Question 1

The bank rate is the interest rate at which chartered banks lend to their best corporate customers.

Accepted Answer

A) True 
 B)False

Question 2

Refer to the above market for money diagram.If the interest rate was at 8 percent, people would:

Accepted Answer

A) sell bonds, which would cause bond prices to fall and the interest rate to fall. 
B) buy bonds, which would cause bond prices to rise and the interest rate to fall. 
C) have insufficient liquidity, which would cause them to reduce their spending on consumer goods. 
D) buy bonds, which would cause bond prices to fall and the interest rate to rise. 
A) sell bonds, which would cause bond prices to fall and the interest rate to fall. 
B) buy bonds, which would cause bond prices to rise and the interest rate to fall. 
C) have insufficient liquidity, which would cause them to reduce their spending on consumer goods. 
D) buy bonds, which would cause bond prices to fall and the interest rate to rise.

Question 3

The purpose of an expansionary monetary policy is to shift the:

Accepted Answer

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

Question 4

In terms of the aggregate demand and aggregate supply model, the sale of government bonds by the Bank of Canada to chartered banks will:

Accepted Answer

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

Question 5

The bank rate is the rate of interest at which

Accepted Answer

A) chartered banks lend to large corporations. 
B) the Bank of Canada lends to large corporations. 
C) savings and loan associations lend to home builders. 
D) the Bank of Canada lends to chartered banks. 
A) chartered banks lend to large corporations. 
B) the Bank of Canada lends to large corporations. 
C) savings and loan associations lend to home builders. 
D) the Bank of Canada lends to chartered banks.

Question 6

The strengths of monetary policy compared to fiscal policy are generally thought to include all of the following except greater:

Accepted Answer

A) speed. 
B) flexibility. 
C) impact on taxation. 
D) isolation from political pressure. 
A) speed. 
B) flexibility. 
C) impact on taxation. 
D) isolation from political pressure.

Question 7

A decline in the equilibrium level of GDP is most likely to be caused by:

Accepted Answer

A) a downshift in the investment schedule. 
B) an upshift in the investment schedule. 
C) a downshift in the consumption schedule. 
D) an upshift in the saving schedule. 
A) a downshift in the investment schedule. 
B) an upshift in the investment schedule. 
C) a downshift in the consumption schedule. 
D) an upshift in the saving schedule.

Question 8

The following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent.Refer to the above information.If the price of this bond increases to $1,250, the interest rate in effect will:

Accepted Answer

A) fall to 9 percent. 
B) fall to 8 percent. 
C) rise to 11 percent. 
D) rise to 12 percent. 
A) fall to 9 percent. 
B) fall to 8 percent. 
C) rise to 11 percent. 
D) rise to 12 percent.

Question 9

Refer to the above information.All else equal, the transaction demand for money in this table would increase if:

Accepted Answer

A) nominal GDP increased. 
B) the interest rate fell. 
C) the supply of money increased. 
D) the supply of money decreased. 
A) nominal GDP increased. 
B) the interest rate fell. 
C) the supply of money increased. 
D) the supply of money decreased.

Question 10

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Accepted Answer

A) A decrease in the money supply will lower the interest rate, increase investment spending, and increase GDP. 
B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease GDP. 
C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease GDP. 
D) An increase in the money supply will lower the interest rate, decrease investment spending, and increase GDP. 
A) A decrease in the money supply will lower the interest rate, increase investment spending, and increase GDP. 
B) A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease GDP. 
C) An increase in the money supply will raise the interest rate, decrease investment spending, and decrease GDP. 
D) An increase in the money supply will lower the interest rate, decrease investment spending, and increase GDP.

Question 11

Which of the following is correct?

Accepted Answer

A) A restrictive monetary policy will cause the dollar to appreciate and Canadian net exports to increase. 
B) A restrictive monetary policy will cause the dollar to appreciate and Canadian net exports to decrease. 
C) A restrictive monetary policy will cause the dollar to depreciate and Canadian net exports to increase. 
D) A restrictive monetary policy will cause the dollar to depreciate and Canadian net exports to decrease. 
A) A restrictive monetary policy will cause the dollar to appreciate and Canadian net exports to increase. 
B) A restrictive monetary policy will cause the dollar to appreciate and Canadian net exports to decrease. 
C) A restrictive monetary policy will cause the dollar to depreciate and Canadian net exports to increase. 
D) A restrictive monetary policy will cause the dollar to depreciate and Canadian net exports to decrease.

Question 12

An expansionary monetary policy is appropriate for the alleviation of domestic:

Accepted Answer

A) unemployment and compatible with the goal of correcting a trade deficit. 
B) unemployment and compatible with the goal of correcting a trade surplus. 
C) inflation and compatible with the goal of correcting a trade deficit. 
D) inflation and compatible with the goal of correcting a trade surplus. 
A) unemployment and compatible with the goal of correcting a trade deficit. 
B) unemployment and compatible with the goal of correcting a trade surplus. 
C) inflation and compatible with the goal of correcting a trade deficit. 
D) inflation and compatible with the goal of correcting a trade surplus.

Question 13

An increase in the money supply will tend to:

Accepted Answer

A) lower interest rates and lower the equilibrium GDP. 
B) lower interest rates and increase the equilibrium GDP. 
C) increase interest rates and increase the equilibrium GDP. 
D) increase interest rates and lower the equilibrium GDP. 
A) lower interest rates and lower the equilibrium GDP. 
B) lower interest rates and increase the equilibrium GDP. 
C) increase interest rates and increase the equilibrium GDP. 
D) increase interest rates and lower the equilibrium GDP.

Question 14

The prime interest rate:

Accepted Answer

A) affects investment spending while the overnight rate affects consumption spending. 
B) affects consumption spending while the overnight rate affects investment spending. 
C) has no effect on exchange rates and net exports. 
D) affects investment spending while the overnight rate affects overnight borrowing of bank reserves. 
A) affects investment spending while the overnight rate affects consumption spending. 
B) affects consumption spending while the overnight rate affects investment spending. 
C) has no effect on exchange rates and net exports. 
D) affects investment spending while the overnight rate affects overnight borrowing of bank reserves.

Question 15

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.Suppose the Bank of Canada buys $2 in securities from the public.As a result of this transaction, the supply of money will:

Accepted Answer

A) directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38. 
B) directly increase by $40 and the money-creating potential of the chartered banking system will increase by $800. 
C) directly increase by $2 and the money-creating potential of the chartered banking system will be unaffected. 
D) be unaffected but the money-creating potential of the chartered banking system will increase by $40. 
A) directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38. 
B) directly increase by $40 and the money-creating potential of the chartered banking system will increase by $800. 
C) directly increase by $2 and the money-creating potential of the chartered banking system will be unaffected. 
D) be unaffected but the money-creating potential of the chartered banking system will increase by $40.

Question 16

Assume that the desired reserve ratio for the chartered banks is 25 percent.If Bank of Canada buys $3 billion in government securities from chartered banks we can say that, as a result of this transaction, the lending ability of the chartered banking system will:

Accepted Answer

A) decrease by $9 billion. 
B) increase by $9 billion. 
C) increase by $15 billion. 
D) increase by $12 billion. 
A) decrease by $9 billion. 
B) increase by $9 billion. 
C) increase by $15 billion. 
D) increase by $12 billion.

Question 17

In 2018, the Bank of Canada set an annual inflation target range of:

Accepted Answer

A) 1 percent to 3 percent. 
B) 2 percent to 4 percent. 
C) 3 percent to 4 percent. 
D) 2 percent to 3 percent. 
A) 1 percent to 3 percent. 
B) 2 percent to 4 percent. 
C) 3 percent to 4 percent. 
D) 2 percent to 3 percent.

Question 18

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each dollar will be spent about four times.

Accepted Answer

A) True 
 B)False

Question 19

If the Bank of Canada sells government securities to the public, which of the following transactions take place?

Accepted Answer

A) The demand deposits of chartered banks are unchanged, but their reserves increase. 
B) The demand deposits and reserves of chartered banks both decrease. 
C) The demand deposits of chartered banks are unchanged, but their reserves decrease. 
D) The demand deposits and reserves of chartered banks are both unchanged. 
A) The demand deposits of chartered banks are unchanged, but their reserves increase. 
B) The demand deposits and reserves of chartered banks both decrease. 
C) The demand deposits of chartered banks are unchanged, but their reserves decrease. 
D) The demand deposits and reserves of chartered banks are both unchanged.

Question 20

An expansionary monetary policy will decrease net exports.

Accepted Answer

A) True 
 B)False

Exam 15: B: Interest Rates and Monetary Policy

The bank rate is the interest rate at which chartered banks lend to their best corporate customers.

Refer to the above market for money diagram.If the interest rate was at 8 percent, people would:

The purpose of an expansionary monetary policy is to shift the:

In terms of the aggregate demand and aggregate supply model, the sale of government bonds by the Bank of Canada to chartered banks will:

The bank rate is the rate of interest at which

The strengths of monetary policy compared to fiscal policy are generally thought to include all of the following except greater:

A decline in the equilibrium level of GDP is most likely to be caused by:

The following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent.Refer to the above information.If the price of this bond increases to $1,250, the interest rate in effect will:

Refer to the above information.All else equal, the transaction demand for money in this table would increase if:

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Which of the following is correct?

An expansionary monetary policy is appropriate for the alleviation of domestic:

An increase in the money supply will tend to:

The prime interest rate:

Assume that the desired reserve ratio for the chartered banks is 25 percent.If Bank of Canada buys $3 billion in government securities from chartered banks we can say that, as a result of this transaction, the lending ability of the chartered banking system will:

In 2018, the Bank of Canada set an annual inflation target range of:

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion, then on average each dollar will be spent about four times.

If the Bank of Canada sells government securities to the public, which of the following transactions take place?

An expansionary monetary policy will decrease net exports.

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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