Question 1

In 2004, the Bank of Canada reduced the overnight rate to as low as:

Accepted Answer

A) 4 percent, in an effort to slow down the economy. 
B) 2 percent, in an effort to slow down the growth of the economy. 
C) 2 percent, in an effort to stimulate the economy. 
D) 3 percent, in an effort to stimulate the economy. 
A) 4 percent, in an effort to slow down the economy. 
B) 2 percent, in an effort to slow down the growth of the economy. 
C) 2 percent, in an effort to stimulate the economy. 
D) 3 percent, in an effort to stimulate the economy.

Question 2

If the amount of money demanded exceeds the amount supplied, it can be expected that the:

Accepted Answer

A) demand-for-money curve will shift to the left. 
B) money supply curve will shift to the right. 
C) interest rate will rise. 
D) interest rate will fall. 
A) demand-for-money curve will shift to the left. 
B) money supply curve will shift to the right. 
C) interest rate will rise. 
D) interest rate will fall.

Question 3

The Sale and Repurchase Agreement (SRA), is a transaction in which:

Accepted Answer

A) the Bank of Canada offers to sell government securities with an agreement to buy them back at a predetermined price the next business day. 
B) the Bank of Canada offers to sell government securities with an agreement to buy them back at a predetermined price the next year. 
C) the Bank of Canada offers to buy government securities with an agreement to sell them back at a predetermined price the next business day. 
D) the Bank of Canada offers to buy government securities with an agreement to sell them back at a predetermined price the next month. 
A) the Bank of Canada offers to sell government securities with an agreement to buy them back at a predetermined price the next business day. 
B) the Bank of Canada offers to sell government securities with an agreement to buy them back at a predetermined price the next year. 
C) the Bank of Canada offers to buy government securities with an agreement to sell them back at a predetermined price the next business day. 
D) the Bank of Canada offers to buy government securities with an agreement to sell them back at a predetermined price the next month.

Question 4

When the market for money is in equilibrium:

Accepted Answer

A) the quantity of money demanded equals the quantity of money supplied. 
B) the interest rate is neither increasing nor decreasing. 
C) bond prices are stable. 
D) all of the above hold true. 
A) the quantity of money demanded equals the quantity of money supplied. 
B) the interest rate is neither increasing nor decreasing. 
C) bond prices are stable. 
D) all of the above hold true.

Question 5

If the demand for money increases and the monetary authorities want interest rates to remain unchanged, which of the following would be appropriate policy?

Accepted Answer

A) recall currency from circulation 
B) raise the desired reserves 
C) buy bonds in the open market 
D) raise the bank rate 
A) recall currency from circulation 
B) raise the desired reserves 
C) buy bonds in the open market 
D) raise the bank rate

Question 6

To reduce the overnight lending rate, the Bank of Canada can:

Accepted Answer

A) buy government bonds from the chartered banks. 
B) increase the bank rate. 
C) increase the prime interest rate. 
D) sell government bonds to chartered banks. 
A) buy government bonds from the chartered banks. 
B) increase the bank rate. 
C) increase the prime interest rate. 
D) sell government bonds to chartered banks.

Question 7

The price of government bonds and the interest rate received by a bond buyer are:

Accepted Answer

A) negatively related. 
B) unrelated. 
C) positively related. 
D) independent of Bank of Canada open-market operations. 
A) negatively related. 
B) unrelated. 
C) positively related. 
D) independent of Bank of Canada open-market operations.

Question 8

When chartered banks borrow from the Bank of Canada, they decrease their excess reserves and their money-creating potential.

Accepted Answer

A) True 
 B)False

Question 9

Which one of the following would be most compatible with the goals of the government to both improve economic growth and reduce the trade deficit?

Accepted Answer

A) a restrictive monetary policy 
B) an expansionary monetary policy 
C) a contractionary fiscal policy 
D) an expansionary fiscal policy 
A) a restrictive monetary policy 
B) an expansionary monetary policy 
C) a contractionary fiscal policy 
D) an expansionary fiscal policy

Question 10

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Accepted Answer

A) True 
 B)False

Question 11

Refer to the above information.The equilibrium interest rate is:

Accepted Answer

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

Question 12

A shortcoming of monetary policy is that:

Accepted Answer

A) a severe recession may undermine business confidence to the degree that even a reduction in interest rate does not increase the investment. 
B) a severe recession will increase the investment demand which contributes to inflation. 
C) a severe recession will increase the interest rate and thus lowers the investment. 
D) a severe recession will reduce interest rate and increases investment demand. 
A) a severe recession may undermine business confidence to the degree that even a reduction in interest rate does not increase the investment. 
B) a severe recession will increase the investment demand which contributes to inflation. 
C) a severe recession will increase the interest rate and thus lowers the investment. 
D) a severe recession will reduce interest rate and increases investment demand.

Question 13

If the money GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes:

Accepted Answer

A) will be $1800 billion. 
B) will be $600 billion. 
C) will be $200 billion. 
D) cannot be determined from the information given. 
A) will be $1800 billion. 
B) will be $600 billion. 
C) will be $200 billion. 
D) cannot be determined from the information given.

Question 14

The problem of "cyclical asymmetry" refers to the notion that:

Accepted Answer

A) monetary policy may be more successful in slowing expansions and controlling inflation than in extracting the economy from severe recession. 
B) the monetary authorities have been less willing to use an expansionary monetary policy than they have a restrictive monetary policy. 
C) cyclical downswings are typically of longer duration than cyclical upswings. 
D) an expansionary monetary policy can force an expansion of the money supply, but a restrictive monetary policy may not achieve a contraction of the money supply. 
A) monetary policy may be more successful in slowing expansions and controlling inflation than in extracting the economy from severe recession. 
B) the monetary authorities have been less willing to use an expansionary monetary policy than they have a restrictive monetary policy. 
C) cyclical downswings are typically of longer duration than cyclical upswings. 
D) an expansionary monetary policy can force an expansion of the money supply, but a restrictive monetary policy may not achieve a contraction of the money supply.

Question 15

Which of the following is correct?

Accepted Answer

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

Question 16

In the Canadian economy, the money supply is controlled by:

Accepted Answer

A) Parliament. 
B) the House of Commons Committee on Finance. 
C) the Department of Finance the Bank of Canada. 
D) the Bank of Canada. 
A) Parliament. 
B) the House of Commons Committee on Finance. 
C) the Department of Finance the Bank of Canada. 
D) the Bank of Canada.

Question 17

If the monetary authority wished to follow a restrictive monetary policy, it would buy government securities in the open market.

Accepted Answer

A) True 
 B)False

Question 18

International flows of financial capital in response to interest rate changes in Canada:

Accepted Answer

A) weaken domestic monetary policy through an offsetting net export effect. 
B) strengthen domestic monetary policy through a supporting net export effect. 
C) strengthen domestic fiscal policy through an offsetting net export effect. 
D) weaken domestic monetary policy through an offsetting real wealth effect. 
A) weaken domestic monetary policy through an offsetting net export effect. 
B) strengthen domestic monetary policy through a supporting net export effect. 
C) strengthen domestic fiscal policy through an offsetting net export effect. 
D) weaken domestic monetary policy through an offsetting real wealth effect.

Question 19

Refer to the above information.An increase in the money supply of $20 billion will cause the equilibrium interest rate to:

Accepted Answer

A) fall by 4 percentage points. 
B) fall by 2 percentage points. 
C) rise by 4 percentage points. 
D) rise by 2 percentage points. 
A) fall by 4 percentage points. 
B) fall by 2 percentage points. 
C) rise by 4 percentage points. 
D) rise by 2 percentage points.

Question 20

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 above information.These data suggest that the amount of money demanded for transactions purposes:

Accepted Answer

A) varies directly with the interest rate. 
B) varies inversely with the interest rate. 
C) varies inversely with the GDP. 
D) is independent of the interest rate. 
A) varies directly with the interest rate. 
B) varies inversely with the interest rate. 
C) varies inversely with the GDP. 
D) is independent of the interest rate.

Exam 15: B: Interest Rates and Monetary Policy

In 2004, the Bank of Canada reduced the overnight rate to as low as:

If the amount of money demanded exceeds the amount supplied, it can be expected that the:

The Sale and Repurchase Agreement (SRA), is a transaction in which:

When the market for money is in equilibrium:

If the demand for money increases and the monetary authorities want interest rates to remain unchanged, which of the following would be appropriate policy?

To reduce the overnight lending rate, the Bank of Canada can:

The price of government bonds and the interest rate received by a bond buyer are:

When chartered banks borrow from the Bank of Canada, they decrease their excess reserves and their money-creating potential.

Which one of the following would be most compatible with the goals of the government to both improve economic growth and reduce the trade deficit?

A decrease in the nominal GDP, other things remaining the same, will decrease both the total demand for money and the equilibrium rate of interest in the economy.

Refer to the above information.The equilibrium interest rate is:

A shortcoming of monetary policy is that:

If the money GDP is $600 billion and, on the average, each dollar is spent three times per year, then the amount of money demanded for transactions purposes:

The problem of "cyclical asymmetry" refers to the notion that:

Which of the following is correct?

In the Canadian economy, the money supply is controlled by:

If the monetary authority wished to follow a restrictive monetary policy, it would buy government securities in the open market.

International flows of financial capital in response to interest rate changes in Canada:

Refer to the above information.An increase in the money supply of $20 billion will cause the equilibrium interest rate to:

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 above information.These data suggest that the amount of money demanded for transactions purposes:

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

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: Refer to the above information.These data suggest that the amount of money demanded for transactions purposes: