Question 1

The bank rate is the interest rate

Accepted Answer

A) banks pay on term deposits. 
B) banks charge their very best loan customers. 
C) received for holding Government of Canada Treasury Bills. 
D) the Bank of Canada charges when it lends reserves to the big banks. 
E) the Bank of Canada pays on reserves held by banks. 
A) banks pay on term deposits. 
B) banks charge their very best loan customers. 
C) received for holding Government of Canada Treasury Bills. 
D) the Bank of Canada charges when it lends reserves to the big banks. 
E) the Bank of Canada pays on reserves held by banks.

Question 2

The ripple effects that occur when the Bank of Canada raises the overnight loan rate include

Accepted Answer

A) a decrease in short- run interest rates. 
B) an increase in short- run aggregate supply. 
C) a decrease in short- run aggregate supply. 
D) a decrease in consumption expenditure and investment. 
E) an increase in net exports. 
A) a decrease in short- run interest rates. 
B) an increase in short- run aggregate supply. 
C) a decrease in short- run aggregate supply. 
D) a decrease in consumption expenditure and investment. 
E) an increase in net exports.

Question 3

Choose the statement that is incorrect.

Accepted Answer

A) The actual path of the CPI was on trend from 1997 through 2011. 
B) The Bank of Canada and the Government of Canada agree that the inflation- control target range will be 1 percent to 3 percent. 
C) From 2001 through 2007, the core CPI inflation rate was below 1 percent a year. 
D) Since 2011, the CPI has moved below the 2 percent trend line. 
E) Between 1997 and 2017, the core inflation rate has a bias to be below 2 percent a year. 
A) The actual path of the CPI was on trend from 1997 through 2011. 
B) The Bank of Canada and the Government of Canada agree that the inflation- control target range will be 1 percent to 3 percent. 
C) From 2001 through 2007, the core CPI inflation rate was below 1 percent a year. 
D) Since 2011, the CPI has moved below the 2 percent trend line. 
E) Between 1997 and 2017, the core inflation rate has a bias to be below 2 percent a year.

Question 4

How can the Bank of Canada use the bank rate to regulate the overnight loans rate?

Accepted Answer

A) The bank rate is set at the settlement balances rate plus 0.25 percentage points. 
B) The bank rate is set at 0.25 percentage points below the settlement balances rate, which is used to determine the overnight loans rate. 
C) The bank rate is set at the target overnight rate plus 0.25 percentage points. 
D) The overnight loans rate is set at 25 basis points above the bank rate. 
E) The overnight loans rate is set at a quarter percentage point above the bank rate, which in turn is set by the Bank of Canada. 
A) The bank rate is set at the settlement balances rate plus 0.25 percentage points. 
B) The bank rate is set at 0.25 percentage points below the settlement balances rate, which is used to determine the overnight loans rate. 
C) The bank rate is set at the target overnight rate plus 0.25 percentage points. 
D) The overnight loans rate is set at 25 basis points above the bank rate. 
E) The overnight loans rate is set at a quarter percentage point above the bank rate, which in turn is set by the Bank of Canada.

Question 5

The purchase of government securities by the Bank of Canada

Accepted Answer

A) decreases the quantity of money. 
B) raises the overnight loans rate. 
C) decreases the supply of loanable funds. 
D) increases aggregate demand. 
E) decreases bank reserves. 
A) decreases the quantity of money. 
B) raises the overnight loans rate. 
C) decreases the supply of loanable funds. 
D) increases aggregate demand. 
E) decreases bank reserves.

Question 6

The policy tools used by the Bank of Canada include

Accepted Answer

A) the exchange rate and open market operations. 
B) the operating band and open market operations. 
C) prime rate and the exchange rate. 
D) prime rate and bank rate. 
E) open market operations and prime rate. 
A) the exchange rate and open market operations. 
B) the operating band and open market operations. 
C) prime rate and the exchange rate. 
D) prime rate and bank rate. 
E) open market operations and prime rate.

Question 7

Choose the correct statement.

Accepted Answer

A) The long- term real interest rate influences expenditure decisions. 
B) In the short run, the supply of loanable funds is influenced by the supply of bank loans. 
C) Demand and supply in the loanable funds market determine the long- term real interest rate. 
D) A fall in the overnight loans rate that increases the supply of bank loans increases the supply of loanable funds and lowers the equilibrium real interest rate. 
E) All of the above are correct. 
A) The long- term real interest rate influences expenditure decisions. 
B) In the short run, the supply of loanable funds is influenced by the supply of bank loans. 
C) Demand and supply in the loanable funds market determine the long- term real interest rate. 
D) A fall in the overnight loans rate that increases the supply of bank loans increases the supply of loanable funds and lowers the equilibrium real interest rate. 
E) All of the above are correct.

Question 8

Macroprudential regulation is

Accepted Answer

A) bank regulation that sets the maximum ratio of a bank's net worth to its loans. 
B) bank regulation that limits open market purchases. 
C) bank regulation that limits open market sales. 
D) performed by the World Bank and is followed by all of the world's central banks. 
E) financial regulation to lower the risk that the financial system will crash. 
A) bank regulation that sets the maximum ratio of a bank's net worth to its loans. 
B) bank regulation that limits open market purchases. 
C) bank regulation that limits open market sales. 
D) performed by the World Bank and is followed by all of the world's central banks. 
E) financial regulation to lower the risk that the financial system will crash.

Question 9

An increase in the quantity of money leads to

Accepted Answer

A) a decrease in net exports. 
B) a decrease in real GDP. 
C) an increase in aggregate demand. 
D) an increase in short- run aggregate supply. 
E) a decrease in the price level. 
A) a decrease in net exports. 
B) a decrease in real GDP. 
C) an increase in aggregate demand. 
D) an increase in short- run aggregate supply. 
E) a decrease in the price level.

Question 10

Use the figure below to answer the following questions.
   Figure 14.3.1
-Refer to Figure 14.3.1.Everything else remaining the same, which graph best illustrates the effect of the Bank of Canada lowering the overnight loans rate?

Accepted Answer

A) a only 
B) b only 
C) c only 
D) d only 
E) Both a and c 
A) a only 
B) b only 
C) c only 
D) d only 
E) Both a and c

Question 11

As the sole issuer of Canadian money, the Bank of Canada can set any one of three variables:

Accepted Answer

A) the rate of inflation, the interest rate, and the natural unemployment rate. 
B) the monetary base, the exchange rate, and the short- term interest rate. 
C) the monetary base, the interest rate, and the natural unemployment rate. 
D) the inflation rate, the natural unemployment rate, and the real economic growth rate. 
E) the exchange rate, the interest rate, and the inflation rate. 
A) the rate of inflation, the interest rate, and the natural unemployment rate. 
B) the monetary base, the exchange rate, and the short- term interest rate. 
C) the monetary base, the interest rate, and the natural unemployment rate. 
D) the inflation rate, the natural unemployment rate, and the real economic growth rate. 
E) the exchange rate, the interest rate, and the inflation rate.

Question 12

If the Bank of Canada aims to lower the overnight rate, it will

Accepted Answer

A) lower the bank rate and settlement balances rate, as well as sell government securities. 
B) lower the bank rate and settlement balances rate, as well as buy government securities. 
C) lower the bank rate and increase the settlement balances rate, as well as buy government securities. 
D) raise the bank rate and settlement balances rate, as well as sell government securities. 
E) raise the bank rate and settlement balances rate, as well as buy government securities. 
A) lower the bank rate and settlement balances rate, as well as sell government securities. 
B) lower the bank rate and settlement balances rate, as well as buy government securities. 
C) lower the bank rate and increase the settlement balances rate, as well as buy government securities. 
D) raise the bank rate and settlement balances rate, as well as sell government securities. 
E) raise the bank rate and settlement balances rate, as well as buy government securities.

Question 13

If the Bank of Canada lowers the overnight loans rate, other short- term interest rates _______ and the exchange rate _______.

Accepted Answer

A) fall; rises 
B) fall; falls 
C) fall; does not change 
D) do not change; falls 
E) fall, and the long- term interest rate rises; falls 
A) fall; rises 
B) fall; falls 
C) fall; does not change 
D) do not change; falls 
E) fall, and the long- term interest rate rises; falls

Question 14

Which of the following central banks does not follow an inflation rate targeting strategy?

Accepted Answer

A) The Reserve Bank of Australia 
B) The Federal Reserve the central bank of the United States) 
C) The Bank of Canada 
D) The Bank of England 
E) The European Central Bank the central bank of the Eurozone) 
A) The Reserve Bank of Australia 
B) The Federal Reserve the central bank of the United States) 
C) The Bank of Canada 
D) The Bank of England 
E) The European Central Bank the central bank of the Eurozone)

Question 15

If the Bank of Canada is concerned with recession it will _______ the overnight loans rate to _______.

Accepted Answer

A) raise; decrease aggregate demand 
B) lower; decrease aggregate demand 
C) lower; increase potential GDP 
D) raise; increase aggregate demand 
E) lower; increase aggregate demand 
A) raise; decrease aggregate demand 
B) lower; decrease aggregate demand 
C) lower; increase potential GDP 
D) raise; increase aggregate demand 
E) lower; increase aggregate demand

Question 16

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

Accepted Answer

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

Question 17

25 basis points is

Accepted Answer

A) a quarter of the Bank of Canada's target inflation rate. 
B) the spread between the savings rate and the lending rate. 
C) the spread between the bank rate and the settlement balances rate. 
D) the gap by which real GDP exceeds potential GDP. 
E) a quarter of a percentage point. 
A) a quarter of the Bank of Canada's target inflation rate. 
B) the spread between the savings rate and the lending rate. 
C) the spread between the bank rate and the settlement balances rate. 
D) the gap by which real GDP exceeds potential GDP. 
E) a quarter of a percentage point.

Question 18

Use the information below to answer the following questions.
Fact 14.1.1 Inflation Control Target Renewal
The 2016 inflation control target agreement between the Government of Canada and the Bank of Canada runs to the end of 20 Source: Bank of Canada, November 2016
-Refer to Fact 14.1.1.Choose the statement that is incorrect.

Accepted Answer

A) It is important to renew the agreement because the target provides an anchor for low inflation expectations. 
B) It is important to renew the agreement because knowing that the Bank of Canada is striving to reach the target makes the short- run output- inflation tradeoff as favourable as possible. 
C) Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits real GDP growth to suffer. 
D) Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits the unemployment rate to rise. 
E) It is important to renew the agreement because with the agreement the inflation rate will always remain between 1 and 3 percent a year. 
A) It is important to renew the agreement because the target provides an anchor for low inflation expectations. 
B) It is important to renew the agreement because knowing that the Bank of Canada is striving to reach the target makes the short- run output- inflation tradeoff as favourable as possible. 
C) Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits real GDP growth to suffer. 
D) Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits the unemployment rate to rise. 
E) It is important to renew the agreement because with the agreement the inflation rate will always remain between 1 and 3 percent a year.

Question 19

When the Bank of Canada lowers the overnight loans rate, there is a _______ shift of the _______ curve.

Accepted Answer

A) rightward; LAS 
B) rightward; AD 
C) rightward; SAS 
D) leftward; SAS 
E) leftward; AD 
A) rightward; LAS 
B) rightward; AD 
C) rightward; SAS 
D) leftward; SAS 
E) leftward; AD

Question 20

The Bank of Canada raises the overnight loans rate.In the foreign exchange market people _______ dollars and the price of the dollar _______ because the Canadian interest rate differential _______.

Accepted Answer

A) sell; rises; falls 
B) buy; falls; rises 
C) buy; rises; rises 
D) buy; rises; falls 
E) sell; falls; falls 
A) sell; rises; falls 
B) buy; falls; rises 
C) buy; rises; rises 
D) buy; rises; falls 
E) sell; falls; falls

The bank rate is the interest rate

The ripple effects that occur when the Bank of Canada raises the overnight loan rate include

Choose the statement that is incorrect.

How can the Bank of Canada use the bank rate to regulate the overnight loans rate?

The purchase of government securities by the Bank of Canada

The policy tools used by the Bank of Canada include

Choose the correct statement.

Macroprudential regulation is

An increase in the quantity of money leads to

Use the figure below to answer the following questions. Figure 14.3.1 -Refer to Figure 14.3.1.Everything else remaining the same, which graph best illustrates the effect of the Bank of Canada lowering the overnight loans rate?

As the sole issuer of Canadian money, the Bank of Canada can set any one of three variables:

If the Bank of Canada aims to lower the overnight rate, it will

If the Bank of Canada lowers the overnight loans rate, other short- term interest rates _ and the exchange rate _.

Which of the following central banks does not follow an inflation rate targeting strategy?

If the Bank of Canada is concerned with recession it will _ the overnight loans rate to _.

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

25 basis points is

When the Bank of Canada lowers the overnight loans rate, there is a _ shift of the _ curve.

The Bank of Canada raises the overnight loans rate.In the foreign exchange market people ___ dollars and the price of the dollar _ because the Canadian interest rate differential _____.

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

The bank rate is the interest rate

The ripple effects that occur when the Bank of Canada raises the overnight loan rate include

Choose the statement that is incorrect.

How can the Bank of Canada use the bank rate to regulate the overnight loans rate?

The purchase of government securities by the Bank of Canada

The policy tools used by the Bank of Canada include

Choose the correct statement.

Macroprudential regulation is

An increase in the quantity of money leads to

Use the figure below to answer the following questions. Figure 14.3.1 -Refer to Figure 14.3.1.Everything else remaining the same, which graph best illustrates the effect of the Bank of Canada lowering the overnight loans rate?

As the sole issuer of Canadian money, the Bank of Canada can set any one of three variables:

If the Bank of Canada aims to lower the overnight rate, it will

If the Bank of Canada lowers the overnight loans rate, other short- term interest rates _______ and the exchange rate _______.

Which of the following central banks does not follow an inflation rate targeting strategy?

If the Bank of Canada is concerned with recession it will _______ the overnight loans rate to _______.

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

25 basis points is

When the Bank of Canada lowers the overnight loans rate, there is a _______ shift of the _______ curve.

The Bank of Canada raises the overnight loans rate.In the foreign exchange market people _______ dollars and the price of the dollar _______ because the Canadian interest rate differential _______.

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

If the Bank of Canada lowers the overnight loans rate, other short- term interest rates _ and the exchange rate _.

If the Bank of Canada is concerned with recession it will _ the overnight loans rate to _.

When the Bank of Canada lowers the overnight loans rate, there is a _ shift of the _ curve.

The Bank of Canada raises the overnight loans rate.In the foreign exchange market people ___ dollars and the price of the dollar _ because the Canadian interest rate differential _____.