Question 1

Lower bond prices reduce interest rates.

Accepted Answer

A) True 
 B)False

Question 2

Assume that the desired reserve ratio is 10 percent and there are no excess reserves in the banking system.Also, suppose that the full-employment, non-inflationary level of GDP in this closed, private economy is $1,200.   Refer to the above information.An interest rate of 2 percent is not sustainable because:

Accepted Answer

A) the demand for bonds in the bond market will fall and the interest rate will fall. 
B) the demand for bonds in the bond market will rise and the interest rate will fall. 
C) the supply of bonds in the bond market will decline and the interest rate will rise. 
D) the supply of bonds in the bond market will rise and the interest rate will rise. 
A) the demand for bonds in the bond market will fall and the interest rate will fall. 
B) the demand for bonds in the bond market will rise and the interest rate will fall. 
C) the supply of bonds in the bond market will decline and the interest rate will rise. 
D) the supply of bonds in the bond market will rise and the interest rate will rise.

Question 3

Which of the following will not happen when the Bank of Canada buys bonds from the public in the open market?

Accepted Answer

A) The desired reserve ratio will increase. 
B) The money supply will increase. 
C) The deposits of chartered banks will increase. 
D) Chartered bank reserves will increase. 
A) The desired reserve ratio will increase. 
B) The money supply will increase. 
C) The deposits of chartered banks will increase. 
D) Chartered bank reserves will increase.

Question 4

All else equal, when the Bank of Canada engages in a restrictive monetary policy, the price of government securities tends to:

Accepted Answer

A) fall. 
B) rise. 
C) remain constant. 
D) move in the same direction as the bonds' interest rate yield. 
A) fall. 
B) rise. 
C) remain constant. 
D) move in the same direction as the bonds' interest rate yield.

Question 5

Which of the following is an expansionary monetary policy?

Accepted Answer

A) Increase the money supply to shift the aggregate demand curve rightward. 
B) Increase the money supply to shift the aggregate demand curve leftward. 
C) Increase the money supply to shift the aggregate supply curve leftward. 
D) Decrease the money supply to shift the aggregate demand curve leftward. 
A) Increase the money supply to shift the aggregate demand curve rightward. 
B) Increase the money supply to shift the aggregate demand curve leftward. 
C) Increase the money supply to shift the aggregate supply curve leftward. 
D) Decrease the money supply to shift the aggregate demand curve leftward.

Question 6

The major purpose of the Bank of Canada buying and selling government securities in open market operations is to:

Accepted Answer

A) achieve the desired interest rate. 
B) raise money for government spending. 
C) reduce the amount of government securities it holds. 
D) raise money for a future tax cut. 
A) achieve the desired interest rate. 
B) raise money for government spending. 
C) reduce the amount of government securities it holds. 
D) raise money for a future tax cut.

Question 7

Assume that a single chartered bank has no excess reserves and that the desired reserve ratio is 20 percent.If this bank sells a bond for $1,000 to the Bank of Canada, it can expand its loans by a maximum of:

Accepted Answer

A) $1000 
B) $2000 
C) $200 
D) $800 
A) $1000 
B) $2000 
C) $200 
D) $800

Question 8

If in the market for money the money supply exceeds the quantity of money households and businesses want to hold, we would expect the interest rate to:

Accepted Answer

A) fall, causing households and businesses to hold less money. 
B) rise, causing households and businesses to hold less money. 
C) rise, causing households and businesses to hold more money. 
D) fall, causing households and businesses to hold more money. 
A) fall, causing households and businesses to hold less money. 
B) rise, causing households and businesses to hold less money. 
C) rise, causing households and businesses to hold more money. 
D) fall, causing households and businesses to hold more money.

Question 9

The transactions demand for money curve is assumed to be:

Accepted Answer

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

Question 10

Which of the following is an asset on the balance sheet of the Bank of Canada?

Accepted Answer

A) reserves of chartered banks 
B) Government of Canada deposits 
C) Bank of Canada notes in circulation 
D) advances to chartered banks 
A) reserves of chartered banks 
B) Government of Canada deposits 
C) Bank of Canada notes in circulation 
D) advances to chartered banks

Question 11

It is assumed that households and businesses want to hold for transactions purposes an amount of money equal to one-half of the GDP.The table shows the amounts of money that households and businesses want to hold as an asset at various interest rates.   Refer to the information above.If the GDP is $300 and the supply of money is $230, the equilibrium interest rate will be:

Accepted Answer

A) 8 percent. 
B) 6 percent. 
C) 2 percent. 
D) 4 percent. 
A) 8 percent. 
B) 6 percent. 
C) 2 percent. 
D) 4 percent.

Question 12

In implementing monetary policy with respect to the Taylor Rule:

Accepted Answer

A) the central bank is willing to tolerate a 2 percent target rate of inflation, and that the central bank should follow three rules when setting its target for the overnight lending rate. 
B) the central bank is willing to tolerate a 5 percent target rate of inflation, and that the central bank should follow three rules when setting its target for the overnight lending rate. 
C) the central bank is willing to tolerate any inflation rate, and overnight lending rate. 
D) the central bank chooses an inflation target regardless of the economic situation. 
A) the central bank is willing to tolerate a 2 percent target rate of inflation, and that the central bank should follow three rules when setting its target for the overnight lending rate. 
B) the central bank is willing to tolerate a 5 percent target rate of inflation, and that the central bank should follow three rules when setting its target for the overnight lending rate. 
C) the central bank is willing to tolerate any inflation rate, and overnight lending rate. 
D) the central bank chooses an inflation target regardless of the economic situation.

Question 13

Which of the following statements best describes the Bank of Canada? It is:

Accepted Answer

A) a publicly owned and publicly controlled central bank, whose basic goal is to provide income for the Government of Canada. 
B) a privately owned and publicly controlled central bank, whose basic goal is to earn profits for its owners. 
C) a publicly owned and publicly controlled central bank, whose basic goal is to control the money supply and interest rates and maintain price stability and it is an independent agency of government. 
D) a privately owned and publicly controlled central bank, whose basic function is to minimize the risks in chartered banking in order to make it a reasonably profitable industry. 
A) a publicly owned and publicly controlled central bank, whose basic goal is to provide income for the Government of Canada. 
B) a privately owned and publicly controlled central bank, whose basic goal is to earn profits for its owners. 
C) a publicly owned and publicly controlled central bank, whose basic goal is to control the money supply and interest rates and maintain price stability and it is an independent agency of government. 
D) a privately owned and publicly controlled central bank, whose basic function is to minimize the risks in chartered banking in order to make it a reasonably profitable industry.

Question 14

The purchase of government securities from the public by the Bank of Canada will cause:

Accepted Answer

A) chartered bank reserves to increase. 
B) the money supply to increase. 
C) demand deposits to increase. 
D) all of the above to occur. 
A) chartered bank reserves to increase. 
B) the money supply to increase. 
C) demand deposits to increase. 
D) all of the above to occur.

Question 15

The transactions demand for money is most closely related to money functioning as a:

Accepted Answer

A) unit of account. 
B) medium of exchange. 
C) store of value. 
D) both store of value and unit of account. 
A) unit of account. 
B) medium of exchange. 
C) store of value. 
D) both store of value and unit of account.

Question 16

Because of the liquidity trap, the Bank of Canada's creation of billions of dollars in excess reserves during the great recession had:

Accepted Answer

A) little or no effect on lending by the chartered banks. 
B) a significant effect on lending by the chartered banks. 
C) the effect of increasing the overnight lending rate. 
D) the effect of increasing the bank rate. 
A) little or no effect on lending by the chartered banks. 
B) a significant effect on lending by the chartered banks. 
C) the effect of increasing the overnight lending rate. 
D) the effect of increasing the bank rate.

Question 17

Which of the following statements is not correct?

Accepted Answer

A) The supply of money decreases when the Bank of Canada buys government securities from households or businesses. 
B) Excess reserves are the amount by which actual reserves exceed desired reserves. 
C) Chartered banks increase the supply of money when they purchase government bonds from households or businesses. 
D) Chartered bank reserves are an asset to chartered banks but a liability to the Bank of Canada. 
A) The supply of money decreases when the Bank of Canada buys government securities from households or businesses. 
B) Excess reserves are the amount by which actual reserves exceed desired reserves. 
C) Chartered banks increase the supply of money when they purchase government bonds from households or businesses. 
D) Chartered bank reserves are an asset to chartered banks but a liability to the Bank of Canada.

Question 18

Assume the equation for the total demand for money is L = .4Y + 80 - 4i, where L is the amount of money demanded, Y is gross domestic product, and i is the interest rate.If gross domestic product is $200 and the interest rate is 10 (percent), what amount of money will society want to hold?

Accepted Answer

A) $200 
B) $120 
C) $320 
D) $160 
A) $200 
B) $120 
C) $320 
D) $160

Question 19

In the Bank of Canada's consolidated balance sheet, the largest asset is:

Accepted Answer

A) loans to chartered banks. 
B) notes in circulation. 
C) government deposits. 
D) government securities. 
A) loans to chartered banks. 
B) notes in circulation. 
C) government deposits. 
D) government securities.

Question 20

An expansionary monetary policy reduces the supply of money.

Accepted Answer

A) True 
 B)False

Exam 15: B: Interest Rates and Monetary Policy

Lower bond prices reduce interest rates.

Which of the following will not happen when the Bank of Canada buys bonds from the public in the open market?

All else equal, when the Bank of Canada engages in a restrictive monetary policy, the price of government securities tends to:

Which of the following is an expansionary monetary policy?

The major purpose of the Bank of Canada buying and selling government securities in open market operations is to:

Assume that a single chartered bank has no excess reserves and that the desired reserve ratio is 20 percent.If this bank sells a bond for $1,000 to the Bank of Canada, it can expand its loans by a maximum of:

If in the market for money the money supply exceeds the quantity of money households and businesses want to hold, we would expect the interest rate to:

The transactions demand for money curve is assumed to be:

Which of the following is an asset on the balance sheet of the Bank of Canada?

In implementing monetary policy with respect to the Taylor Rule:

Which of the following statements best describes the Bank of Canada? It is:

The purchase of government securities from the public by the Bank of Canada will cause:

The transactions demand for money is most closely related to money functioning as a:

Because of the liquidity trap, the Bank of Canada's creation of billions of dollars in excess reserves during the great recession had:

Which of the following statements is not correct?

Assume the equation for the total demand for money is L = .4Y + 80 - 4i, where L is the amount of money demanded, Y is gross domestic product, and i is the interest rate.If gross domestic product is $200 and the interest rate is 10 (percent), what amount of money will society want to hold?

In the Bank of Canada's consolidated balance sheet, the largest asset is:

An expansionary monetary policy reduces the supply of money.

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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