chartered bank or the public. 
E) can change bank deposits but cannot alter the quantity of money. 
A) refers to loans made by the Bank of Canada to chartered banks. 
B) refers to the Bank of Canada's sales and purchases of corporate stock. 
C) refers to the purchase or sale of Canadian currency in exchange for foreign currency. 
D) is the purchase or sale of government of Canada securities by the Bank of Canada from or to a chartered bank or the public. 
E) can change bank deposits but cannot alter the quantity of money.

Question 15

If the Bank of Canada fears inflation it will undertake an open market _______ of securities, the overnight loans rate will _______ and the long- term real interest rate will _______.

Accepted Answer

A) sale; rise; rise 
B) purchase; rise; fall 
C) sale; rise; fall 
D) purchase; fall; rise 
E) sale; fall; fall 
A) sale; rise; rise 
B) purchase; rise; fall 
C) sale; rise; fall 
D) purchase; fall; rise 
E) sale; fall; fall

Question 16

The operating band is

Accepted Answer

A) the target inflation rate plus or minus a quarter of a percentage point. 
B) the interest rate that is established through an open market operation. 
C) the target overnight interest rate plus or minus 25 basis points. 
D) a half percentage point range in the target inflation rate. 
E) the range between the lending rate and the borrowing rate. 
A) the target inflation rate plus or minus a quarter of a percentage point. 
B) the interest rate that is established through an open market operation. 
C) the target overnight interest rate plus or minus 25 basis points. 
D) a half percentage point range in the target inflation rate. 
E) the range between the lending rate and the borrowing rate.

Question 17

If the Bank of Canada buys government securities in the open market, the supply curve of real money

Accepted Answer

A) shifts leftward and the overnight loans rate rises. 
B) shifts rightward and the overnight loans rate falls 
C) shifts leftward and the overnight loans rate falls. 
D) shifts rightward and the overnight loans rate remains constant because the demand for money increases at the same time. 
E) shifts rightward and the overnight loans rate rises. 
A) shifts leftward and the overnight loans rate rises. 
B) shifts rightward and the overnight loans rate falls 
C) shifts leftward and the overnight loans rate falls. 
D) shifts rightward and the overnight loans rate remains constant because the demand for money increases at the same time. 
E) shifts rightward and the overnight loans rate rises.

Question 18

Which statement below best expresses the relationship between the 3- month Treasury bill rate and the overnight loans rate? The rates are

Accepted Answer

A) not similar because the treasury bill rate is set by the Government of Canada whereas the overnight loans rate is set by the Bank of Canada. 
B) not similar because the treasury bill rate is established through the financial markets whereas the overnight loans rate is set by the Bank of Canada. 
C) similar because banks can readily substitute between them. 
D) not similar because banks can not readily substitute between them. 
E) similar because they are both required to remain with the Bank of Canada's operating band. 
A) not similar because the treasury bill rate is set by the Government of Canada whereas the overnight loans rate is set by the Bank of Canada. 
B) not similar because the treasury bill rate is established through the financial markets whereas the overnight loans rate is set by the Bank of Canada. 
C) similar because banks can readily substitute between them. 
D) not similar because banks can not readily substitute between them. 
E) similar because they are both required to remain with the Bank of Canada's operating band.

Question 19

When the Bank of Canada lowers the overnight loans rate, the Canadian interest rate differential _______ and the Canadian dollar _______ on the foreign exchange market.

Accepted Answer

A) falls; depreciates 
B) falls; changes to equal the value of the U.S.dollar 
C) rises; appreciates 
D) rises; depreciates 
E) falls; appreciates 
A) falls; depreciates 
B) falls; changes to equal the value of the U.S.dollar 
C) rises; appreciates 
D) rises; depreciates 
E) falls; appreciates

Question 20

The Bank of Canada can lower the overnight loans rate by

Accepted Answer

A) raising the bank rate. 
B) lowering the bank rate. 
C) raising the settlement balances rate. 
D) lowering the settlement balances rate. 
E) both B and D 
A) raising the bank rate. 
B) lowering the bank rate. 
C) raising the settlement balances rate. 
D) lowering the settlement balances rate. 
E) both B and D

Which of the following quotations correctly describes the impact of monetary policy on the economy?

The settlement balances rate is the

The two parts of the inflation- control target are that the inflation- control target range will be _ percent a year, and policy will aim at keeping the trend of inflation at _ percent a year.

In the short run, lowering the overnight loans rate shifts the ___ curve _ and _____ real GDP.

Choose the statement that is incorrect.

The headline "The Bank of Canada Has Cut the Bank Rate" suggests that the Bank of Canada is trying to

When the Bank of Canada fights inflation by implementing open market operations, the supply of loanable funds curve shifts _ and the aggregate demand curve shifts _.

To decrease aggregate demand, the Bank of Canada can

In response to an inflationary gap, the Bank of Canada

If the Bank of Canada lowers the overnight loans rate,

A monetary policy aimed at increasing domestic expenditure will

If the Bank of Canada buys government securities, all of the following happens except

To lower interest rates, the Bank of Canada can

An open market operation

If the Bank of Canada fears inflation it will undertake an open market ___ of securities, the overnight loans rate will _ and the long- term real interest rate will _____.

The operating band is

If the Bank of Canada buys government securities in the open market, the supply curve of real money

Which statement below best expresses the relationship between the 3- month Treasury bill rate and the overnight loans rate? The rates are

When the Bank of Canada lowers the overnight loans rate, the Canadian interest rate differential _ and the Canadian dollar _ on the foreign exchange market.

The Bank of Canada can lower the overnight loans rate by

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

International Trade Policy

Filters

Exam 14: Monetary Policy

Which of the following quotations correctly describes the impact of monetary policy on the economy?

The settlement balances rate is the

The two parts of the inflation- control target are that the inflation- control target range will be _______ percent a year, and policy will aim at keeping the trend of inflation at _______ percent a year.

In the short run, lowering the overnight loans rate shifts the _______ curve _______ and _______ real GDP.

Choose the statement that is incorrect.

The headline "The Bank of Canada Has Cut the Bank Rate" suggests that the Bank of Canada is trying to

When the Bank of Canada fights inflation by implementing open market operations, the supply of loanable funds curve shifts _______ and the aggregate demand curve shifts _______.

To decrease aggregate demand, the Bank of Canada can

In response to an inflationary gap, the Bank of Canada

If the Bank of Canada lowers the overnight loans rate,

A monetary policy aimed at increasing domestic expenditure will

If the Bank of Canada buys government securities, all of the following happens except

To lower interest rates, the Bank of Canada can

An open market operation

If the Bank of Canada fears inflation it will undertake an open market _______ of securities, the overnight loans rate will _______ and the long- term real interest rate will _______.

The operating band is

If the Bank of Canada buys government securities in the open market, the supply curve of real money

Which statement below best expresses the relationship between the 3- month Treasury bill rate and the overnight loans rate? The rates are

When the Bank of Canada lowers the overnight loans rate, the Canadian interest rate differential _______ and the Canadian dollar _______ on the foreign exchange market.

The Bank of Canada can lower the overnight loans rate by

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

International Trade Policy

Filters

The two parts of the inflation- control target are that the inflation- control target range will be _ percent a year, and policy will aim at keeping the trend of inflation at _ percent a year.

In the short run, lowering the overnight loans rate shifts the ___ curve _ and _____ real GDP.

When the Bank of Canada fights inflation by implementing open market operations, the supply of loanable funds curve shifts _ and the aggregate demand curve shifts _.

If the Bank of Canada fears inflation it will undertake an open market ___ of securities, the overnight loans rate will _ and the long- term real interest rate will _____.

When the Bank of Canada lowers the overnight loans rate, the Canadian interest rate differential _ and the Canadian dollar _ on the foreign exchange market.