Question 1

In which of the following instances can we be certain that the quantity of money demanded by the public will decrease?

Accepted Answer

A) nominal GDP decreases and the interest rate decreases 
B) nominal GDP increases and the interest rate decreases 
C) nominal GDP decreases and the interest rate increases 
D) nominal GDP increases and the interest rate increases 
A) nominal GDP decreases and the interest rate decreases 
B) nominal GDP increases and the interest rate decreases 
C) nominal GDP decreases and the interest rate increases 
D) nominal GDP increases and the interest rate increases

Question 2

The effect of quantitative easing is to:

Accepted Answer

A) lowering bond prices and thus reduce interest rates. 
B) raising bond prices and thus increase interest rates. 
C) raising bond prices and thus reduce interest rates. 
D) lowering bond prices and thus increase interest rates. 
A) lowering bond prices and thus reduce interest rates. 
B) raising bond prices and thus increase interest rates. 
C) raising bond prices and thus reduce interest rates. 
D) lowering bond prices and thus increase interest rates.

Question 3

Refer to the graph below, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money.If the market for money is in equilibrium at a 6 percent rate of interest and the money supply increases, then Sm2 will shift to:

Accepted Answer

A) Sm3 and the interest rate will be 4 percent. 
B) Sm3 and the interest rate will be 8 percent. 
C) Sm1 and the interest rate will be 8 percent. 
D) Sm1 and the interest rate will be 4 percent. 
A) Sm3 and the interest rate will be 4 percent. 
B) Sm3 and the interest rate will be 8 percent. 
C) Sm1 and the interest rate will be 8 percent. 
D) Sm1 and the interest rate will be 4 percent.

Question 4

Which statement is true?

Accepted Answer

A) Bond prices and the interest rate are inversely related. 
B) A lower interest rate raises the opportunity cost of holding money. 
C) The supply of money is directly related to the interest rate. 
D) The total demand for money is directly related to the interest rate. 
A) Bond prices and the interest rate are inversely related. 
B) A lower interest rate raises the opportunity cost of holding money. 
C) The supply of money is directly related to the interest rate. 
D) The total demand for money is directly related to the interest rate.

Question 5

Notes in circulation are:

Accepted Answer

A) an asset as viewed by the Bank of Canada. 
B) a liability as viewed by the Bank of Canada. 
C) neither an asset nor a liability as viewed by the Bank of Canada. 
D) part of M1, but not of M2 or M2+. 
A) an asset as viewed by the Bank of Canada. 
B) a liability as viewed by the Bank of Canada. 
C) neither an asset nor a liability as viewed by the Bank of Canada. 
D) part of M1, but not of M2 or M2+.

Question 6

The reason for the Bank of Canada to have a range for its inflation targeting is that some of the components of the CPI, fluctuate a lot.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements is correct?

Accepted Answer

A) Interest rates and bond prices vary directly. 
B) Interest rates and bond prices vary inversely. 
C) Interest rates and bond prices are unrelated. 
D) Interest rates and bond prices vary directly during inflations and inversely during recessions. 
A) Interest rates and bond prices vary directly. 
B) Interest rates and bond prices vary inversely. 
C) Interest rates and bond prices are unrelated. 
D) Interest rates and bond prices vary directly during inflations and inversely during recessions.

Question 8

Assume the Bank of Canada creates excess reserves in the banking system by buying government bonds, but banks do not make more loans because economic conditions are bad.This situation is a problem of:

Accepted Answer

A) cyclical asymmetry. 
B) a restrictive monetary policy. 
C) the net export effect. 
D) a decrease in the velocity of money. 
A) cyclical asymmetry. 
B) a restrictive monetary policy. 
C) the net export effect. 
D) a decrease in the velocity of money.

Question 9

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 falls by $200, the interest rate in effect will:

Accepted Answer

A) rise by 2.5 percentage points. 
B) rise by 5 percentage points. 
C) fall by 2.5 percentage points. 
D) fall by 5 percentage points. 
A) rise by 2.5 percentage points. 
B) rise by 5 percentage points. 
C) fall by 2.5 percentage points. 
D) fall by 5 percentage points.

Question 10

If the monetary authorities want to reduce chartered bank lending they should:

Accepted Answer

A) take actions to reduce chartered bank reserves. 
B) take actions to increase chartered bank reserves. 
C) ask the chartered banks to lower the desired reserve ratio. 
D) do none of the above. 
A) take actions to reduce chartered bank reserves. 
B) take actions to increase chartered bank reserves. 
C) ask the chartered banks to lower the desired reserve ratio. 
D) do none of the above.

Question 11

The easy money of Japan during the 1990s and early 2000s:

Accepted Answer

A) was effective in reducing high inflation. 
B) was effective in stimulating the economy. 
C) suffered from cyclical asymmetry. 
D) resulted in an increase in aggregate supply. 
A) was effective in reducing high inflation. 
B) was effective in stimulating the economy. 
C) suffered from cyclical asymmetry. 
D) resulted in an increase in aggregate supply.

Question 12

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

Accepted Answer

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

Question 13

In the consolidated balance sheet of the Bank of Canada, loans to chartered banks are:

Accepted Answer

A) a liability of the Bank of Canada and chartered banks. 
B) an asset of the Bank of Canada and chartered banks. 
C) a liability of the Bank of Canada and an asset for chartered banks. 
D) an asset of the Bank of Canada and a liability for chartered banks. 
A) a liability of the Bank of Canada and chartered banks. 
B) an asset of the Bank of Canada and chartered banks. 
C) a liability of the Bank of Canada and an asset for chartered banks. 
D) an asset of the Bank of Canada and a liability for chartered banks.

Question 14

Refer to the graph given below.   In the above graph, Dt represents the transactions demand for money, Dm represents the total demand for money, and Sm represents the supply of money.The transactions demand for money in this market is:

Accepted Answer

A) $125. 
B) $175. 
C) $250. 
D) $325. 
A) $125. 
B) $175. 
C) $250. 
D) $325.

Question 15

Refer to the above diagram for the market for money.If each dollar held for transactions purposes is spent four times per year on the average, we can infer that the:

Accepted Answer

A) real GDP is $800. 
B) nominal GDP is $800. 
C) money supply must be $800. 
D) nominal GDP is $1,200. 
A) real GDP is $800. 
B) nominal GDP is $800. 
C) money supply must be $800. 
D) nominal GDP is $1,200.

Question 16

An expansionary monetary policy that is used to stimulate economic growth in the domestic economy:

Accepted Answer

A) increases the overnight rate. 
B) results in a selling of government securities. 
C) is compatible with the economic goal of correcting a trade deficit. 
D) conflicts with the economic goal of correcting a trade deficit. 
A) increases the overnight rate. 
B) results in a selling of government securities. 
C) is compatible with the economic goal of correcting a trade deficit. 
D) conflicts with the economic goal of correcting a trade deficit.

Question 17

Refer to the graphs below.The first graph shows the money market of an economy, and the second graph shows the market for goods and services in the economy.     In the above diagrams, the numbers in the parentheses after the AD1, AD2, and AD3 labels indicate the levels of investment spending associated with each AD curve.All figures are in billions.Qf is the full-employment level of real output.Suppose the economy is in equilibrium at point C on the aggregate demand curve.Which of the following should the monetary authorities pursue to achieve a non-inflationary full-employment level of real GDP?

Accepted Answer

A) They should increase the money supply from $75 billion to $150 billion. 
B) They should increase the money supply from $150 billion to $225 billion. 
C) They should decrease the money supply from $225 billion to $50 billion. 
D) They should decrease interest rates from 12 percent to 4 percent. 
A) They should increase the money supply from $75 billion to $150 billion. 
B) They should increase the money supply from $150 billion to $225 billion. 
C) They should decrease the money supply from $225 billion to $50 billion. 
D) They should decrease interest rates from 12 percent to 4 percent.

Question 18

Which of the following is correct? When the Bank of Canada buys bonds on the open market, the money supply:

Accepted Answer

A) contracts and chartered bank reserves increase. 
B) expands and chartered bank reserves decrease. 
C) contracts and chartered bank reserves decrease. 
D) expands and chartered bank reserves increase. 
A) contracts and chartered bank reserves increase. 
B) expands and chartered bank reserves decrease. 
C) contracts and chartered bank reserves decrease. 
D) expands and chartered bank reserves increase.

Question 19

The economy is experiencing high unemployment and a low rate of economic growth and the Bank of Canada decides to pursue an expansionary monetary policy.Which action by the Bank of Canada would be most consistent with this policy?

Accepted Answer

A) buying government securities 
B) selling government securities 
C) raising the desired reserve ratio 
D) raising the bank rate 
A) buying government securities 
B) selling government securities 
C) raising the desired reserve ratio 
D) raising the bank rate

Question 20

The most important day-to-day monetary instrument that the Bank of Canada uses to achieve the desired interest rate and therefore the price stability is:

Accepted Answer

A) open-market operations. 
B) the bank rate. 
C) the government expenditure. 
D) the prime interest rate. 
A) open-market operations. 
B) the bank rate. 
C) the government expenditure. 
D) the prime interest rate.

Exam 15: B: Interest Rates and Monetary Policy

In which of the following instances can we be certain that the quantity of money demanded by the public will decrease?

The effect of quantitative easing is to:

Refer to the graph below, in which Dt is the transactions demand for money, Dm is the total demand for money, and Sm is the supply of money.If the market for money is in equilibrium at a 6 percent rate of interest and the money supply increases, then Sm2 will shift to:

Which statement is true?

Notes in circulation are:

The reason for the Bank of Canada to have a range for its inflation targeting is that some of the components of the CPI, fluctuate a lot.

Which of the following statements is correct?

Assume the Bank of Canada creates excess reserves in the banking system by buying government bonds, but banks do not make more loans because economic conditions are bad.This situation is a problem of:

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 falls by $200, the interest rate in effect will:

If the monetary authorities want to reduce chartered bank lending they should:

The easy money of Japan during the 1990s and early 2000s:

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

In the consolidated balance sheet of the Bank of Canada, loans to chartered banks are:

Refer to the graph given below. In the above graph, Dt represents the transactions demand for money, Dm represents the total demand for money, and Sm represents the supply of money.The transactions demand for money in this market is:

Refer to the above diagram for the market for money.If each dollar held for transactions purposes is spent four times per year on the average, we can infer that the:

An expansionary monetary policy that is used to stimulate economic growth in the domestic economy:

Which of the following is correct? When the Bank of Canada buys bonds on the open market, the money supply:

The economy is experiencing high unemployment and a low rate of economic growth and the Bank of Canada decides to pursue an expansionary monetary policy.Which action by the Bank of Canada would be most consistent with this policy?

The most important day-to-day monetary instrument that the Bank of Canada uses to achieve the desired interest rate and therefore the price stability is:

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 graph below, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money.If the market for money is in equilibrium at a 6 percent rate of interest and the money supply increases, then S_m2 will shift to:

Refer to the graph given below. In the above graph, D_t represents the transactions demand for money, D_m represents the total demand for money, and S_m represents the supply of money.The transactions demand for money in this market is: