Question 1

In terms of the aggregate demand and aggregate supply model, an expansionary monetary policy is designed to shift the:

Accepted Answer

A) aggregate demand curve rightward. 
B) aggregate demand curve leftward. 
C) aggregate supply curve rightward. 
D) aggregate supply curve leftward. 
A) aggregate demand curve rightward. 
B) aggregate demand curve leftward. 
C) aggregate supply curve rightward. 
D) aggregate supply curve leftward.

Question 2

Restrictive monetary policies are most likely to be used by the central bank when an economy faces:

Accepted Answer

A) a high rate of inflation. 
B) a high rate of unemployment. 
C) a recession. 
D) a negative GDP gap. 
A) a high rate of inflation. 
B) a high rate of unemployment. 
C) a recession. 
D) a negative GDP gap.

Question 3

Which of the following would provide the most accurate description of events when monetary authorities increase the size of chartered banks' excess reserves?

Accepted Answer

A) A fall in interest rates decreases the money supply, causing an increase in investment spending, output, and employment. 
B) A rise in interest rates increases the money supply, causing a decrease in investment spending, output, and employment. 
C) The money supply is decreased, which increases the interest rate, and causes investment spending, output, and employment to decrease. 
D) The money supply is increased, which decreases the interest rate, and causes investment spending, output, and employment to increase. 
A) A fall in interest rates decreases the money supply, causing an increase in investment spending, output, and employment. 
B) A rise in interest rates increases the money supply, causing a decrease in investment spending, output, and employment. 
C) The money supply is decreased, which increases the interest rate, and causes investment spending, output, and employment to decrease. 
D) The money supply is increased, which decreases the interest rate, and causes investment spending, output, and employment to increase.

Question 4

An expansionary monetary policy may be less effective than a restrictive monetary policy because:

Accepted Answer

A) the Bank of Canada is always willing to make loans to chartered banks that are short of reserves. 
B) fiscal policy always works at cross purposes with an expansionary monetary policy. 
C) the circularity or feedback problem complicates an expansionary monetary policy more than it does a restrictive monetary policy. 
D) chartered banks may not be willing to lend their excess reserves to the customers. 
A) the Bank of Canada is always willing to make loans to chartered banks that are short of reserves. 
B) fiscal policy always works at cross purposes with an expansionary monetary policy. 
C) the circularity or feedback problem complicates an expansionary monetary policy more than it does a restrictive monetary policy. 
D) chartered banks may not be willing to lend their excess reserves to the customers.

Question 5

The overnight lending rate is:

Accepted Answer

A) higher than the prime interest rate. 
B) lower than the prime interest rate. 
C) always equal to the Bank of Canada rate. 
D) equal to the prime interest rate minus the Bank of Canada bank rate. 
A) higher than the prime interest rate. 
B) lower than the prime interest rate. 
C) always equal to the Bank of Canada rate. 
D) equal to the prime interest rate minus the Bank of Canada bank rate.

Question 6

The following are simplified consolidated balance sheets for the chartered banking system and the Bank of Canada.Do not cumulate your answers; that is, do return to the data given in the original balance sheets in answering each question.Assume a desired reserve ratio of 5 percent for the chartered banks.All figures are in billions of dollars.CONSOLIDATED BALANCE SHEET: CHARTERED BANKING SYSTEM   BALANCE SHEET: BANK OF CANADA
  Refer to the above information.The maximum money-creating potential of the chartered banking system is:

Accepted Answer

A) $5 
B) $19 
C) $20 
D) $0 
A) $5 
B) $19 
C) $20 
D) $0

Question 7

Refer to the above information.The total demand for money curve in this market for money would graph as a:

Accepted Answer

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

Question 8

When the Bank of Canada buys bonds on the open market the reserves of chartered banks are:

Accepted Answer

A) not affected. 
B) decreased by a multiple of the amount of the purchase. 
C) decreased by the amount of the purchase. 
D) increased initially by the amount of the purchase. 
A) not affected. 
B) decreased by a multiple of the amount of the purchase. 
C) decreased by the amount of the purchase. 
D) increased initially by the amount of the purchase.

Question 9

Which line in the above graph would best reflect the slope of the transactions demand for money curve?

Accepted Answer

A) line 1 
B) line 2 
C) line 3 
D) line 4 
A) line 1 
B) line 2 
C) line 3 
D) line 4

Question 10

Other things equal, an expansionary monetary policy will:

Accepted Answer

A) reduce net exports. 
B) increase interest rates. 
C) reduce GDP. 
D) reduce the international value of the dollar. 
A) reduce net exports. 
B) increase interest rates. 
C) reduce GDP. 
D) reduce the international value of the dollar.

Question 11

Quantitative easing refers to:

Accepted Answer

A) the selling of bonds to the private sector by a country's central bank in order to ease the money supply. 
B) the purchasing of private sector assets by a country's central bank in order to provide liquidity to the financial system. 
C) the selling of bonds by a country's central bank to the private sector in order to provide liquidity. 
D) the purchasing of private sector assets by a country's central bank in order to tighten liquidity. 
A) the selling of bonds to the private sector by a country's central bank in order to ease the money supply. 
B) the purchasing of private sector assets by a country's central bank in order to provide liquidity to the financial system. 
C) the selling of bonds by a country's central bank to the private sector in order to provide liquidity. 
D) the purchasing of private sector assets by a country's central bank in order to tighten liquidity.

Question 12

The transactions demand for money will shift to the:

Accepted Answer

A) right when the interest rate increases. 
B) left when the interest rate decreases. 
C) right when aggregate income increases. 
D) right when aggregate income decreases. 
A) right when the interest rate increases. 
B) left when the interest rate decreases. 
C) right when aggregate income increases. 
D) right when aggregate income decreases.

Question 13

The total demand for money curve will shift to the right as a result of:

Accepted Answer

A) an increase in nominal GDP. 
B) an increase in the interest rate. 
C) a decline in the interest rate. 
D) a decline in nominal GDP. 
A) an increase in nominal GDP. 
B) an increase in the interest rate. 
C) a decline in the interest rate. 
D) a decline in nominal GDP.

Question 14

The asset demand for money curve is:

Accepted Answer

A) vertical. 
B) horizontal. 
C) downward sloping. 
D) upward sloping. 
A) vertical. 
B) horizontal. 
C) downward sloping. 
D) upward sloping.

Question 15

A restrictive monetary policy in Canada is most likely to:

Accepted Answer

A) depreciate the international value of the dollar and increase Canadian net exports. 
B) depreciate the international value of the dollar and decrease Canadian net exports. 
C) appreciate the international value of the dollar and increase Canadian net exports. 
D) appreciate the international value of the dollar and decrease Canadian net exports. 
A) depreciate the international value of the dollar and increase Canadian net exports. 
B) depreciate the international value of the dollar and decrease Canadian net exports. 
C) appreciate the international value of the dollar and increase Canadian net exports. 
D) appreciate the international value of the dollar and decrease Canadian net exports.

Question 16

Which of the following statements is correct? Other things being equal:

Accepted Answer

A) a decline in real output will shift both the transactions demand curve for money and the total money demand curve to the right. 
B) a decline in the interest rate will shift the asset demand curve for money to the right, but leave the total money demand curve unchanged. 
C) deflation will shift both the transactions demand curve for money and the total money demand curve to the left. 
D) inflation will shift the transactions demand curve for money to the right, but leave the total money demand curve unchanged. 
A) a decline in real output will shift both the transactions demand curve for money and the total money demand curve to the right. 
B) a decline in the interest rate will shift the asset demand curve for money to the right, but leave the total money demand curve unchanged. 
C) deflation will shift both the transactions demand curve for money and the total money demand curve to the left. 
D) inflation will shift the transactions demand curve for money to the right, but leave the total money demand curve unchanged.

Question 17

To have an independent monetary policy and target inflation, the Bank of Canada must allow the Canadian Dollar to float.

Accepted Answer

A) True 
 B)False

Question 18

Refer to the table below.If the transactions demand for money is $400 billion, an increase in the money supply from $800 billion to $900 billion would cause the equilibrium interest rate to:

Accepted Answer

A) rise to 7 percent. 
B) rise to 6 percent. 
C) fall to 4 percent. 
D) remain at 5 percent. 
A) rise to 7 percent. 
B) rise to 6 percent. 
C) fall to 4 percent. 
D) remain at 5 percent.

Question 19

If the supply of money is reduced, we would expect:

Accepted Answer

A) the demand for money to increase. 
B) interest rates to fall 
C) bond prices to fall. 
D) none of the above to occur. 
A) the demand for money to increase. 
B) interest rates to fall 
C) bond prices to fall. 
D) none of the above to occur.

Question 20

On the liability side of the Bank of Canada's consolidated balance sheet, the three main categories are:

Accepted Answer

A) advances to chartered banks, government securities and deposits. 
B) treasury bills of Canada, government deposits and securities. 
C) chartered bank deposits, government deposits and notes in circulation. 
D) chartered banks deposits, advances to chartered banks and notes in circulation. 
A) advances to chartered banks, government securities and deposits. 
B) treasury bills of Canada, government deposits and securities. 
C) chartered bank deposits, government deposits and notes in circulation. 
D) chartered banks deposits, advances to chartered banks and notes in circulation.

Exam 15: B: Interest Rates and Monetary Policy

In terms of the aggregate demand and aggregate supply model, an expansionary monetary policy is designed to shift the:

Restrictive monetary policies are most likely to be used by the central bank when an economy faces:

Which of the following would provide the most accurate description of events when monetary authorities increase the size of chartered banks' excess reserves?

An expansionary monetary policy may be less effective than a restrictive monetary policy because:

The overnight lending rate is:

Refer to the above information.The total demand for money curve in this market for money would graph as a:

When the Bank of Canada buys bonds on the open market the reserves of chartered banks are:

Which line in the above graph would best reflect the slope of the transactions demand for money curve?

Other things equal, an expansionary monetary policy will:

Quantitative easing refers to:

The transactions demand for money will shift to the:

The total demand for money curve will shift to the right as a result of:

The asset demand for money curve is:

A restrictive monetary policy in Canada is most likely to:

Which of the following statements is correct? Other things being equal:

To have an independent monetary policy and target inflation, the Bank of Canada must allow the Canadian Dollar to float.

Refer to the table below.If the transactions demand for money is $400 billion, an increase in the money supply from $800 billion to $900 billion would cause the equilibrium interest rate to:

If the supply of money is reduced, we would expect:

On the liability side of the Bank of Canada's consolidated balance sheet, the three main categories are:

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

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