Question 1

When the Bank of Canada raises the overnight loans rate, other short- term interest rates

Accepted Answer

A) rise, consumption expenditure, investment and net exports increase, and the aggregate demand curve shifts rightward. 
B) fall, consumption expenditure, investment and net exports decrease, and the aggregate demand curve shifts leftward. 
C) rise, consumption expenditure, investment and net exports decrease, and the aggregate demand curve shifts leftward. 
D) fall, consumption expenditure, investment and net exports increase, and the aggregate demand curve shifts rightward. 
E) none of the above 
A) rise, consumption expenditure, investment and net exports increase, and the aggregate demand curve shifts rightward. 
B) fall, consumption expenditure, investment and net exports decrease, and the aggregate demand curve shifts leftward. 
C) rise, consumption expenditure, investment and net exports decrease, and the aggregate demand curve shifts leftward. 
D) fall, consumption expenditure, investment and net exports increase, and the aggregate demand curve shifts rightward. 
E) none of the above

Question 2

Monetary policy is difficult to conduct because

Accepted Answer

A) the monetary policy transmission process is long and drawn out. 
B) the interest rate always rises. 
C) it takes several years for the real GDP growth rate to respond to a change in the interest rate. 
D) politicians frequently block the policy's intended outcomes. 
E) the tools available don't work. 
A) the monetary policy transmission process is long and drawn out. 
B) the interest rate always rises. 
C) it takes several years for the real GDP growth rate to respond to a change in the interest rate. 
D) politicians frequently block the policy's intended outcomes. 
E) the tools available don't work.

Question 3

The current Governor of the Bank of Canada is

Accepted Answer

A) Ben Bernanke. 
B) Stephen Poloz 
C) David Dodge. 
D) Paul Martin. 
E) Stephen Harper. 
A) Ben Bernanke. 
B) Stephen Poloz 
C) David Dodge. 
D) Paul Martin. 
E) Stephen Harper.

Question 4

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

Accepted Answer

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

Question 5

Use the figure below to answer the following question.
   Figure 14.3.3
-Refer to Figure 14.3.3.The figure shows the economy of Freezone.Potential GDP is $350 billion. To return the economy to full employment, the central bank can _______ the overnight rate and _______ securities.

Accepted Answer

A) raise; buy 
B) raise; sell 
C) lower; not change its holdings of 
D) lower; buy 
E) lower; sell 
A) raise; buy 
B) raise; sell 
C) lower; not change its holdings of 
D) lower; buy 
E) lower; sell

Question 6

Which of the following statements about the overnight loans rate is false?

Accepted Answer

A) The overnight loans rate and the treasury bill rate move closely together. 
B) The overnight loans rate is most often less than the long- term bond rate. 
C) The overnight loans rate and the long- term bond rate trend in the same direction. 
D) The long- term bond rate fluctuates less than the short- term rates. 
E) The higher the overnight loans rate, the greater the quantity of money. 
A) The overnight loans rate and the treasury bill rate move closely together. 
B) The overnight loans rate is most often less than the long- term bond rate. 
C) The overnight loans rate and the long- term bond rate trend in the same direction. 
D) The long- term bond rate fluctuates less than the short- term rates. 
E) The higher the overnight loans rate, the greater the quantity of money.

Question 7

Choose the statement that is incorrect.

Accepted Answer

A) Since late 2000, the Bank has established eight fixed dates on which it announces its overnight loans rate target for the coming period of approximately six weeks. 
B) The Bank of Canada's choice of monetary policy instrument is the overnight loans rate. 
C) In recent years, the overnight loans rate has been at historically low levels. 
D) Although the Bank of Canada can change the overnight rate by any reasonable amount that it chooses, it normally changes the overnight rate by a single percentage point at a time. 
E) The Bank sometimes acts in an emergency between normal announcement dates. 
A) Since late 2000, the Bank has established eight fixed dates on which it announces its overnight loans rate target for the coming period of approximately six weeks. 
B) The Bank of Canada's choice of monetary policy instrument is the overnight loans rate. 
C) In recent years, the overnight loans rate has been at historically low levels. 
D) Although the Bank of Canada can change the overnight rate by any reasonable amount that it chooses, it normally changes the overnight rate by a single percentage point at a time. 
E) The Bank sometimes acts in an emergency between normal announcement dates.

Question 8

Use the figure below to answer the following question.
   Figure 14.3.2
-Refer to Figure 14.3.2.The figure shows the economy of Freezone.Potential GDP is $250 billion. To return the economy to full employment, the central bank can _______ the overnight rate and _______ securities.

Accepted Answer

A) lower; not change its holdings of 
B) lower; sell 
C) raise; buy 
D) raise; sell 
E) lower; buy 
A) lower; not change its holdings of 
B) lower; sell 
C) raise; buy 
D) raise; sell 
E) lower; buy

Question 9

Which of the following issues is a concern that critics express about the use of an inflation- control target?

Accepted Answer

A) The policy control rests in the hands of civil servants rather than in the hands of elected officials. 
B) Monetary policy tends to be sensitive to the state of employment while focusing on inflation control targets. 
C) It encourages a focus on real GDP growth at the expense of employment and of inflation. 
D) It encourages a focus on inflation at the expense of employment and real GDP growth. 
E) The policy control rests in the hands of elected officials rather than in the hands of civil servants. 
A) The policy control rests in the hands of civil servants rather than in the hands of elected officials. 
B) Monetary policy tends to be sensitive to the state of employment while focusing on inflation control targets. 
C) It encourages a focus on real GDP growth at the expense of employment and of inflation. 
D) It encourages a focus on inflation at the expense of employment and real GDP growth. 
E) The policy control rests in the hands of elected officials rather than in the hands of civil servants.

Question 10

When the Bank of Canada fights recession by lowering the overnight loans rate, the supply of reserves curve shifts _______ and the supply of money curve shifts _______.

Accepted Answer

A) rightward; leftward 
B) leftward; leftward 
C) rightward; rightward 
D) leftward; rightward 
E) rightward; rightward, and the demand for loanable funds increases 
A) rightward; leftward 
B) leftward; leftward 
C) rightward; rightward 
D) leftward; rightward 
E) rightward; rightward, and the demand for loanable funds increases

Question 11

The purchase of government securities by the Bank of Canada

Accepted Answer

A) decreases the price of bonds. 
B) tightens credit conditions. 
C) fights inflation. 
D) increases bank loans. 
E) decreases bank reserves. 
A) decreases the price of bonds. 
B) tightens credit conditions. 
C) fights inflation. 
D) increases bank loans. 
E) decreases bank reserves.

Question 12

The short- run effect of lowering the overnight loans rate is that the

Accepted Answer

A) price level rises and real GDP increases. 
B) price level rises and real GDP decreases. 
C) price level lowers and real GDP decreases. 
D) price level lowers and real GDP increases. 
E) price level rises and real GDP equals potential GDP. 
A) price level rises and real GDP increases. 
B) price level rises and real GDP decreases. 
C) price level lowers and real GDP decreases. 
D) price level lowers and real GDP increases. 
E) price level rises and real GDP equals potential GDP.

Question 13

In an open market operation aimed at increasing expenditure, the Bank of Canada

Accepted Answer

A) sells government securities, decreasing bank reserves, increasing lending, increasing the overnight rate. 
B) sells government securities, decreasing bank reserves, decreasing lending, decreasing the overnight rate. 
C) buys government securities, increasing bank reserves, increasing lending, increasing the overnight rate. 
D) sells government securities, decreasing bank reserves, decreasing lending, increasing the overnight rate. 
E) buys government securities, increasing bank reserves, increasing lending, decreasing the overnight rate. 
A) sells government securities, decreasing bank reserves, increasing lending, increasing the overnight rate. 
B) sells government securities, decreasing bank reserves, decreasing lending, decreasing the overnight rate. 
C) buys government securities, increasing bank reserves, increasing lending, increasing the overnight rate. 
D) sells government securities, decreasing bank reserves, decreasing lending, increasing the overnight rate. 
E) buys government securities, increasing bank reserves, increasing lending, decreasing the overnight rate.

Question 14

How is consultation between the Bank of Canada and the Government of Canada on monetary policy arranged?

Accepted Answer

A) The Bank of Canada Act requires regular consultations between the Governor and the Minister of Finance. 
B) Consultations are arranged at the discretion of the Minister of Finance. 
C) Consultations are arranged at the discretion of the Governor of the Bank of Canada. 
D) No consultation is required or needed. 
E) Consultations are arranged through the Parliamentary Committee on Finance. 
A) The Bank of Canada Act requires regular consultations between the Governor and the Minister of Finance. 
B) Consultations are arranged at the discretion of the Minister of Finance. 
C) Consultations are arranged at the discretion of the Governor of the Bank of Canada. 
D) No consultation is required or needed. 
E) Consultations are arranged through the Parliamentary Committee on Finance.

Question 15

In a situation of inflationary pressure, an increase in the overnight loans rate results in

Accepted Answer

A) an increase in real GDP and the price level. 
B) a rise in the price level, but no change in real GDP. 
C) an increase in real GDP, but a fall in the price level. 
D) a fall in the price level and a decrease in real GDP. 
E) an increase in real GDP, but no change in the price level. 
A) an increase in real GDP and the price level. 
B) a rise in the price level, but no change in real GDP. 
C) an increase in real GDP, but a fall in the price level. 
D) a fall in the price level and a decrease in real GDP. 
E) an increase in real GDP, but no change in the price level.

Question 16

The sale of government securities by the Bank of Canada

Accepted Answer

A) increases bank reserves. 
B) increases the banks' loans to the public. 
C) increases the quantity of money. 
D) decreases bank reserves. 
E) lowers interest rates. 
A) increases bank reserves. 
B) increases the banks' loans to the public. 
C) increases the quantity of money. 
D) decreases bank reserves. 
E) lowers interest rates.

Question 17

If a central bank wants to implement a contractionary policy that decreases real GDP, it conducts an open market operation by _______ securities.Bank reserves _______ and the supply of loanable funds _______.The quantity of money _______.

Accepted Answer

A) selling; decrease; decreases; decreases 
B) purchasing; decrease; decreases; decreases 
C) purchasing; decrease; increases; decreases 
D) purchasing; increase; increases; increases 
E) selling; increase; increases; increases 
A) selling; decrease; decreases; decreases 
B) purchasing; decrease; decreases; decreases 
C) purchasing; decrease; increases; decreases 
D) purchasing; increase; increases; increases 
E) selling; increase; increases; increases

Question 18

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

Accepted Answer

A) falls; the increase in imports is greater than the increase in exports 
B) falls; aggregate demand decreases 
C) rises; aggregate demand decreases 
D) rises; U.S.aggregate demand decreases 
E) falls; aggregate demand increases 
A) falls; the increase in imports is greater than the increase in exports 
B) falls; aggregate demand decreases 
C) rises; aggregate demand decreases 
D) rises; U.S.aggregate demand decreases 
E) falls; aggregate demand increases

Question 19

Why does the Bank of Canada pay close attention to the core inflation measures in addition to the overall CPI inflation rate?

Accepted Answer

A) The core inflation measures include taxes, while the overall CPI rate does not. 
B) The core inflation measures are more volatile and therefore a better predictor of trend inflation. 
C) The core inflation measures have a lower average value and therefore makes the Bank look better. 
D) The core inflation measures provide a better view of the underlying inflation trend and better predict future CPI inflation. 
E) The core inflation measures include eight volatile prices and are therefore more likely to stay within the target band. 
A) The core inflation measures include taxes, while the overall CPI rate does not. 
B) The core inflation measures are more volatile and therefore a better predictor of trend inflation. 
C) The core inflation measures have a lower average value and therefore makes the Bank look better. 
D) The core inflation measures provide a better view of the underlying inflation trend and better predict future CPI inflation. 
E) The core inflation measures include eight volatile prices and are therefore more likely to stay within the target band.

Question 20

Choose the statement that is incorrect.

Accepted Answer

A) From 2009 to 2018, the overnight loans rate was at historically low levels because the Bank wanted to lean in the direction of avoiding recession. 
B) The Bank of Canada's choice of policy instrument is the overnight loans rate. 
C) When the Bank of Canada wants to slow inflation, it raises the overnight loans rate. 
D) The Bank of Canada normally changes the overnight loans rate by 25 basis points. 
E) The Bank has established 12 fixed dates each year on which it announces its overnight rate target for the coming period. 
A) From 2009 to 2018, the overnight loans rate was at historically low levels because the Bank wanted to lean in the direction of avoiding recession. 
B) The Bank of Canada's choice of policy instrument is the overnight loans rate. 
C) When the Bank of Canada wants to slow inflation, it raises the overnight loans rate. 
D) The Bank of Canada normally changes the overnight loans rate by 25 basis points. 
E) The Bank has established 12 fixed dates each year on which it announces its overnight rate target for the coming period.

When the Bank of Canada raises the overnight loans rate, other short- term interest rates

Monetary policy is difficult to conduct because

The current Governor of the Bank of Canada is

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

Use the figure below to answer the following question. Figure 14.3.3 -Refer to Figure 14.3.3.The figure shows the economy of Freezone.Potential GDP is $350 billion. To return the economy to full employment, the central bank can _ the overnight rate and _ securities.

Which of the following statements about the overnight loans rate is false?

Choose the statement that is incorrect.

Use the figure below to answer the following question. Figure 14.3.2 -Refer to Figure 14.3.2.The figure shows the economy of Freezone.Potential GDP is $250 billion. To return the economy to full employment, the central bank can _ the overnight rate and _ securities.

Which of the following issues is a concern that critics express about the use of an inflation- control target?

When the Bank of Canada fights recession by lowering the overnight loans rate, the supply of reserves curve shifts _ and the supply of money curve shifts _.

The purchase of government securities by the Bank of Canada

The short- run effect of lowering the overnight loans rate is that the

In an open market operation aimed at increasing expenditure, the Bank of Canada

How is consultation between the Bank of Canada and the Government of Canada on monetary policy arranged?

In a situation of inflationary pressure, an increase in the overnight loans rate results in

The sale of government securities by the Bank of Canada

If a central bank wants to implement a contractionary policy that decreases real GDP, it conducts an open market operation by ___ securities.Bank reserves _ and the supply of loanable funds _.The quantity of money ___.

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

Why does the Bank of Canada pay close attention to the core inflation measures in addition to the overall CPI inflation rate?

Choose the statement that is incorrect.

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

When the Bank of Canada raises the overnight loans rate, other short- term interest rates

Monetary policy is difficult to conduct because

The current Governor of the Bank of Canada is

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

Use the figure below to answer the following question. Figure 14.3.3 -Refer to Figure 14.3.3.The figure shows the economy of Freezone.Potential GDP is $350 billion. To return the economy to full employment, the central bank can _______ the overnight rate and _______ securities.

Which of the following statements about the overnight loans rate is false?

Choose the statement that is incorrect.

Use the figure below to answer the following question. Figure 14.3.2 -Refer to Figure 14.3.2.The figure shows the economy of Freezone.Potential GDP is $250 billion. To return the economy to full employment, the central bank can _______ the overnight rate and _______ securities.

Which of the following issues is a concern that critics express about the use of an inflation- control target?

When the Bank of Canada fights recession by lowering the overnight loans rate, the supply of reserves curve shifts _______ and the supply of money curve shifts _______.

The purchase of government securities by the Bank of Canada

The short- run effect of lowering the overnight loans rate is that the

In an open market operation aimed at increasing expenditure, the Bank of Canada

How is consultation between the Bank of Canada and the Government of Canada on monetary policy arranged?

In a situation of inflationary pressure, an increase in the overnight loans rate results in

The sale of government securities by the Bank of Canada

If a central bank wants to implement a contractionary policy that decreases real GDP, it conducts an open market operation by _______ securities.Bank reserves _______ and the supply of loanable funds _______.The quantity of money _______.

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

Why does the Bank of Canada pay close attention to the core inflation measures in addition to the overall CPI inflation rate?

Choose the statement that is incorrect.

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 is concerned with inflation it will _ the overnight loans rate to _.

Use the figure below to answer the following question. Figure 14.3.3 -Refer to Figure 14.3.3.The figure shows the economy of Freezone.Potential GDP is $350 billion. To return the economy to full employment, the central bank can _ the overnight rate and _ securities.

Use the figure below to answer the following question. Figure 14.3.2 -Refer to Figure 14.3.2.The figure shows the economy of Freezone.Potential GDP is $250 billion. To return the economy to full employment, the central bank can _ the overnight rate and _ securities.

When the Bank of Canada fights recession by lowering the overnight loans rate, the supply of reserves curve shifts _ and the supply of money curve shifts _.

If a central bank wants to implement a contractionary policy that decreases real GDP, it conducts an open market operation by ___ securities.Bank reserves _ and the supply of loanable funds _.The quantity of money ___.

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