Question 1

If Canadian interest rate differential rises, the exchange rate value of the dollar _______ and net exports _______.

Accepted Answer

A) falls; decrease 
B) rises; increase 
C) falls; increase 
D) rises; decrease 
E) rises only if the U.S.interest rates rise concurrently; decrease 
A) falls; decrease 
B) rises; increase 
C) falls; increase 
D) rises; decrease 
E) rises only if the U.S.interest rates rise concurrently; decrease

Question 2

If the Bank of Canada wants to stimulate the economy to limit the effects of a recessionary gap, then it _______ the overnight loans rate to _______ the real interest rate and _______ investment.

Accepted Answer

A) lowers; raise; increase 
B) lowers; lower; increase 
C) raises; raise; decrease 
D) lowers; raise; decrease 
E) lowers; lower; decrease 
A) lowers; raise; increase 
B) lowers; lower; increase 
C) raises; raise; decrease 
D) lowers; raise; decrease 
E) lowers; lower; decrease

Question 3

Which of the following statements correctly describes an anti- inflationary monetary policy?

Accepted Answer

A) "The Bank of Canada's recent moves to decrease the value of the Canadian dollar are leading to more spending in the economy." 
B) "The Bank of Canada's recent purchases of government securities is stimulating the housing sector." 
C) "The Bank of Canada's recent moves to lower interest rates are behind the recent decreases in the value of the Canadian dollar." 
D) "The Bank of Canada's recent moves to increase the overnight loans rate are leading to less lending and less consumer spending." 
E) "The Bank of Canada's recent sales of government securities are stimulating the housing sector." 
A) "The Bank of Canada's recent moves to decrease the value of the Canadian dollar are leading to more spending in the economy." 
B) "The Bank of Canada's recent purchases of government securities is stimulating the housing sector." 
C) "The Bank of Canada's recent moves to lower interest rates are behind the recent decreases in the value of the Canadian dollar." 
D) "The Bank of Canada's recent moves to increase the overnight loans rate are leading to less lending and less consumer spending." 
E) "The Bank of Canada's recent sales of government securities are stimulating the housing sector."

Question 4

How does the Bank of Canada set the bank rate?

Accepted Answer

A) The Bank of Canada does not determine the bank rate. 
B) The bank rate is set at a quarter percentage point above the target overnight loans rate. 
C) The bank rate is set at a quarter percentage point above the prime lending rate. 
D) The bank rate is set at 25 basis points above the operating band. 
E) The bank rate is set at a quarter percentage point below the overnight loans rate. 
A) The Bank of Canada does not determine the bank rate. 
B) The bank rate is set at a quarter percentage point above the target overnight loans rate. 
C) The bank rate is set at a quarter percentage point above the prime lending rate. 
D) The bank rate is set at 25 basis points above the operating band. 
E) The bank rate is set at a quarter percentage point below the overnight loans rate.

Question 5

Which of the following can put a bank under stress?

Accepted Answer

A) a widespread fall in asset prices 
B) a significant currency drain 
C) an increase in the number of customers applying for loans 
D) an increase in the number of customers using tellers 
E) Both A and B are correct. 
A) a widespread fall in asset prices 
B) a significant currency drain 
C) an increase in the number of customers applying for loans 
D) an increase in the number of customers using tellers 
E) Both A and B are correct.

Question 6

The objective of the Bank of Canada's monetary policy is

Accepted Answer

A) to keep the overnight loans rate below 2 percent a year and the unemployment rate at its natural rate. 
B) to keep the labour force participation rate above 80 percent, the inflation rate below 2 percent a year, and the exchange rate fluctuating by less than 3 percent a year. 
C) to keep the unemployment rate below 5 percent, the inflation rate between 1 and 3 percent a year, and long- term interest rates below 4 percent a year. 
D) to keep the unemployment rate below 5 percent, the inflation rate between 1 and 3 percent a year, and long- term real GDP growth above 4 percent a year. 
E) to control the quantity of money and interest rates to avoid inflation and when possible prevent excessive swings in real GDP growth and unemployment. 
A) to keep the overnight loans rate below 2 percent a year and the unemployment rate at its natural rate. 
B) to keep the labour force participation rate above 80 percent, the inflation rate below 2 percent a year, and the exchange rate fluctuating by less than 3 percent a year. 
C) to keep the unemployment rate below 5 percent, the inflation rate between 1 and 3 percent a year, and long- term interest rates below 4 percent a year. 
D) to keep the unemployment rate below 5 percent, the inflation rate between 1 and 3 percent a year, and long- term real GDP growth above 4 percent a year. 
E) to control the quantity of money and interest rates to avoid inflation and when possible prevent excessive swings in real GDP growth and unemployment.

Question 7

When the Bank of Canada fights recession by lowering the overnight loan rate, the supply of loanable funds curve shifts _______, and the aggregate demand curve shifts _______.

Accepted Answer

A) leftward; leftward 
B) rightward; leftward 
C) leftward; rightward 
D) rightward; rightward 
E) rightward and the demand for loanable funds curve shifts rightward; rightward 
A) leftward; leftward 
B) rightward; leftward 
C) leftward; rightward 
D) rightward; rightward 
E) rightward and the demand for loanable funds curve shifts rightward; rightward

Question 8

If the Bank of Canada wants to eliminate an inflationary gap, which of the following would be an appropriate policy?

Accepted Answer

A) Lower the exchange rate. 
B) Buy government securities. 
C) Decease the government budget deficit. 
D) Raise the overnight loans rate. 
E) Lower the overnight loans rate. 
A) Lower the exchange rate. 
B) Buy government securities. 
C) Decease the government budget deficit. 
D) Raise the overnight loans rate. 
E) Lower the overnight loans rate.

Question 9

A decrease in the overnight loans rate leads to all of the following except

Accepted Answer

A) an increase in imports. 
B) an increase in consumption expenditure. 
C) a fall in the exchange rate. 
D) an increase in the quantity of money. 
E) an increase in exports. 
A) an increase in imports. 
B) an increase in consumption expenditure. 
C) a fall in the exchange rate. 
D) an increase in the quantity of money. 
E) an increase in exports.

Question 10

Which of the following benefits flow from the application of an inflation- control target?

Accepted Answer

A) The monetary authorities can change the target range whenever they feel it is appropriate. 
B) If actual inflation exceeds the target range, the Bank of Canada can induce a recession to correct the matter. 
C) People can make decisions with an understanding that inflation rates will remain relatively low. 
D) Financial market traders have a clearer understanding of the Bank of Canada's intentions. 
E) Both C and D 
A) The monetary authorities can change the target range whenever they feel it is appropriate. 
B) If actual inflation exceeds the target range, the Bank of Canada can induce a recession to correct the matter. 
C) People can make decisions with an understanding that inflation rates will remain relatively low. 
D) Financial market traders have a clearer understanding of the Bank of Canada's intentions. 
E) Both C and D

Question 11

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.In the inflation control agreement, the Government of Canada and the Bank of Canada agree to all of the following except that

Accepted Answer

A) the inflation target will continue to be 2 percent. 
B) if the CPI becomes too volatile, in the future the target will be defined in terms of the 12- month rate of change in the core CPI. 
C) the target will continue to be defined in terms of the 12- month rate of change in the total CPI. 
D) the inflation- control range is 1 percent to 3 percent a year. 
E) the agreement will run until December 31, 2016. 
A) the inflation target will continue to be 2 percent. 
B) if the CPI becomes too volatile, in the future the target will be defined in terms of the 12- month rate of change in the core CPI. 
C) the target will continue to be defined in terms of the 12- month rate of change in the total CPI. 
D) the inflation- control range is 1 percent to 3 percent a year. 
E) the agreement will run until December 31, 2016.

Question 12

A decrease in the overnight loans rate

Accepted Answer

A) increases other short- term interest rates, decreases investment, and decreases aggregate demand. 
B) decreases the demand for loanable funds, lowers the real interest rate, and decreases aggregate demand. 
C) lowers the exchange rate, increases the demand for loanable funds, and increases aggregate demand. 
D) lowers the exchange rate, increases the supply of loanable funds, and increases aggregate demand. 
E) lowers other short- term interest rates, raises the real interest rate, and increases aggregate demand. 
A) increases other short- term interest rates, decreases investment, and decreases aggregate demand. 
B) decreases the demand for loanable funds, lowers the real interest rate, and decreases aggregate demand. 
C) lowers the exchange rate, increases the demand for loanable funds, and increases aggregate demand. 
D) lowers the exchange rate, increases the supply of loanable funds, and increases aggregate demand. 
E) lowers other short- term interest rates, raises the real interest rate, and increases aggregate demand.

Question 13

What is the overnight loans rate?

Accepted Answer

A) the percentage change in the volume of loans that take place overnight 
B) the interest rate on loans that the big banks make to each other 
C) the interest rate that the Bank of Canada pays when it buys securities from chartered banks 
D) the volume of loans that take place during the night 
E) the interest rate that the Bank of Canada charges chartered banks 
A) the percentage change in the volume of loans that take place overnight 
B) the interest rate on loans that the big banks make to each other 
C) the interest rate that the Bank of Canada pays when it buys securities from chartered banks 
D) the volume of loans that take place during the night 
E) the interest rate that the Bank of Canada charges chartered banks

Question 14

Suppose the Bank of Canada uses the Taylor rule to set the overnight loans rate.If the inflation rate is 3 percent, and the output gap is 0 percent, then the Taylor rule sets the overnight rate equal to

Accepted Answer

A) 0 percent. 
B) 6 percent. 
C) 2.5 percent. 
D) 5.5 percent. 
E) 5 percent. 
A) 0 percent. 
B) 6 percent. 
C) 2.5 percent. 
D) 5.5 percent. 
E) 5 percent.

Question 15

If the overnight rate is above target, the Bank _______securities to _______ reserves, which _______ the supply of overnight funds and _______ the overnight rate.

Accepted Answer

A) buys; increase; decreases; raises 
B) buys; decrease; decreases; raises 
C) sells; decrease; decreases; raises 
D) buys; increase; increases; lowers 
E) sells; increase; increases; lowers 
A) buys; increase; decreases; raises 
B) buys; decrease; decreases; raises 
C) sells; decrease; decreases; raises 
D) buys; increase; increases; lowers 
E) sells; increase; increases; lowers

Question 16

The overnight loans rate is the interest rate

Accepted Answer

A) on overnight loans that the big banks make to each other. 
B) banks pay on term deposits. 
C) the Bank of Canada charges when it lends reserves to banks. 
D) banks charge their best loan customers. 
E) the Bank of Canada pays on reserves held by banks. 
A) on overnight loans that the big banks make to each other. 
B) banks pay on term deposits. 
C) the Bank of Canada charges when it lends reserves to banks. 
D) banks charge their best loan customers. 
E) the Bank of Canada pays on reserves held by banks.

Question 17

Two monetary policy instruments that the Bank of Canada can use are

Accepted Answer

A) the foreign exchange rate and the government budget balance. 
B) the current account balance and the capital and financial account balance. 
C) the monetary base and the short- term interest rate. 
D) the quantity of Canadian dollars held in Canadian banks and the quantity fo Canadian dollars held by foreign central banks. 
E) the federal government budget balance and the real interest rate. 
A) the foreign exchange rate and the government budget balance. 
B) the current account balance and the capital and financial account balance. 
C) the monetary base and the short- term interest rate. 
D) the quantity of Canadian dollars held in Canadian banks and the quantity fo Canadian dollars held by foreign central banks. 
E) the federal government budget balance and the real interest rate.

Question 18

If the overnight rate is below target, the Bank _______securities to _______ reserves, which _______ the supply of overnight funds and _______ the overnight rate.

Accepted Answer

A) buys; increase; increases; lowers 
B) buys; increase; decreases; raises 
C) buys; decrease; decreases; raises 
D) sells; decrease; decreases; raises 
E) sells; increase; increases; lowers 
A) buys; increase; increases; lowers 
B) buys; increase; decreases; raises 
C) buys; decrease; decreases; raises 
D) sells; decrease; decreases; raises 
E) sells; increase; increases; lowers

Question 19

If the Bank of Canada lowers the overnight loans rate, the exchange rate _______, and net exports _______.

Accepted Answer

A) falls; increase 
B) rises; decrease 
C) falls; decrease 
D) rises; increase 
E) falls; do not change 
A) falls; increase 
B) rises; decrease 
C) falls; decrease 
D) rises; increase 
E) falls; do not change

Question 20

Which of the following does not occur as a result of the Bank of Canada raising the overnight loans rate?

Accepted Answer

A) Imports increase. 
B) Aggregate demand increases. 
C) The supply of loanable funds decreases. 
D) The long- term real interest rate rises. 
E) Exports decrease. 
A) Imports increase. 
B) Aggregate demand increases. 
C) The supply of loanable funds decreases. 
D) The long- term real interest rate rises. 
E) Exports decrease.

If Canadian interest rate differential rises, the exchange rate value of the dollar _ and net exports _.

If the Bank of Canada wants to stimulate the economy to limit the effects of a recessionary gap, then it ___ the overnight loans rate to _ the real interest rate and _____ investment.

Which of the following statements correctly describes an anti- inflationary monetary policy?

How does the Bank of Canada set the bank rate?

Which of the following can put a bank under stress?

The objective of the Bank of Canada's monetary policy is

When the Bank of Canada fights recession by lowering the overnight loan rate, the supply of loanable funds curve shifts _, and the aggregate demand curve shifts _.

If the Bank of Canada wants to eliminate an inflationary gap, which of the following would be an appropriate policy?

A decrease in the overnight loans rate leads to all of the following except

Which of the following benefits flow from the application of an inflation- control target?

A decrease in the overnight loans rate

What is the overnight loans rate?

Suppose the Bank of Canada uses the Taylor rule to set the overnight loans rate.If the inflation rate is 3 percent, and the output gap is 0 percent, then the Taylor rule sets the overnight rate equal to

If the overnight rate is above target, the Bank ___securities to _ reserves, which _ the supply of overnight funds and ___ the overnight rate.

The overnight loans rate is the interest rate

Two monetary policy instruments that the Bank of Canada can use are

If the overnight rate is below target, the Bank ___securities to _ reserves, which _ the supply of overnight funds and ___ the overnight rate.

If the Bank of Canada lowers the overnight loans rate, the exchange rate _, and net exports _.

Which of the following does not occur as a result of the Bank of Canada raising the overnight loans rate?

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

If Canadian interest rate differential rises, the exchange rate value of the dollar _______ and net exports _______.

If the Bank of Canada wants to stimulate the economy to limit the effects of a recessionary gap, then it _______ the overnight loans rate to _______ the real interest rate and _______ investment.

Which of the following statements correctly describes an anti- inflationary monetary policy?

How does the Bank of Canada set the bank rate?

Which of the following can put a bank under stress?

The objective of the Bank of Canada's monetary policy is

When the Bank of Canada fights recession by lowering the overnight loan rate, the supply of loanable funds curve shifts _______, and the aggregate demand curve shifts _______.

If the Bank of Canada wants to eliminate an inflationary gap, which of the following would be an appropriate policy?

A decrease in the overnight loans rate leads to all of the following except

Which of the following benefits flow from the application of an inflation- control target?

A decrease in the overnight loans rate

What is the overnight loans rate?

Suppose the Bank of Canada uses the Taylor rule to set the overnight loans rate.If the inflation rate is 3 percent, and the output gap is 0 percent, then the Taylor rule sets the overnight rate equal to

If the overnight rate is above target, the Bank _______securities to _______ reserves, which _______ the supply of overnight funds and _______ the overnight rate.

The overnight loans rate is the interest rate

Two monetary policy instruments that the Bank of Canada can use are

If the overnight rate is below target, the Bank _______securities to _______ reserves, which _______ the supply of overnight funds and _______ the overnight rate.

If the Bank of Canada lowers the overnight loans rate, the exchange rate _______, and net exports _______.

Which of the following does not occur as a result of the Bank of Canada raising the overnight loans rate?

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 Canadian interest rate differential rises, the exchange rate value of the dollar _ and net exports _.

If the Bank of Canada wants to stimulate the economy to limit the effects of a recessionary gap, then it ___ the overnight loans rate to _ the real interest rate and _____ investment.

When the Bank of Canada fights recession by lowering the overnight loan rate, the supply of loanable funds curve shifts _, and the aggregate demand curve shifts _.

If the overnight rate is above target, the Bank ___securities to _ reserves, which _ the supply of overnight funds and ___ the overnight rate.

If the overnight rate is below target, the Bank ___securities to _ reserves, which _ the supply of overnight funds and ___ the overnight rate.

If the Bank of Canada lowers the overnight loans rate, the exchange rate _, and net exports _.