Question 1

Which of the following can put a bank under stress?

Accepted Answer

A) a widespread fall in asset prices 
B) a significant currency drain 
C) an increase in the number of customers using tellers 
D) an increase in the number of customers applying for loans 
E) Both A and B are correct. 
A) a widespread fall in asset prices 
B) a significant currency drain 
C) an increase in the number of customers using tellers 
D) an increase in the number of customers applying for loans 
E) Both A and B are correct. E

Question 2

How is consultation between the Bank of Canada and the Government of Canada on monetary policy arranged?

Accepted Answer

A) Consultations are arranged at the discretion of the Minister of Finance. 
B) No consultation is required or needed. 
C) The Bank of Canada Act requires regular consultations between the Governor and the Minister of Finance. 
D) Consultations are arranged at the discretion of the Governor of the Bank of Canada. 
E) Consultations are arranged through the Parliamentary Committee on Finance. 
A) Consultations are arranged at the discretion of the Minister of Finance. 
B) No consultation is required or needed. 
C) The Bank of Canada Act requires regular consultations between the Governor and the Minister of Finance. 
D) Consultations are arranged at the discretion of the Governor of the Bank of Canada. 
E) Consultations are arranged through the Parliamentary Committee on Finance. C

Question 3

In an open market operation aimed at increasing expenditure,the Bank of Canada

Accepted Answer

A) sells government bonds, decreasing bank reserves, decreasing lending, decreasing the overnight rate. 
B) sells government bonds, decreasing bank reserves, decreasing lending, increasing the overnight rate. 
C) sells government bonds, decreasing bank reserves, increasing lending, increasing the overnight rate. 
D) buys government bonds, increasing bank reserves, increasing lending, decreasing the overnight rate. 
E) buys government bonds, increasing bank reserves, increasing lending, increasing the overnight rate. 
A) sells government bonds, decreasing bank reserves, decreasing lending, decreasing the overnight rate. 
B) sells government bonds, decreasing bank reserves, decreasing lending, increasing the overnight rate. 
C) sells government bonds, decreasing bank reserves, increasing lending, increasing the overnight rate. 
D) buys government bonds, increasing bank reserves, increasing lending, decreasing the overnight rate. 
E) buys government bonds, increasing bank reserves, increasing lending, increasing the overnight rate. D

Question 4

In a situation of inflationary pressure,an increase in the overnight loans rate results in

Accepted Answer

A) an increase in real GDP and the price level. 
B) an increase in real GDP, but a fall in the price level. 
C) an increase in real GDP, but no change in the price level. 
D) a rise in the price level, but no change in real GDP. 
E) a fall in the price level and a decrease in real GDP. 
A) an increase in real GDP and the price level. 
B) an increase in real GDP, but a fall in the price level. 
C) an increase in real GDP, but no change in the price level. 
D) a rise in the price level, but no change in real GDP. 
E) a fall in the price level and a decrease in real GDP.

Question 5

Which of the following statements correctly describes an anti-inflationary monetary policy?

Accepted Answer

A) "The Bank of Canada's recent purchases of government securities is stimulating the housing sector." 
B) "The Bank of Canada's recent moves to lower interest rates are behind the recent decreases in the value of the Canadian dollar." 
C) "The Bank of Canada's recent moves to increase the overnight loans rate are leading to less lending and less consumer spending." 
D) "The Bank of Canada's recent sales of government securities are stimulating the housing sector." 
E) "The Bank of Canada's recent moves to decrease the value of the Canadian dollar are leading to more spending in the economy." 
A) "The Bank of Canada's recent purchases of government securities is stimulating the housing sector." 
B) "The Bank of Canada's recent moves to lower interest rates are behind the recent decreases in the value of the Canadian dollar." 
C) "The Bank of Canada's recent moves to increase the overnight loans rate are leading to less lending and less consumer spending." 
D) "The Bank of Canada's recent sales of government securities are stimulating the housing sector." 
E) "The Bank of Canada's recent moves to decrease the value of the Canadian dollar are leading to more spending in the economy."

Question 6

The two parts of the inflation-control target are that the inflation-control target range will be ________ percent a year,and policy will aim at keeping the trend of inflation at ________ percent a year.

Accepted Answer

A) 3 to 5;4 
B) 1 to 3;2 
C) 2 to 4;3 
D) 0 to 2;1 
E) -1 to 1;0 
A) 3 to 5;4 
B) 1 to 3;2 
C) 2 to 4;3 
D) 0 to 2;1 
E) -1 to 1;0

Question 7

If the overnight rate is below target,the Bank ________ securities to ________ reserves,which ________ the supply of overnight funds and ________ the overnight rate.

Accepted Answer

A) buys;increase;decreases;raises 
B) sells;increase;increases;lowers 
C) buys;decrease;decreases;raises 
D) sells;decrease;decreases;raises 
E) buys;increase;increases;lowers 
A) buys;increase;decreases;raises 
B) sells;increase;increases;lowers 
C) buys;decrease;decreases;raises 
D) sells;decrease;decreases;raises 
E) buys;increase;increases;lowers

Question 8

The policy tools used by the Bank of Canada include

Accepted Answer

A) prime rate and bank rate. 
B) the operating band and open market operations. 
C) open market operations and prime rate. 
D) prime rate and the exchange rate. 
E) the exchange rate and open market operations. 
A) prime rate and bank rate. 
B) the operating band and open market operations. 
C) open market operations and prime rate. 
D) prime rate and the exchange rate. 
E) the exchange rate and open market operations.

Question 9

25 basis points is

Accepted Answer

A) a quarter of a percentage point. 
B) a quarter of the Bank of Canada's target inflation rate. 
C) the spread between the savings rate and the lending rate. 
D) the spread between the bank rate and the settlement balances rate. 
E) the gap by which real GDP exceeds potential GDP. 
A) a quarter of a percentage point. 
B) a quarter of the Bank of Canada's target inflation rate. 
C) the spread between the savings rate and the lending rate. 
D) the spread between the bank rate and the settlement balances rate. 
E) the gap by which real GDP exceeds potential GDP.

Question 10

If the Bank of Canada aims to lower the overnight rate,it will

Accepted Answer

A) lower the bank rate and settlement balances rate, as well as buy government securities. 
B) lower the bank rate, increase the settlement balances rate, as well as buy government securities. 
C) lower the bank rate and settlement balances rate, as well as sell government securities. 
D) raise the bank rate and settlement balances rate, as well as buy government securities. 
E) raise the bank rate and settlement balances rate, as well as sell government securities. 
A) lower the bank rate and settlement balances rate, as well as buy government securities. 
B) lower the bank rate, increase the settlement balances rate, as well as buy government securities. 
C) lower the bank rate and settlement balances rate, as well as sell government securities. 
D) raise the bank rate and settlement balances rate, as well as buy government securities. 
E) raise the bank rate and settlement balances rate, as well as sell government securities.

Question 11

An open market operation

Accepted Answer

A) refers to the Bank of Canada's sales and purchases of corporate stock. 
B) can change bank deposits but cannot alter the quantity of money. 
C) is the purchase or sale of government of Canada securities by the Bank of Canada from or to a chartered bank or the public. 
D) refers to loans made by the Bank of Canada to chartered banks. 
E) refers to the purchase or sale of Canadian currency in exchange for foreign currency. 
A) refers to the Bank of Canada's sales and purchases of corporate stock. 
B) can change bank deposits but cannot alter the quantity of money. 
C) is the purchase or sale of government of Canada securities by the Bank of Canada from or to a chartered bank or the public. 
D) refers to loans made by the Bank of Canada to chartered banks. 
E) refers to the purchase or sale of Canadian currency in exchange for foreign currency.

Question 12

If the Bank of Canada is concerned with recession it will ________ the overnight loans rate to ________.

Accepted Answer

A) raise;increase aggregate demand 
B) lower;increase aggregate demand 
C) raise;decrease aggregate demand 
D) lower;decrease aggregate demand 
E) lower;increase potential GDP 
A) raise;increase aggregate demand 
B) lower;increase aggregate demand 
C) raise;decrease aggregate demand 
D) lower;decrease aggregate demand 
E) lower;increase potential GDP

Question 13

The Bank of Canada can lower the overnight loans rate by

Accepted Answer

A) raising the bank rate. 
B) lowering the bank rate. 
C) raising the settlement balances rate. 
D) lowering the settlement balances rate. 
E) both B and D. 
A) raising the bank rate. 
B) lowering the bank rate. 
C) raising the settlement balances rate. 
D) lowering the settlement balances rate. 
E) both B and D.

Question 14

Choose the correct statement.

Accepted Answer

A) Demand and supply in the loanable funds market determine the long-term real interest rate. 
B) The long-term real interest rate influences expenditure decisions. 
C) In the short run, the supply of loanable funds is influenced by the supply of bank loans. 
D) A fall in the overnight loans rate that increases the supply of bank loans increases the supply of loanable funds and lowers the equilibrium real interest rate. 
E) All of the above are correct. 
A) Demand and supply in the loanable funds market determine the long-term real interest rate. 
B) The long-term real interest rate influences expenditure decisions. 
C) In the short run, the supply of loanable funds is influenced by the supply of bank loans. 
D) A fall in the overnight loans rate that increases the supply of bank loans increases the supply of loanable funds and lowers the equilibrium real interest rate. 
E) All of the above are correct.

Question 15

Use the figure below to answer the following question.
   
Figure 30.3.3
-Refer to Figure 30.3.3.The figure shows the economy of Freezone.Potential GDP is $350 billion.
To return the economy to full employment,the central bank can ________ the overnight rate and ________ securities.

Accepted Answer

A) raise;sell 
B) lower;sell 
C) lower;buy 
D) raise;buy 
E) lower;not change its holdings of 
A) raise;sell 
B) lower;sell 
C) lower;buy 
D) raise;buy 
E) lower;not change its holdings of

Question 16

As the sole issuer of Canadian money,the Bank of Canada can set any one of three variables:

Accepted Answer

A) the monetary base, the exchange rate, and the short-term interest rate. 
B) the money base, the interest rate, and the unemployment rate. 
C) the rate of inflation, the interest rate, and the unemployment rate. 
D) the exchange rate, the interest rate, and the inflation rate. 
E) the inflation rate, the unemployment rate, and the real economic growth rate. 
A) the monetary base, the exchange rate, and the short-term interest rate. 
B) the money base, the interest rate, and the unemployment rate. 
C) the rate of inflation, the interest rate, and the unemployment rate. 
D) the exchange rate, the interest rate, and the inflation rate. 
E) the inflation rate, the unemployment rate, and the real economic growth rate.

Question 17

If the Bank of Canada wants to stimulate the economy to limit the effects of a recessionary gap,then it ________ the overnight loans rate to ________ the real interest rate and ________ investment.

Accepted Answer

A) lowers;lower;increase 
B) lowers;raise;increase 
C) raises;raise;decrease 
D) lowers;lower;decrease 
E) lowers;raise;decrease 
A) lowers;lower;increase 
B) lowers;raise;increase 
C) raises;raise;decrease 
D) lowers;lower;decrease 
E) lowers;raise;decrease

Question 18

If Canadian interest rates rise,the exchange rate value of the dollar ________ and net exports ________.

Accepted Answer

A) rises;increase 
B) rises;decrease 
C) falls;increase 
D) falls;decrease 
E) rises only if the U.S.interest rates fall concurrently;decrease 
A) rises;increase 
B) rises;decrease 
C) falls;increase 
D) falls;decrease 
E) rises only if the U.S.interest rates fall concurrently;decrease

Question 19

Consider policy actions in a financial and banking crisis.
________ addresses the problem of ________.

Accepted Answer

A) The extension of deposit insurance;solvency 
B) An open market operation;liquidity 
C) Swapping government securities for toxic assets;solvency 
D) Buying bank shares;liquidity 
E) Fair value accounting;liquidity 
A) The extension of deposit insurance;solvency 
B) An open market operation;liquidity 
C) Swapping government securities for toxic assets;solvency 
D) Buying bank shares;liquidity 
E) Fair value accounting;liquidity

Question 20

Which of the following quotations correctly describes the impact of monetary policy on the economy?

Accepted Answer

A) "House sales are down lots, due to the higher money growth." 
B) "The extra money pumped into the economy by the central bank is creating less exports." 
C) "The tightening of money growth is helping sell goods abroad." 
D) "Businesses are investing more, now that monetary policy has become less expansionary." 
E) "The extra money pumped into the economy by the central bank is creating more jobs." 
A) "House sales are down lots, due to the higher money growth." 
B) "The extra money pumped into the economy by the central bank is creating less exports." 
C) "The tightening of money growth is helping sell goods abroad." 
D) "Businesses are investing more, now that monetary policy has become less expansionary." 
E) "The extra money pumped into the economy by the central bank is creating more jobs."

Exam 30: Monetary Policy

Which of the following can put a bank under stress?

How is consultation between the Bank of Canada and the Government of Canada on monetary policy arranged?

In an open market operation aimed at increasing expenditure,the Bank of Canada

In a situation of inflationary pressure,an increase in the overnight loans rate results in

Which of the following statements correctly describes an anti-inflationary monetary policy?

The two parts of the inflation-control target are that the inflation-control target range will be ________ percent a year,and policy will aim at keeping the trend of inflation at ________ percent a year.

If the overnight rate is below target,the Bank ________ securities to ________ reserves,which ________ the supply of overnight funds and ________ the overnight rate.

The policy tools used by the Bank of Canada include

25 basis points is

If the Bank of Canada aims to lower the overnight rate,it will

An open market operation

If the Bank of Canada is concerned with recession it will ________ the overnight loans rate to ________.

The Bank of Canada can lower the overnight loans rate by

Choose the correct statement.

Use the figure below to answer the following question. Figure 30.3.3 -Refer to Figure 30.3.3.The figure shows the economy of Freezone.Potential GDP is $350 billion. To return the economy to full employment,the central bank can ________ the overnight rate and ________ securities.

As the sole issuer of Canadian money,the Bank of Canada can set any one of three variables:

If the Bank of Canada wants to stimulate the economy to limit the effects of a recessionary gap,then it ________ the overnight loans rate to ________ the real interest rate and ________ investment.

If Canadian interest rates rise,the exchange rate value of the dollar ________ and net exports ________.

Consider policy actions in a financial and banking crisis. ________ addresses the problem of ________.

Which of the following quotations correctly describes the impact of monetary policy on the economy?

What Is Economics?

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring GDP and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: The Keynesian Model

Canadian Inflation, Unemployment, and Business Cycle

Fiscal Policy

International Trade Policy

Filters

The two parts of the inflation-control target are that the inflation-control target range will be percent a year,and policy will aim at keeping the trend of inflation at percent a year.

If the overnight rate is below target,the Bank securities to reserves,which the supply of overnight funds and the overnight rate.

If the Bank of Canada is concerned with recession it will the overnight loans rate to .

Use the figure below to answer the following question. Figure 30.3.3 -Refer to Figure 30.3.3.The figure shows the economy of Freezone.Potential GDP is $350 billion. To return the economy to full employment,the central bank can the overnight rate and securities.

If the Bank of Canada wants to stimulate the economy to limit the effects of a recessionary gap,then it the overnight loans rate to the real interest rate and investment.

If Canadian interest rates rise,the exchange rate value of the dollar and net exports .

Consider policy actions in a financial and banking crisis. addresses the problem of .