Question 1

A restrictive monetary policy invoked to reduce inflation is compatible with the goal of correcting a trade deficit.

Accepted Answer

A) True 
 B)False

Question 2

A newspaper headline reads: "Bank of Canada Raises the overnight rate for third time this year." This headline indicates that the Bank of Canada is most likely trying to:

Accepted Answer

A) stimulate the economy. 
B) increase the money supply. 
C) reduce the cost of credit. 
D) reduce inflationary pressures in the economy. 
A) stimulate the economy. 
B) increase the money supply. 
C) reduce the cost of credit. 
D) reduce inflationary pressures in the economy.

Question 3

A disequilibrium in the market for money is mainly corrected via a change in:

Accepted Answer

A) bond prices. 
B) the price level. 
C) saving levels. 
D) the money supply. 
A) bond prices. 
B) the price level. 
C) saving levels. 
D) the money supply.

Question 4

The asset demand for money is downward sloping because:

Accepted Answer

A) the opportunity cost of holding money increases as the interest rate rises. 
B) it is more attractive to hold money at high interest rates than at low interest rates. 
C) bond prices rise as interest rates rise. 
D) the opportunity cost of holding money declines as the interest rate rises. 
A) the opportunity cost of holding money increases as the interest rate rises. 
B) it is more attractive to hold money at high interest rates than at low interest rates. 
C) bond prices rise as interest rates rise. 
D) the opportunity cost of holding money declines as the interest rate rises.

Question 5

Generally, the prime interest rate:

Accepted Answer

A) moves in the opposite direction as the overnight lending rate. 
B) remains constant over long periods of time. 
C) is highly inflexible downward. 
D) moves in the same direction as the overnight lending rate. 
A) moves in the opposite direction as the overnight lending rate. 
B) remains constant over long periods of time. 
C) is highly inflexible downward. 
D) moves in the same direction as the overnight lending rate.

Question 6

The asset demand for money:

Accepted Answer

A) is unrelated to both the interest rate and the level of GDP. 
B) varies inversely with the rate of interest. 
C) varies inversely with the level of real GDP. 
D) varies directly with the level of nominal GDP. 
A) is unrelated to both the interest rate and the level of GDP. 
B) varies inversely with the rate of interest. 
C) varies inversely with the level of real GDP. 
D) varies directly with the level of nominal GDP.

Question 7

If the government pursues an expansionary monetary policy, then it will tend to:

Accepted Answer

A) lower domestic interest rates, cause the dollar to appreciate, and decrease net exports. 
B) lower domestic interest rates, cause the dollar to depreciate, and increase net exports. 
C) lower domestic interest rates, cause the dollar to depreciate, and decrease net exports. 
D) raise domestic interest rates, cause the dollar to appreciate, and decrease net exports. 
A) lower domestic interest rates, cause the dollar to appreciate, and decrease net exports. 
B) lower domestic interest rates, cause the dollar to depreciate, and increase net exports. 
C) lower domestic interest rates, cause the dollar to depreciate, and decrease net exports. 
D) raise domestic interest rates, cause the dollar to appreciate, and decrease net exports.

Question 8

When a chartered bank borrows from the Bank of Canada:

Accepted Answer

A) the supply of money automatically increases. 
B) it indicates that the chartered bank is unsound financially. 
C) the chartered bank's lending ability is increased. 
D) the chartered bank's reserves are reduced. 
A) the supply of money automatically increases. 
B) it indicates that the chartered bank is unsound financially. 
C) the chartered bank's lending ability is increased. 
D) the chartered bank's reserves are reduced.

Question 9

In the cause-effect chain, a restrictive monetary policy increases the money supply, decreases the interest rate, increases investment spending, and increases aggregate demand.

Accepted Answer

A) True 
 B)False

Question 10

Refer to the diagram below for the market for money.Other things equal, the money demand curve in the diagram would shift leftward if:

Accepted Answer

A) the asset demand for money increased. 
B) the transactions demand for money increased. 
C) nominal GDP decreased. 
D) the overall price level rose. 
A) the asset demand for money increased. 
B) the transactions demand for money increased. 
C) nominal GDP decreased. 
D) the overall price level rose.

Question 11

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 chartered banks have excess reserves of:

Accepted Answer

A) $1 
B) $6 
C) $20 
D) $0 
A) $1 
B) $6 
C) $20 
D) $0

Question 12

The Bank of Canada often communicates its intentions to tighten or loosen monetary policy by announcing a change in targets for:

Accepted Answer

A) exchange rate. 
B) overnight lending rate. 
C) prime interest rate. 
D) the velocity of money. 
A) exchange rate. 
B) overnight lending rate. 
C) prime interest rate. 
D) the velocity of money.

Question 13

In recent years, the Bank of Canada has adopted a monetary policy that focuses on:

Accepted Answer

A) the money supply as the policy target. 
B) overnight lending rate as the policy target. 
C) net exports as the policy target. 
D) the prime interest rate as a policy target. 
A) the money supply as the policy target. 
B) overnight lending rate as the policy target. 
C) net exports as the policy target. 
D) the prime interest rate as a policy target.

Question 14

The "net export effect":

Accepted Answer

A) strengthens the stimulative effect of an expansionary fiscal policy. 
B) strengthens the stimulative effect of an expansionary monetary policy 
C) weakens the stimulative effect of an expansionary monetary policy. 
D) has no perceptible impact upon stabilization policies. 
A) strengthens the stimulative effect of an expansionary fiscal policy. 
B) strengthens the stimulative effect of an expansionary monetary policy 
C) weakens the stimulative effect of an expansionary monetary policy. 
D) has no perceptible impact upon stabilization policies.

Question 15

In comparison with fiscal policy, monetary policy faces:

Accepted Answer

A) recognition lag, administrative lag, but avoids operational lag. 
B) recognition lag, administrative lag, and operational lag. 
C) recognition lag, operational lag, but avoids administrative lag. 
D) administrative lag, operational lag, but avoids recognition lag. 
A) recognition lag, administrative lag, but avoids operational lag. 
B) recognition lag, administrative lag, and operational lag. 
C) recognition lag, operational lag, but avoids administrative lag. 
D) administrative lag, operational lag, but avoids recognition lag.

Question 16

A fundamental policy dilemma facing the monetary authorities is that:

Accepted Answer

A) banks are immune to monetary policy. 
B) desired reserves and the bank rate cannot be changed simultaneously. 
C) bank rate and open-market operations cannot be used simultaneously. 
D) interest rates and the money supply cannot be stabilized simultaneously. 
A) banks are immune to monetary policy. 
B) desired reserves and the bank rate cannot be changed simultaneously. 
C) bank rate and open-market operations cannot be used simultaneously. 
D) interest rates and the money supply cannot be stabilized simultaneously.

Question 17

Which of the following is the most important function of the Bank of Canada?

Accepted Answer

A) the collection or clearing of cheques among chartered banks 
B) regulating the supply of money 
C) acting as a fiscal agent for the federal government 
D) holding the reserves of chartered banks 
A) the collection or clearing of cheques among chartered banks 
B) regulating the supply of money 
C) acting as a fiscal agent for the federal government 
D) holding the reserves of chartered banks

Question 18

Refer to the above table.Suppose the transactions demand for money is $300 billion and the money supply is $700 billion.A decrease in the money supply to $600 billion would cause the interest rate to:

Accepted Answer

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

Question 19

Other things equal, an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

Accepted Answer

A) True 
 B)False

Question 20

Refer to the above market for money diagram.Given Dm and Sm, an interest rate of i3 is not sustainable because:

Accepted Answer

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

Exam 15: B: Interest Rates and Monetary Policy

A restrictive monetary policy invoked to reduce inflation is compatible with the goal of correcting a trade deficit.

A newspaper headline reads: "Bank of Canada Raises the overnight rate for third time this year." This headline indicates that the Bank of Canada is most likely trying to:

A disequilibrium in the market for money is mainly corrected via a change in:

The asset demand for money is downward sloping because:

Generally, the prime interest rate:

The asset demand for money:

If the government pursues an expansionary monetary policy, then it will tend to:

When a chartered bank borrows from the Bank of Canada:

In the cause-effect chain, a restrictive monetary policy increases the money supply, decreases the interest rate, increases investment spending, and increases aggregate demand.

Refer to the diagram below for the market for money.Other things equal, the money demand curve in the diagram would shift leftward if:

The Bank of Canada often communicates its intentions to tighten or loosen monetary policy by announcing a change in targets for:

In recent years, the Bank of Canada has adopted a monetary policy that focuses on:

The "net export effect":

In comparison with fiscal policy, monetary policy faces:

A fundamental policy dilemma facing the monetary authorities is that:

Which of the following is the most important function of the Bank of Canada?

Refer to the above table.Suppose the transactions demand for money is $300 billion and the money supply is $700 billion.A decrease in the money supply to $600 billion would cause the interest rate to:

Other things equal, an expansionary monetary policy will shift the economy's aggregate demand curve to the right.

Refer to the above market for money diagram.Given Dm and Sm, an interest rate of i3 is not sustainable because:

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 above market for money diagram.Given D_m and S_m, an interest rate of i₃ is not sustainable because: