Question 1

The major advantages of monetary policy include its flexibility, speed, and political acceptability.

Accepted Answer

A) True 
 B)False

Question 2

Refer to the information below.The transactions demand for money in this market would graph as a:

Accepted Answer

A) vertical line. 
B) horizontal line. 
C) line sloping downward and to the right. 
D) line sloping upward and to the right. 
A) vertical line. 
B) horizontal line. 
C) line sloping downward and to the right. 
D) line sloping upward and to the right.

Question 3

The so-called Taylor Rule states that:

Accepted Answer

A) monetary policy should only respond to the changes in real GDP and not in inflation. 
B) monetary policy should only respond to the changes in inflation and not in real GDP. 
C) monetary policy should respond to changes in both real GDP and inflation. 
D) Monetary policy should only respond to changes in unemployment rate. 
A) monetary policy should only respond to the changes in real GDP and not in inflation. 
B) monetary policy should only respond to the changes in inflation and not in real GDP. 
C) monetary policy should respond to changes in both real GDP and inflation. 
D) Monetary policy should only respond to changes in unemployment rate.

Question 4

In the autumn of 2010, the Bank of Canada began to:

Accepted Answer

A) increase interest rates, yet rates stayed at historic lows throughout 2012. 
B) decrease interest rates even further to the point that they were at their lowest by 2012. 
C) increase interest rates, but then decreased them again in 2012. 
D) decrease interest rates, but then started increasing them again in 2012. 
A) increase interest rates, yet rates stayed at historic lows throughout 2012. 
B) decrease interest rates even further to the point that they were at their lowest by 2012. 
C) increase interest rates, but then decreased them again in 2012. 
D) decrease interest rates, but then started increasing them again in 2012.

Question 5

Bond prices and interest rates are directly related.

Accepted Answer

A) True 
 B)False

Question 6

Refer to the information below.If the money supply is $160, the equilibrium interest rate will be: Columns (1) and (2) indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money:

Accepted Answer

A) 10 percent. 
B) 8 percent. 
C) 6 percent. 
D) 4 percent. 
A) 10 percent. 
B) 8 percent. 
C) 6 percent. 
D) 4 percent.

Question 7

Refer to the market for money diagram below.Other things being equal, if the Bank of Canada increases the stock of money, the:

Accepted Answer

A) S curve would shift leftward and the equilibrium interest rate would rise. 
B) S curve would shift rightward and the equilibrium interest rate would fall. 
C) D would shift leftward and the equilibrium interest rate would fall. 
D) S curve would shift rightward, but the effect on the equilibrium interest rate would be uncertain. 
A) S curve would shift leftward and the equilibrium interest rate would rise. 
B) S curve would shift rightward and the equilibrium interest rate would fall. 
C) D would shift leftward and the equilibrium interest rate would fall. 
D) S curve would shift rightward, but the effect on the equilibrium interest rate would be uncertain.

Question 8

The Bank of Canada can use three instruments--Open-market operations, tax collection, and bank rate-to influence the chartered banks' reserves.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements is not correct?

Accepted Answer

A) Given the supply of money, a decline in the demand for money will tend to reduce the equilibrium GDP. 
B) Given the supply of money, the equilibrium interest rate will vary directly with the level of money GDP. 
C) Given the demand for money, the equilibrium interest rate will vary inversely with the supply of money. 
D) Given the supply of money, the equilibrium interest rate will vary directly with the demand for money. 
A) Given the supply of money, a decline in the demand for money will tend to reduce the equilibrium GDP. 
B) Given the supply of money, the equilibrium interest rate will vary directly with the level of money GDP. 
C) Given the demand for money, the equilibrium interest rate will vary inversely with the supply of money. 
D) Given the supply of money, the equilibrium interest rate will vary directly with the demand for money.

Question 10

Monetary policy is thought to be:

Accepted Answer

A) equally effective in moving the economy out of a recession as in controlling inflation. 
B) more effective in moving the economy out of a recession than in controlling inflation. 
C) only effective in moving the economy out of a recession. 
D) more effective in controlling inflation than in moving the economy out of a recession. 
A) equally effective in moving the economy out of a recession as in controlling inflation. 
B) more effective in moving the economy out of a recession than in controlling inflation. 
C) only effective in moving the economy out of a recession. 
D) more effective in controlling inflation than in moving the economy out of a recession.

Question 11

If the government pursues a restrictive monetary policy, then it will:

Accepted Answer

A) increase domestic interest rates, cause the dollar to appreciate, and decrease net exports. 
B) decrease domestic interest rates, cause the dollar to depreciate, and increase net exports. 
C) increase domestic interest rates, cause the dollar to depreciate, and increase net exports. 
D) increase domestic interest rates, cause the dollar to appreciate, and increase net exports. 
A) increase domestic interest rates, cause the dollar to appreciate, and decrease net exports. 
B) decrease domestic interest rates, cause the dollar to depreciate, and increase net exports. 
C) increase domestic interest rates, cause the dollar to depreciate, and increase net exports. 
D) increase domestic interest rates, cause the dollar to appreciate, and increase net exports.

Question 12

Recently, the Bank of Canada has communicated changes in its monetary policy by announcing changes in its policy targets for the:

Accepted Answer

A) growth of the money supply. 
B) overnight loans rate. 
C) prime interest rate. 
D) Canadian dollar-foreign currency exchange rate. 
A) growth of the money supply. 
B) overnight loans rate. 
C) prime interest rate. 
D) Canadian dollar-foreign currency exchange rate.

Question 13

What is one of the advantages of monetary policy over fiscal policy?

Accepted Answer

A) its control over the size of Federal budget deficits 
B) the quickness with which it can be used 
C) the opportunity for broad political influence 
D) its domination of major sectors of the economy 
A) its control over the size of Federal budget deficits 
B) the quickness with which it can be used 
C) the opportunity for broad political influence 
D) its domination of major sectors of the economy

Question 14

The opportunity cost of holding money:

Accepted Answer

A) is zero because money is not an economic resource. 
B) varies inversely with the interest rate. 
C) varies directly with the interest rate. 
D) varies inversely with the level of economic activity. 
A) is zero because money is not an economic resource. 
B) varies inversely with the interest rate. 
C) varies directly with the interest rate. 
D) varies inversely with the level of economic activity.

Question 15

Which one is considered a limitation of monetary policy?

Accepted Answer

A) the cause-effect chain 
B) its cyclical asymmetry 
C) its isolation from political pressure 
D) the speed with which it can be implemented 
A) the cause-effect chain 
B) its cyclical asymmetry 
C) its isolation from political pressure 
D) the speed with which it can be implemented

Question 16

A headline reads: " Bank of Canada cut the overnight lending rate by half a point." This suggests that:

Accepted Answer

A) the prime interest rate will rise. 
B) the velocity of money will fall. 
C) monetary policy has eased. 
D) the bank rate will rise. 
A) the prime interest rate will rise. 
B) the velocity of money will fall. 
C) monetary policy has eased. 
D) the bank rate will rise.

Question 17

Refer to the above diagram.The asset demand for money is shown by:

Accepted Answer

A) D1. 
B) D2. 
C) D3. 
D) none of the above. 
A) D1. 
B) D2. 
C) D3. 
D) none of the above.

Question 18

The purpose of a restrictive monetary policy is to:

Accepted Answer

A) increase aggregate demand. 
B) decrease aggregate demand. 
C) increase investment demand. 
D) decrease investment demand. 
A) increase aggregate demand. 
B) decrease aggregate demand. 
C) increase investment demand. 
D) decrease investment demand.

Question 19

The total quantity of money demanded is determined by:

Accepted Answer

A) subtracting the asset demand for money from the transactions demand for money. 
B) adding the transactions demand for money to the asset demand for money. 
C) subtracting the transactions demand for money from nominal GDP. 
D) adding the asset demand for money to nominal GDP. 
A) subtracting the asset demand for money from the transactions demand for money. 
B) adding the transactions demand for money to the asset demand for money. 
C) subtracting the transactions demand for money from nominal GDP. 
D) adding the asset demand for money to nominal GDP.

Question 20

Which of the following is not a tool of monetary policy?

Accepted Answer

A) changes in the bank rate 
B) open-market operations 
C) changes in tax rates 
D) switching government deposits into and out of the chartered banks 
A) changes in the bank rate 
B) open-market operations 
C) changes in tax rates 
D) switching government deposits into and out of the chartered banks

Exam 15: B: Interest Rates and Monetary Policy

The major advantages of monetary policy include its flexibility, speed, and political acceptability.

Refer to the information below.The transactions demand for money in this market would graph as a:

The so-called Taylor Rule states that:

In the autumn of 2010, the Bank of Canada began to:

Bond prices and interest rates are directly related.

Refer to the information below.If the money supply is $160, the equilibrium interest rate will be: Columns (1) and (2) indicate the transactions demand (Dt) for money and columns (1) and (3) show the asset demand (Da) for money:

Refer to the market for money diagram below.Other things being equal, if the Bank of Canada increases the stock of money, the:

The Bank of Canada can use three instruments--Open-market operations, tax collection, and bank rate-to influence the chartered banks' reserves.

Which of the following statements is not correct?

Monetary policy is thought to be:

If the government pursues a restrictive monetary policy, then it will:

Recently, the Bank of Canada has communicated changes in its monetary policy by announcing changes in its policy targets for the:

What is one of the advantages of monetary policy over fiscal policy?

The opportunity cost of holding money:

Which one is considered a limitation of monetary policy?

A headline reads: " Bank of Canada cut the overnight lending rate by half a point." This suggests that:

Refer to the above diagram.The asset demand for money is shown by:

The purpose of a restrictive monetary policy is to:

The total quantity of money demanded is determined by:

Which of the following is not a tool of monetary policy?

B: Limits, Alternatives, and Choices

A: - Limits, Alternatives, and Choices

B: The Market System and the Circular Flow

A: - The Market System and the Circular Flow

B: Demand, Supply, and Market Equilibrium

A: - Demand, Supply, and Market Equilibrium

B: Market Failures: Public Goods and Externalities

A: - Market Failures: Public Goods and Externalities

B: Governments Role and Government Failure

A: Governments Role and Government Failure

B: an Introduction to Macroeconomics

A: an Introduction to Macroeconomics

B: Measuring the Economys Output

A: Measuring the Economys Output

B: Economic Growth

A: Economic Growth

B: Business Cycles, Unemployment, and Inflation

A: Business Cycles, Unemployment, and Inflation

B: Basic Macroeconomic Relationships

A: Basic Macroeconomic Relationships

B: The Aggregate Expenditures Model

A: The Aggregate Expenditures Model

B: Aggregate Demand and Aggregate Supply

A: Aggregate Demand and Aggregate Supply

B: Fiscal Policy, Deficits, Surpluses, and Debt

A: Fiscal Policy, Deficits, Surpluses, and Debt

B: Money, Banking, and Money Creation

A: Money, Banking, and Money Creation

A: Interest Rates and Monetary Policy

C: Financial Economics

A: Long-Run Macroeconomic Adjustments

B: Long-Run Macroeconomic Adjustments

A: International Trade

B: International Trade

A: The Balance of Payments and Exchange Rates

B: The Balance of Payments and Exchange Rates

The Economics of Developing Countries

Filters

Refer to the information below.If the money supply is $160, the equilibrium interest rate will be: Columns (1) and (2) indicate the transactions demand (D_t) for money and columns (1) and (3) show the asset demand (D_a) for money: