Question 1

The overnight rate is determined by equilibrium in the market for _______ The overnight rate _______ .

Accepted Answer

A) reserves; equals the real interest rate minus the inflation rate 
B) loanable funds; equals the real interest rate 
C) reserves; is the rate that sets the quantity of reserves demanded equal to the quantity of reserves supplied 
D) loanable funds; equals the real interest rate minus the inflation rate 
E) money; equals the real interest rate 
A) reserves; equals the real interest rate minus the inflation rate 
B) loanable funds; equals the real interest rate 
C) reserves; is the rate that sets the quantity of reserves demanded equal to the quantity of reserves supplied 
D) loanable funds; equals the real interest rate minus the inflation rate 
E) money; equals the real interest rate

Question 2

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 raising the overnight loans rate?

Accepted Answer

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

Question 3

Who are the members of the Bank of Canada's Governing Council?

Accepted Answer

A) the Ministers of Finance from each province as well as the Federal Minister of Finance 
B) the Bank's Governor, Senior Deputy Governor, and four Deputy Governors 
C) the Minister of Finance, the Governor, and four Deputy Governors 
D) the Bank's Governor, Senior Deputy Governor, and four Deputy governors who are appointed by the Prime Minister to represent the public interest 
E) the Prime Minister, the Minister of Finance, and the Bank's Governor 
A) the Ministers of Finance from each province as well as the Federal Minister of Finance 
B) the Bank's Governor, Senior Deputy Governor, and four Deputy Governors 
C) the Minister of Finance, the Governor, and four Deputy Governors 
D) the Bank's Governor, Senior Deputy Governor, and four Deputy governors who are appointed by the Prime Minister to represent the public interest 
E) the Prime Minister, the Minister of Finance, and the Bank's Governor

Question 4

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

Accepted Answer

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

Question 5

Suppose the inflation rate is 2.5 percent, and the output gap is 1 percent.Using the Taylor rule, the Bank of Canada sets the overnight loans rate equal to

Accepted Answer

A) 3.5 percent. 
B) 5.5 percent. 
C) 5.25 percent. 
D) 5.75 percent. 
E) 3 percent. 
A) 3.5 percent. 
B) 5.5 percent. 
C) 5.25 percent. 
D) 5.75 percent. 
E) 3 percent.

Question 6

To combat a recession, the Bank of Canada _______ the overnight loans rate, which _______ the quantity of money.

Accepted Answer

A) lowers; increases 
B) raises; decreases 
C) lowers; decreases 
D) raises; increases 
E) lowers; decreases the demand for bank reserves and increases 
A) lowers; increases 
B) raises; decreases 
C) lowers; decreases 
D) raises; increases 
E) lowers; decreases the demand for bank reserves and increases

Question 7

When the Bank of Canada fights inflation by implementing an open market operation, the supply of reserves curve shifts _______ and the supply of money curve shifts _______.

Accepted Answer

A) rightward; rightward 
B) rightward; leftward 
C) leftward; rightward 
D) leftward; leftward 
E) none of the above 
A) rightward; rightward 
B) rightward; leftward 
C) leftward; rightward 
D) leftward; leftward 
E) none of the above

Question 8

How is responsibility for monetary policy set forth in Canada?

Accepted Answer

A) The Canadian Government administers monetary policy through the office of the Minister of Finance. 
B) The Prime Minister bears ultimate responsibility for monetary policy. 
C) The Bank of Canada administers monetary policy as directed by the Minister of Finance. 
D) The Bank of Canada Act places responsibility for the conduct of monetary policy on the Bank's Governing Council. 
E) Both B and D 
A) The Canadian Government administers monetary policy through the office of the Minister of Finance. 
B) The Prime Minister bears ultimate responsibility for monetary policy. 
C) The Bank of Canada administers monetary policy as directed by the Minister of Finance. 
D) The Bank of Canada Act places responsibility for the conduct of monetary policy on the Bank's Governing Council. 
E) Both B and D

Question 9

Suppose the inflation rate is 3 percent and the output gap is - 1 percent.Using the Taylor rule, the Bank of Canada sets the overnight loans rate equal to

Accepted Answer

A) 6 percent. 
B) 5 percent. 
C) 1 percent. 
D) 5.5 percent. 
E) 4 percent. 
A) 6 percent. 
B) 5 percent. 
C) 1 percent. 
D) 5.5 percent. 
E) 4 percent.

Question 10

One criticism of the Bank of Canada's focus on an inflation control target is that

Accepted Answer

A) the Bank pays too much attention to unemployment and real GDP growth and not enough to inflation control. 
B) if inflation falls below the target range, a recession will result. 
C) it makes setting expectations of inflation difficult. 
D) the Bank rarely achieves its target. 
E) if inflation edges above the target range, the Bank decreases aggregate demand and could create a recession. 
A) the Bank pays too much attention to unemployment and real GDP growth and not enough to inflation control. 
B) if inflation falls below the target range, a recession will result. 
C) it makes setting expectations of inflation difficult. 
D) the Bank rarely achieves its target. 
E) if inflation edges above the target range, the Bank decreases aggregate demand and could create a recession.

Question 11

The current overnight loans rate is 3 percent, with the Bank of Canada's operating band set at 2.75 to 3.25 percent.If the Bank of Canada lowers their operating band to 2.25 to 2.75 percent, which of the following is one of the reasons the overnight rate will fall to within this new range?

Accepted Answer

A) Since the banking system can now earn 2.75 percent from the Bank of Canada, no bank would lend on the overnight loan market at 3 percent. 
B) Since the banking system can now borrow from the Bank of Canada at 2.75 percent, no bank would borrow on the overnight loan market at 3 percent. 
C) Since the banking system can now borrow from the Bank of Canada at 2.25 percent, no bank would borrow on the overnight loan market at 3 percent. 
D) There is a legal requirement that the overnight rate must be within the Bank of Canada's operating band. 
E) Since the banking system can now earn 2.25 percent from the Bank of Canada, no bank would lend on the overnight loan market at 3 percent. 
A) Since the banking system can now earn 2.75 percent from the Bank of Canada, no bank would lend on the overnight loan market at 3 percent. 
B) Since the banking system can now borrow from the Bank of Canada at 2.75 percent, no bank would borrow on the overnight loan market at 3 percent. 
C) Since the banking system can now borrow from the Bank of Canada at 2.25 percent, no bank would borrow on the overnight loan market at 3 percent. 
D) There is a legal requirement that the overnight rate must be within the Bank of Canada's operating band. 
E) Since the banking system can now earn 2.25 percent from the Bank of Canada, no bank would lend on the overnight loan market at 3 percent.

Question 12

What is the Taylor Rule?

Accepted Answer

A) The money supply should be regulated by setting the exchange rate equal to purchasing power parity with other countries. 
B) The monetary base should grow at a rate equal to the target inflation rate plus the long- term real GDP growth rate minus the medium- term velocity growth rate. 
C) The money supply should grow at a rate equal to the long- run real growth rate. 
D) The monetary base is set in response to the current inflation rate and to the current estimate of the output gap. 
E) The overnight loan rate is set in response to the current inflation rate and to the current estimate of the output gap. 
A) The money supply should be regulated by setting the exchange rate equal to purchasing power parity with other countries. 
B) The monetary base should grow at a rate equal to the target inflation rate plus the long- term real GDP growth rate minus the medium- term velocity growth rate. 
C) The money supply should grow at a rate equal to the long- run real growth rate. 
D) The monetary base is set in response to the current inflation rate and to the current estimate of the output gap. 
E) The overnight loan rate is set in response to the current inflation rate and to the current estimate of the output gap.

Question 13

Suppose that the Reserve Bank of New Zealand is following the Taylor rule.In 2018, it sets the official cash rate the N.Z.equivalent of the overnight loans rate) at 4.0 percent a year.If the inflation rate in New Zealand is 2.0 percent a year, what is its output gap?

Accepted Answer

A) 1 percent 
B) 2 percent 
C) 0.5 percent 
D) 0 percent 
E) 3 percent 
A) 1 percent 
B) 2 percent 
C) 0.5 percent 
D) 0 percent 
E) 3 percent

The overnight rate is determined by equilibrium in the market for _ The overnight rate _ .

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 raising the overnight loans rate?

Who are the members of the Bank of Canada's Governing Council?

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

Suppose the inflation rate is 2.5 percent, and the output gap is 1 percent.Using the Taylor rule, the Bank of Canada sets the overnight loans rate equal to

To combat a recession, the Bank of Canada _ the overnight loans rate, which _ the quantity of money.

When the Bank of Canada fights inflation by implementing an open market operation, the supply of reserves curve shifts _ and the supply of money curve shifts _.

How is responsibility for monetary policy set forth in Canada?

Suppose the inflation rate is 3 percent and the output gap is - 1 percent.Using the Taylor rule, the Bank of Canada sets the overnight loans rate equal to

One criticism of the Bank of Canada's focus on an inflation control target is that

The current overnight loans rate is 3 percent, with the Bank of Canada's operating band set at 2.75 to 3.25 percent.If the Bank of Canada lowers their operating band to 2.25 to 2.75 percent, which of the following is one of the reasons the overnight rate will fall to within this new range?

What is the Taylor Rule?

Suppose that the Reserve Bank of New Zealand is following the Taylor rule.In 2018, it sets the official cash rate the N.Z.equivalent of the overnight loans rate) at 4.0 percent a year.If the inflation rate in New Zealand is 2.0 percent a year, what is its output gap?

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 overnight rate is determined by equilibrium in the market for _______ The overnight rate _______ .

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 raising the overnight loans rate?

Who are the members of the Bank of Canada's Governing Council?

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

Suppose the inflation rate is 2.5 percent, and the output gap is 1 percent.Using the Taylor rule, the Bank of Canada sets the overnight loans rate equal to

To combat a recession, the Bank of Canada _______ the overnight loans rate, which _______ the quantity of money.

When the Bank of Canada fights inflation by implementing an open market operation, the supply of reserves curve shifts _______ and the supply of money curve shifts _______.

How is responsibility for monetary policy set forth in Canada?

Suppose the inflation rate is 3 percent and the output gap is - 1 percent.Using the Taylor rule, the Bank of Canada sets the overnight loans rate equal to

One criticism of the Bank of Canada's focus on an inflation control target is that

The current overnight loans rate is 3 percent, with the Bank of Canada's operating band set at 2.75 to 3.25 percent.If the Bank of Canada lowers their operating band to 2.25 to 2.75 percent, which of the following is one of the reasons the overnight rate will fall to within this new range?

What is the Taylor Rule?

Suppose that the Reserve Bank of New Zealand is following the Taylor rule.In 2018, it sets the official cash rate the N.Z.equivalent of the overnight loans rate) at 4.0 percent a year.If the inflation rate in New Zealand is 2.0 percent a year, what is its output gap?

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 overnight rate is determined by equilibrium in the market for _ The overnight rate _ .

To combat a recession, the Bank of Canada _ the overnight loans rate, which _ the quantity of money.

When the Bank of Canada fights inflation by implementing an open market operation, the supply of reserves curve shifts _ and the supply of money curve shifts _.