Question 1

A classical dichotomy refers to the fact that

Accepted Answer

A) classical theory predicts negative effects of high inflation. 
B) the real variables in the model are determined independently of the money market. 
C) the real variables are jointly determined depending on what happens in the money market. 
D) the real interest rate differs from the nominal interest rate. 
E) real and nominal variables are often different. 
A) classical theory predicts negative effects of high inflation. 
B) the real variables in the model are determined independently of the money market. 
C) the real variables are jointly determined depending on what happens in the money market. 
D) the real interest rate differs from the nominal interest rate. 
E) real and nominal variables are often different. B

Question 2

If an increase in the level of the money supply results in a proportionate increase in prices with no effect on any real variables, we say that

Accepted Answer

A) the Fisher relationship holds. 
B) money demand is neutral. 
C) money is superneutral. 
D) money is neutral. 
E) money is the most preferred store of value. 
A) the Fisher relationship holds. 
B) money demand is neutral. 
C) money is superneutral. 
D) money is neutral. 
E) money is the most preferred store of value. D

Question 3

To increase the nominal money supply, the Bank of Canada can engage in

Accepted Answer

A) seigniorage. 
B) reducing inflation. 
C) open market purchases. 
D) increasing taxes. 
E) open market sales. 
A) seigniorage. 
B) reducing inflation. 
C) open market purchases. 
D) increasing taxes. 
E) open market sales. C

Question 4

An open market purchase

Accepted Answer

A) causes decrease in the money supply. 
B) is a purchase by the government of goods and services. 
C) is a purchase of money by the central bank. 
D) is a sale of government bonds by the central bank. 
E) is a purchase of government bonds by the central bank. 
A) causes decrease in the money supply. 
B) is a purchase by the government of goods and services. 
C) is a purchase of money by the central bank. 
D) is a sale of government bonds by the central bank. 
E) is a purchase of government bonds by the central bank.

Question 5

Unpredictable shocks to the financial system

Accepted Answer

A) increase the demand for money. 
B) affect small depositors more so than large depositors. 
C) reduce the demand for money. 
D) result in money neutrality. 
E) cause consumers and firms to switch to credit cards. 
A) increase the demand for money. 
B) affect small depositors more so than large depositors. 
C) reduce the demand for money. 
D) result in money neutrality. 
E) cause consumers and firms to switch to credit cards.

Question 6

Quantitative easing occurs when the central bank

Accepted Answer

A) increases its interest rate target. 
B) purchases long-term assets. 
C) performs a helicopter drop. 
D) purchases short-term assets. 
E) engages in open market operations. 
A) increases its interest rate target. 
B) purchases long-term assets. 
C) performs a helicopter drop. 
D) purchases short-term assets. 
E) engages in open market operations.

Question 7

Quantitative easing may work because

Accepted Answer

A) interest rate increases are not an option. 
B) on net, this increases the effective quantity of liquid assets in the economy. 
C) the central bank says they will. 
D) open market operations always work at the zero lower bound. 
E) it eases the strain on the government surplus. 
A) interest rate increases are not an option. 
B) on net, this increases the effective quantity of liquid assets in the economy. 
C) the central bank says they will. 
D) open market operations always work at the zero lower bound. 
E) it eases the strain on the government surplus.

Question 8

An increase in the perceived instability of banks

Accepted Answer

A) leads to bank failure. 
B) decreases the demand for money. 
C) increases people's dependence on banks for transactions. 
D) led to the elimination of reserve requirements in 1992. 
E) increases the demand for money. 
A) leads to bank failure. 
B) decreases the demand for money. 
C) increases people's dependence on banks for transactions. 
D) led to the elimination of reserve requirements in 1992. 
E) increases the demand for money.

Question 9

Government printing of money to finance government spending is called

Accepted Answer

A) an open market sale. 
B) an open-market purchase. 
C) seigniorage. 
D) sterilization. 
E) irresponsible. 
A) an open market sale. 
B) an open-market purchase. 
C) seigniorage. 
D) sterilization. 
E) irresponsible.

Question 10

Unconventional monetary policy includes

Accepted Answer

A) money growth targeting. 
B) negative nominal interest rates and quantitative easing. 
C) abolishing the central bank. 
D) tax incentives and interest rate increases. 
E) money growth targeting and tariffs. 
A) money growth targeting. 
B) negative nominal interest rates and quantitative easing. 
C) abolishing the central bank. 
D) tax incentives and interest rate increases. 
E) money growth targeting and tariffs.

Question 11

Buying an item with cash would be an example of money's role as a

Accepted Answer

A) medium of exchange. 
B) store of value. 
C) unit of account. 
D) store of wealth. 
E) standard of deferred payment. 
A) medium of exchange. 
B) store of value. 
C) unit of account. 
D) store of wealth. 
E) standard of deferred payment.

Question 12

The nominal money demand is defined as

Accepted Answer

A)  $\frac { M } { P } = L ( Y , 1 + r )$. 
B)  $M = P L ( Y , r )$. 
C)  $M = P ( Y , r )$. 
D)  $M = P ( L Y , 1 + r )$. 
E)  $\frac { M } { P } = ( Y , 1 + r )$. 
A)  $\frac { M } { P } = L ( Y , 1 + r )$. 
B)  $M = P L ( Y , r )$. 
C)  $M = P ( Y , r )$. 
D)  $M = P ( L Y , 1 + r )$. 
E)  $\frac { M } { P } = ( Y , 1 + r )$.

Question 13

If R < q, then

Accepted Answer

A) the marginal benefit of using the credit card exceeds the marginal cost. 
B) the nominal interest rate is not in equilibrium. 
C) the marginal benefit of using cash exceeds the marginal cost. 
D) the real interest rate does not reach its equilibrium value. 
E) the marginal cost of using the credit card exceeds the marginal benefit. 
A) the marginal benefit of using the credit card exceeds the marginal cost. 
B) the nominal interest rate is not in equilibrium. 
C) the marginal benefit of using cash exceeds the marginal cost. 
D) the real interest rate does not reach its equilibrium value. 
E) the marginal cost of using the credit card exceeds the marginal benefit.

Question 14

Monetary aggregates are

Accepted Answer

A) the various roles of money. 
B) currency in the hands of the public and demand deposits. 
C) different definitions of money. 
D) high-powered money. 
E) the money at the Bank of Canada. 
A) the various roles of money. 
B) currency in the hands of the public and demand deposits. 
C) different definitions of money. 
D) high-powered money. 
E) the money at the Bank of Canada.

Question 15

Monetary aggregates are useful indirect measures of

Accepted Answer

A) the monetary base. 
B) aggregate economic activity. 
C) inflation. 
D) interest rates. 
E) the role of money. 
A) the monetary base. 
B) aggregate economic activity. 
C) inflation. 
D) interest rates. 
E) the role of money.

Question 16

The zero lower bound is

Accepted Answer

A) conventional monetary policy. 
B) the constraint that the nominal interest rate cannot fall below zero. 
C) the constraint that consumption cannot fall below zero. 
D) illegal. 
E) the lower bound on money supply growth. 
A) conventional monetary policy. 
B) the constraint that the nominal interest rate cannot fall below zero. 
C) the constraint that consumption cannot fall below zero. 
D) illegal. 
E) the lower bound on money supply growth.

Question 17

The Fisher relationship may be described by the following equation in which $R$ is the nominal rate of interest, $r$ is the real rate of interest, and $i$ is the inflation rate.

Accepted Answer

A)  $i = r + R$ 
B)  $r = R + i + i r$. 
C)  $1 + i = \frac { 1 + r } { 1 + R }$ 
D)  $1 + r = \frac { 1 + R } { 1 + i }$ 
E)  $1 + r = \frac { 1 + i } { 1 + R }$ 
A)  $i = r + R$ 
B)  $r = R + i + i r$. 
C)  $1 + i = \frac { 1 + r } { 1 + R }$ 
D)  $1 + r = \frac { 1 + R } { 1 + i }$ 
E)  $1 + r = \frac { 1 + i } { 1 + R }$

Question 18

Lower inflation over the long run tends to be associated with

Accepted Answer

A) higher real interest rates. 
B) higher government spending. 
C) lower nominal interest rates. 
D) more international trade. 
E) lower taxation. 
A) higher real interest rates. 
B) higher government spending. 
C) lower nominal interest rates. 
D) more international trade. 
E) lower taxation.

Question 19

The Fisher effect is

Accepted Answer

A) the effect of money supply growth on inflation. 
B) the effect of inflation on the nominal interest rate. 
C) the effect of the money supply on the price level. 
D) the effect of government spending on output. 
E) the effect of inflation on the real interest rate. 
A) the effect of money supply growth on inflation. 
B) the effect of inflation on the nominal interest rate. 
C) the effect of the money supply on the price level. 
D) the effect of government spending on output. 
E) the effect of inflation on the real interest rate.

Question 20

The monetary intertemporal model contains the fact that

Accepted Answer

A) the foreign sector does not matter. 
B) the Bank of Canada supplies money. 
C) interest rates are determined by the federal government. 
D) interest rates are determined by the chartered banks. 
E) transactions require money and transactions services supplied by banks. 
A) the foreign sector does not matter. 
B) the Bank of Canada supplies money. 
C) interest rates are determined by the federal government. 
D) interest rates are determined by the chartered banks. 
E) transactions require money and transactions services supplied by banks.

A classical dichotomy refers to the fact that

If an increase in the level of the money supply results in a proportionate increase in prices with no effect on any real variables, we say that

To increase the nominal money supply, the Bank of Canada can engage in

An open market purchase

Unpredictable shocks to the financial system

Quantitative easing occurs when the central bank

Quantitative easing may work because

An increase in the perceived instability of banks

Government printing of money to finance government spending is called

Unconventional monetary policy includes

Buying an item with cash would be an example of money's role as a

The nominal money demand is defined as

If R < q, then

Monetary aggregates are

Monetary aggregates are useful indirect measures of

The zero lower bound is

The Fisher relationship may be described by the following equation in which $R$ is the nominal rate of interest, $r$ is the real rate of interest, and $i$ is the inflation rate.

Lower inflation over the long run tends to be associated with

The Fisher effect is

The monetary intertemporal model contains the fact that

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: the Workleisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

A Two-Period Model: the Consumptionsavings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model With Investment

Business Cycle Models With Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: a Deeper Look

Filters

Exam 12: Money, Banking, Prices, and Monetary Policy

A classical dichotomy refers to the fact that

If an increase in the level of the money supply results in a proportionate increase in prices with no effect on any real variables, we say that

To increase the nominal money supply, the Bank of Canada can engage in

An open market purchase

Unpredictable shocks to the financial system

Quantitative easing occurs when the central bank

Quantitative easing may work because

An increase in the perceived instability of banks

Government printing of money to finance government spending is called

Unconventional monetary policy includes

Buying an item with cash would be an example of money's role as a

The nominal money demand is defined as

If R < q, then

Monetary aggregates are

Monetary aggregates are useful indirect measures of

The zero lower bound is

The Fisher relationship may be described by the following equation in which RRR is the nominal rate of interest, rrr is the real rate of interest, and iii is the inflation rate.

Lower inflation over the long run tends to be associated with

The Fisher effect is

The monetary intertemporal model contains the fact that

Introduction

Measurement

Business Cycle Measurement

Consumer and Firm Behavior: the Workleisure Decision and Profit Maximization

A Closed-Economy One-Period Macroeconomic Model

Search and Unemployment

Economic Growth: Malthus and Solow

Income Disparity Among Countries and Endogenous Growth

A Two-Period Model: the Consumptionsavings Decision and Credit Markets

Credit Market Imperfections: Credit Frictions, Financial Crises, and Social Security

A Real Intertemporal Model With Investment

Business Cycle Models With Flexible Prices and Wages

New Keynesian Economics: Sticky Prices

Inflation: Phillips Curves and Neo-Fisherism

International Trade in Goods and Assets

Money in the Open Economy

Money, Inflation, and Banking: a Deeper Look

Filters

The Fisher relationship may be described by the following equation in which $R$ is the nominal rate of interest, $r$ is the real rate of interest, and $i$ is the inflation rate.