Question 1

The bank rate is the interest rate

Accepted Answer

A) banks charge their very best loan customers. 
B) banks pay on term deposits. 
C) the Bank of Canada pays on reserves held by banks. 
D) the Bank of Canada charges when it lends reserves to the big banks. 
E) received for holding Government of Canada Treasury Bills. 
A) banks charge their very best loan customers. 
B) banks pay on term deposits. 
C) the Bank of Canada pays on reserves held by banks. 
D) the Bank of Canada charges when it lends reserves to the big banks. 
E) received for holding Government of Canada Treasury Bills.

Question 2

The objective of the Bank of Canada's monetary policy is

Accepted Answer

A) to keep the unemployment rate below 5 percent, the inflation rate between 1 and 3 percent a year, and long-term real GDP growth above 4 percent a year. 
B) to control the quantity of money and interest rates to avoid inflation and when possible prevent excessive swings in real GDP growth and unemployment. 
C) to keep the unemployment rate below 5 percent, the inflation rate between 1 and 3 percent a year, and long-term interest rates below 4 percent a year. 
D) to keep the labour force participation rate above 80 percent, the inflation rate below 2 percent a year, and the exchange rate fluctuating by less than 3 percent a year. 
E) to keep the overnight loans rate below 2 percent a year and the unemployment rate at its natural rate. 
A) to keep the unemployment rate below 5 percent, the inflation rate between 1 and 3 percent a year, and long-term real GDP growth above 4 percent a year. 
B) to control the quantity of money and interest rates to avoid inflation and when possible prevent excessive swings in real GDP growth and unemployment. 
C) to keep the unemployment rate below 5 percent, the inflation rate between 1 and 3 percent a year, and long-term interest rates below 4 percent a year. 
D) to keep the labour force participation rate above 80 percent, the inflation rate below 2 percent a year, and the exchange rate fluctuating by less than 3 percent a year. 
E) to keep the overnight loans rate below 2 percent a year and the unemployment rate at its natural rate.

Question 3

To combat a recession,the Bank of Canada ________ the overnight loans rate,which ________ the quantity of money.

Accepted Answer

A) raises;increases 
B) lowers;increases 
C) raises;decreases 
D) lowers;decreases 
E) lowers;decreases the demand for bank reserves and increases 
A) raises;increases 
B) lowers;increases 
C) raises;decreases 
D) lowers;decreases 
E) lowers;decreases the demand for bank reserves and increases

Question 4

To decrease aggregate demand,the Bank of Canada can

Accepted Answer

A) raise the overnight loans rate, which decreases the quantity of money. 
B) lower the overnight loans rate, which increases the quantity of money. 
C) lower the overnight loans rate, which decreases the quantity of money. 
D) raise the overnight loans rate, which increases the quantity of money. 
E) raise the overnight loans rate, which decreases the government budget deficit. 
A) raise the overnight loans rate, which decreases the quantity of money. 
B) lower the overnight loans rate, which increases the quantity of money. 
C) lower the overnight loans rate, which decreases the quantity of money. 
D) raise the overnight loans rate, which increases the quantity of money. 
E) raise the overnight loans rate, which decreases the government budget deficit.

Question 5

Use the figure below to answer the following questions.
   
Figure 30.3.1
-Refer to Figure 30.3.1.Everything else remaining the same,which graph best illustrates the effect of the Bank of Canada raising the overnight rate?

Accepted Answer

A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) none of the above 
A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) none of the above

Question 6

How is responsibility for monetary policy set forth in Canada?

Accepted Answer

A) The Canadian Government administers monetary policy through the office of the Minister of Finance. 
B) The Bank of Canada administers monetary policy as directed by the Minister of Finance. 
C) The Bank of Canada Act places responsibility for the conduct of monetary policy on the Bank's Governing Council. 
D) The Prime Minister bears ultimate responsibility for monetary policy. 
E) Both B and D. 
A) The Canadian Government administers monetary policy through the office of the Minister of Finance. 
B) The Bank of Canada administers monetary policy as directed by the Minister of Finance. 
C) The Bank of Canada Act places responsibility for the conduct of monetary policy on the Bank's Governing Council. 
D) The Prime Minister bears ultimate responsibility for monetary policy. 
E) Both B and D.

Question 7

When the Bank of Canada fights recession by lowering the overnight loan rate,the supply of loanable funds curve shifts ________ and the aggregate demand curve shifts ________.

Accepted Answer

A) leftward;leftward 
B) leftward;rightward 
C) rightward;leftward 
D) rightward;rightward 
E) rightward and the demand for loanable funds curve shifts rightward;rightward 
A) leftward;leftward 
B) leftward;rightward 
C) rightward;leftward 
D) rightward;rightward 
E) rightward and the demand for loanable funds curve shifts rightward;rightward

Question 8

The short-run effect of lowering the overnight loans rate is that the

Accepted Answer

A) price level rises and real GDP increases. 
B) price level rises and real GDP decreases. 
C) price level lowers and real GDP increases. 
D) price level lowers and real GDP decreases. 
E) none of the above. 
A) price level rises and real GDP increases. 
B) price level rises and real GDP decreases. 
C) price level lowers and real GDP increases. 
D) price level lowers and real GDP decreases. 
E) none of the above.

Question 9

If a central bank wants to implement a contractionary policy that decreases real GDP,it conducts an open market operation by ________ securities.Bank reserves ________ and the supply of loanable funds ________.The quantity of money ________.

Accepted Answer

A) selling;decrease;decreases;decreases 
B) purchasing;decrease;decreases;decreases 
C) purchasing;decrease;increases;decreases 
D) selling;increase;increases;increases 
E) purchasing;increase;increases;increases 
A) selling;decrease;decreases;decreases 
B) purchasing;decrease;decreases;decreases 
C) purchasing;decrease;increases;decreases 
D) selling;increase;increases;increases 
E) purchasing;increase;increases;increases

Question 10

What is the overnight loans rate?

Accepted Answer

A) The percentage change in the volume of loans that take place overnight. 
B) The interest rate that the Bank of Canada charges chartered banks. 
C) The interest rate on loans that the big banks make to each other. 
D) The volume of loans that take place during the night. 
E) The interest rate that the Bank of Canada pays when it buys securities from chartered banks. 
A) The percentage change in the volume of loans that take place overnight. 
B) The interest rate that the Bank of Canada charges chartered banks. 
C) The interest rate on loans that the big banks make to each other. 
D) The volume of loans that take place during the night. 
E) The interest rate that the Bank of Canada pays when it buys securities from chartered banks.

Question 11

The current Governor of the Bank of Canada is

Accepted Answer

A) Stephen Harper. 
B) Mark Carney. 
C) David Dodge. 
D) Paul Martin. 
E) Ben Bernanke. 
A) Stephen Harper. 
B) Mark Carney. 
C) David Dodge. 
D) Paul Martin. 
E) Ben Bernanke.

Question 12

An increase in the quantity of money leads to

Accepted Answer

A) an increase in short-run aggregate supply. 
B) a decrease in net exports. 
C) a decrease in real GDP. 
D) a decrease in the price level. 
E) an increase in aggregate demand. 
A) an increase in short-run aggregate supply. 
B) a decrease in net exports. 
C) a decrease in real GDP. 
D) a decrease in the price level. 
E) an increase in aggregate demand.

Question 13

The operating band is

Accepted Answer

A) the interest rate that is established through an open market operation. 
B) the target overnight interest rate plus or minus 25 basis points. 
C) the target inflation rate plus or minus a quarter of a percentage point. 
D) a half percentage point range in the target inflation rate. 
E) the range between the lending rate and the borrowing rate. 
A) the interest rate that is established through an open market operation. 
B) the target overnight interest rate plus or minus 25 basis points. 
C) the target inflation rate plus or minus a quarter of a percentage point. 
D) a half percentage point range in the target inflation rate. 
E) the range between the lending rate and the borrowing rate.

Question 14

A decrease in the overnight loans rate

Accepted Answer

A) increases other short-term interest rates, decreases investment, and decreases aggregate demand. 
B) lowers the exchange rate, increases the supply of loanable funds, and increases aggregate demand. 
C) lowers other short-term interest rates, raises the real interest rate, and increases aggregate demand. 
D) decreases the demand for loanable funds, lowers the real interest rate, and decreases aggregate demand. 
E) lowers the exchange rate, increases the demand for loanable funds, and increases aggregate demand. 
A) increases other short-term interest rates, decreases investment, and decreases aggregate demand. 
B) lowers the exchange rate, increases the supply of loanable funds, and increases aggregate demand. 
C) lowers other short-term interest rates, raises the real interest rate, and increases aggregate demand. 
D) decreases the demand for loanable funds, lowers the real interest rate, and decreases aggregate demand. 
E) lowers the exchange rate, increases the demand for loanable funds, and increases aggregate demand.

Question 15

Which of the following central banks does not follow an inflation rate targeting strategy?

Accepted Answer

A) The Federal Reserve (the central bank of the United States) 
B) The Bank of Canada 
C) The Reserve Bank of Australia 
D) The Bank of England 
E) The European Central Bank (the central bank of the Eurozone) 
A) The Federal Reserve (the central bank of the United States) 
B) The Bank of Canada 
C) The Reserve Bank of Australia 
D) The Bank of England 
E) The European Central Bank (the central bank of the Eurozone)

Question 16

A decrease in the overnight loans rate leads to

Accepted Answer

A) an increase in the quantity of money. 
B) a fall in the exchange rate. 
C) an increase in exports. 
D) an increase in consumption expenditure. 
E) all of the above. 
A) an increase in the quantity of money. 
B) a fall in the exchange rate. 
C) an increase in exports. 
D) an increase in consumption expenditure. 
E) all of the above.

Question 17

The purchase of government bonds by the Bank of Canada

Accepted Answer

A) raises the overnight loans rate. 
B) decreases bank reserves. 
C) decreases the supply of loanable funds. 
D) increases aggregate demand. 
E) decreases the quantity of money. 
A) raises the overnight loans rate. 
B) decreases bank reserves. 
C) decreases the supply of loanable funds. 
D) increases aggregate demand. 
E) decreases the quantity of money.

Question 18

The headline "The Bank of Canada Has Cut the Bank Rate" suggests that the Bank of Canada is trying to

Accepted Answer

A) lower inflationary pressures. 
B) increase the overnight loans rate. 
C) stimulate aggregate demand. 
D) raise the value of the Canadian dollar. 
E) help banks make profits. 
A) lower inflationary pressures. 
B) increase the overnight loans rate. 
C) stimulate aggregate demand. 
D) raise the value of the Canadian dollar. 
E) help banks make profits.

Question 19

What is the Taylor Rule?

Accepted Answer

A) The overnight loan rate is set in response to the current inflation rate and to the current estimate of the output gap. 
B) The monetary base is set in response to the current inflation rate and to the current estimate of the output gap. 
C) The monetary base should grow at a rate equal to the target inflation rate plus the long-term real GDP growth rate minus the medium-term velocity growth rate. 
D) The money supply should grow at a rate equal to the long-run real growth rate. 
E) The money supply should be regulated by setting the exchange rate equal to purchasing power parity with other countries. 
A) The overnight loan rate is set in response to the current inflation rate and to the current estimate of the output gap. 
B) The monetary base is set in response to the current inflation rate and to the current estimate of the output gap. 
C) The monetary base should grow at a rate equal to the target inflation rate plus the long-term real GDP growth rate minus the medium-term velocity growth rate. 
D) The money supply should grow at a rate equal to the long-run real growth rate. 
E) The money supply should be regulated by setting the exchange rate equal to purchasing power parity with other countries.

Question 20

If the Bank of Canada lowers the overnight loans rate,other short-term interest rates ________ and the exchange rate ________.

Accepted Answer

A) fall;falls 
B) fall;does not change 
C) fall;rises 
D) do not change;falls 
E) fall, and the long-term interest rate rises;falls 
A) fall;falls 
B) fall;does not change 
C) fall;rises 
D) do not change;falls 
E) fall, and the long-term interest rate rises;falls

Exam 30: Monetary Policy

The bank rate is the interest rate

The objective of the Bank of Canada's monetary policy is

To combat a recession,the Bank of Canada ________ the overnight loans rate,which ________ the quantity of money.

To decrease aggregate demand,the Bank of Canada can

Use the figure below to answer the following questions. Figure 30.3.1 -Refer to Figure 30.3.1.Everything else remaining the same,which graph best illustrates the effect of the Bank of Canada raising the overnight rate?

How is responsibility for monetary policy set forth in Canada?

When the Bank of Canada fights recession by lowering the overnight loan rate,the supply of loanable funds curve shifts ________ and the aggregate demand curve shifts ________.

The short-run effect of lowering the overnight loans rate is that the

If a central bank wants to implement a contractionary policy that decreases real GDP,it conducts an open market operation by ________ securities.Bank reserves ________ and the supply of loanable funds ________.The quantity of money ________.

What is the overnight loans rate?

The current Governor of the Bank of Canada is

An increase in the quantity of money leads to

The operating band is

A decrease in the overnight loans rate

Which of the following central banks does not follow an inflation rate targeting strategy?

A decrease in the overnight loans rate leads to

The purchase of government bonds by the Bank of Canada

The headline "The Bank of Canada Has Cut the Bank Rate" suggests that the Bank of Canada is trying to

What is the Taylor Rule?

If the Bank of Canada lowers the overnight loans rate,other short-term interest rates ________ and the exchange rate ________.

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

To combat a recession,the Bank of Canada the overnight loans rate,which the quantity of money.

When the Bank of Canada fights recession by lowering the overnight loan rate,the supply of loanable funds curve shifts and the aggregate demand curve shifts .

If a central bank wants to implement a contractionary policy that decreases real GDP,it conducts an open market operation by securities.Bank reserves and the supply of loanable funds .The quantity of money .

If the Bank of Canada lowers the overnight loans rate,other short-term interest rates and the exchange rate .