Question 1

The Bank of Canada does not do which of the following?

Accepted Answer

A) supervise chartered banks 
B) lend money to the public 
C) act as a lender of last resort to banks 
D) issue bank notes 
E) hold government of Canada securities 
A) supervise chartered banks 
B) lend money to the public 
C) act as a lender of last resort to banks 
D) issue bank notes 
E) hold government of Canada securities

Question 2

The money creation process begins when

Accepted Answer

A) desired reserves increase because of an increase in deposits. 
B) the quantity of money increases. 
C) banks have excess reserves. 
D) bank deposits increase. 
E) banks lend reserves. 
A) desired reserves increase because of an increase in deposits. 
B) the quantity of money increases. 
C) banks have excess reserves. 
D) bank deposits increase. 
E) banks lend reserves.

Question 3

If you can find someone to swap what you have for what you want, then

Accepted Answer

A) money is necessary for the exchange to work. 
B) specialization is impossible in the society in which you live. 
C) there exists a double coincidence of wants. 
D) there exists a double system of money. 
E) there exists a monetary exchange system. 
A) money is necessary for the exchange to work. 
B) specialization is impossible in the society in which you live. 
C) there exists a double coincidence of wants. 
D) there exists a double system of money. 
E) there exists a monetary exchange system.

Question 4

Use the information below to answer the following questions.
Fact 24.4.2
The Bank of Hobbiton has chosen the following initial balance sheet:
  
-Refer to Fact 24.4.2. Bilbo Baggins comes to the bank and deposits a $100 bill. After Bilbo's deposit, but before any other actions occur, the total quantity of money in the economy

Accepted Answer

A) has stayed the same, with its components unchanged. 
B) has stayed the same, with currency decreasing and deposits increasing. 
C) has fallen, with currency decreasing and deposits staying the same. 
D) has risen, with currency unchanged and deposits increasing. 
E) has fallen, with currency decreasing and deposits unchanged. 
A) has stayed the same, with its components unchanged. 
B) has stayed the same, with currency decreasing and deposits increasing. 
C) has fallen, with currency decreasing and deposits staying the same. 
D) has risen, with currency unchanged and deposits increasing. 
E) has fallen, with currency decreasing and deposits unchanged.

Question 5

If the price level doubles, all else constant, the quantity of

Accepted Answer

A) real money demanded will double. 
B) nominal money demanded will double. 
C) real money demanded will half. 
D) nominal money demanded will half. 
E) nominal money demanded will remain constant. 
A) real money demanded will double. 
B) nominal money demanded will double. 
C) real money demanded will half. 
D) nominal money demanded will half. 
E) nominal money demanded will remain constant.

Question 6

When the interest rate falls in the money market, the quantity of money demanded ________ and the quantity of money supplied ________.

Accepted Answer

A) increases; remains unchanged 
B) increases; decreases 
C) remains unchanged; decreases 
D) remains unchanged; remains unchanged 
E) decreases; increases 
A) increases; remains unchanged 
B) increases; decreases 
C) remains unchanged; decreases 
D) remains unchanged; remains unchanged 
E) decreases; increases

Question 7

Use the figure below to answer the following questions.
   
Figure 24.5.1
-Refer to Figure 24.5.1. Everything else remaining the same, which graph best shows an increase in real GDP?

Accepted Answer

A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) (a)and (c) 
A) (a) 
B) (b) 
C) (c) 
D) (d) 
E) (a)and (c)

Question 8

When the Bank of Canada makes an open market sale, its assets ________ and its liabilities ________.

Accepted Answer

A) decrease; decrease 
B) decrease; increase 
C) increase; increase 
D) increase; decrease 
E) decrease; do not change 
A) decrease; decrease 
B) decrease; increase 
C) increase; increase 
D) increase; decrease 
E) decrease; do not change

Question 9

Which one of the following is a component of M2 but not of M1?

Accepted Answer

A) currency outside banks 
B) personal chequable deposits 
C) personal non-chequable deposits 
D) currency in a bank vault 
E) Canada Savings Bonds 
A) currency outside banks 
B) personal chequable deposits 
C) personal non-chequable deposits 
D) currency in a bank vault 
E) Canada Savings Bonds

Question 10

In the United Kingdom, the currency drain ratio is 0.38 and the desired reserve ratio is 0.002. The U.K. money multiplier is

Accepted Answer

A) 2.62. 
B) 0.38. 
C) 0.28. 
D) 2.77. 
E) 3.61. 
A) 2.62. 
B) 0.38. 
C) 0.28. 
D) 2.77. 
E) 3.61.

Question 11

If the interest rate is above the equilibrium rate, how is equilibrium achieved in the money market?

Accepted Answer

A) People buy goods to get rid of their excess money, lowering the price of goods and lowering the interest rate. 
B) People sell goods to get rid of their excess money, lowering the price of goods and lowering the interest rate. 
C) People sell bonds to get rid of their excess money, lowering the price of bonds and lowering the interest rate. 
D) People sell bonds to get rid of their excess money, raising the price of bonds and lowering the interest rate. 
E) People buy bonds to get rid of their excess money, raising the price of bonds and lowering the interest rate. 
A) People buy goods to get rid of their excess money, lowering the price of goods and lowering the interest rate. 
B) People sell goods to get rid of their excess money, lowering the price of goods and lowering the interest rate. 
C) People sell bonds to get rid of their excess money, lowering the price of bonds and lowering the interest rate. 
D) People sell bonds to get rid of their excess money, raising the price of bonds and lowering the interest rate. 
E) People buy bonds to get rid of their excess money, raising the price of bonds and lowering the interest rate.

Question 12

Choose the statement that is incorrect.

Accepted Answer

A) Fractional-reserve banking is a system in which banks keep a fraction of their depositors' funds as a cash reserve and lend the rest. 
B) Fractional-reserve banking was invented by gold prospectors in the Canadian Yukon during the gold rush. 
C) 100 percent reserve banking is a system in which banks keep the full amount of their depositors' funds as a cash reserve. 
D) The requirement to hold 100 percent reserves lowers bank profits. 
E) The Austrian School of economists say that fractional-reserve banking violates property rights because the bank has no legal right to lend a deposit to someone else. 
A) Fractional-reserve banking is a system in which banks keep a fraction of their depositors' funds as a cash reserve and lend the rest. 
B) Fractional-reserve banking was invented by gold prospectors in the Canadian Yukon during the gold rush. 
C) 100 percent reserve banking is a system in which banks keep the full amount of their depositors' funds as a cash reserve. 
D) The requirement to hold 100 percent reserves lowers bank profits. 
E) The Austrian School of economists say that fractional-reserve banking violates property rights because the bank has no legal right to lend a deposit to someone else.

Question 13

The money multiplier can also be calculated as ________, where a is the currency drain ratio and b is the desired reserve ratio.

Accepted Answer

A) (a + b)÷ (1 + b) 
B) a ÷ (a + b) 
C) (1 + a)÷ (a + b) 
D) (a + b)÷ (1 + a) 
E) (1 + b)÷ (a + b) 
A) (a + b)÷ (1 + b) 
B) a ÷ (a + b) 
C) (1 + a)÷ (a + b) 
D) (a + b)÷ (1 + a) 
E) (1 + b)÷ (a + b)

Question 14

When the nominal interest rate rises, the opportunity cost of holding money

Accepted Answer

A) rises, and people hold more money. 
B) falls, and people hold more money. 
C) falls, and people hold less money. 
D) rises, and people hold less money. 
E) does not change. 
A) rises, and people hold more money. 
B) falls, and people hold more money. 
C) falls, and people hold less money. 
D) rises, and people hold less money. 
E) does not change.

Question 15

On the average in Canada, the inflation rate and the money growth rate minus real GDP growth rate

Accepted Answer

A) move in opposite directions. 
B) are not related. 
C) rise and fall together. 
D) are always rising. 
E) are always equal. 
A) move in opposite directions. 
B) are not related. 
C) rise and fall together. 
D) are always rising. 
E) are always equal.

Question 16

Money market equilibrium occurs

Accepted Answer

A) when interest rates are constant. 
B) when the level of real GDP is constant. 
C) when the quantity of real money supplied equals the quantity of real money demanded. 
D) only under a fixed exchange rate. 
E) when bond prices are constant. 
A) when interest rates are constant. 
B) when the level of real GDP is constant. 
C) when the quantity of real money supplied equals the quantity of real money demanded. 
D) only under a fixed exchange rate. 
E) when bond prices are constant.

Question 17

If households and firms find they are holding less money than desired, they will

Accepted Answer

A) sell bonds, and the interest rate will rise. 
B) sell bonds, and the interest rate will fall. 
C) buy bonds, and the interest rate will rise. 
D) buy bonds, and the interest rate will fall. 
E) buy goods, and the price level will rise. 
A) sell bonds, and the interest rate will rise. 
B) sell bonds, and the interest rate will fall. 
C) buy bonds, and the interest rate will rise. 
D) buy bonds, and the interest rate will fall. 
E) buy goods, and the price level will rise.

Question 18

A bank can create money by

Accepted Answer

A) selling some of its securities. 
B) increasing its reserves. 
C) lending its excess reserves. 
D) printing more cheques. 
E) converting reserves into securities. 
A) selling some of its securities. 
B) increasing its reserves. 
C) lending its excess reserves. 
D) printing more cheques. 
E) converting reserves into securities.

Question 19

Money's function as a unit of account can best be described as

Accepted Answer

A) an agreed measure for stating the prices of goods and services. 
B) an entry in an accounting ledger. 
C) a method of recording transactions. 
D) a commodity that can be exchanged for another commodity. 
E) a generally accepted medium of exchange. 
A) an agreed measure for stating the prices of goods and services. 
B) an entry in an accounting ledger. 
C) a method of recording transactions. 
D) a commodity that can be exchanged for another commodity. 
E) a generally accepted medium of exchange.

Question 20

Money is

Accepted Answer

A) equivalent to barter. 
B) currency plus credit cards plus debit cards. 
C) the same as gold. 
D) a means of payment. 
E) currency plus coins. 
A) equivalent to barter. 
B) currency plus credit cards plus debit cards. 
C) the same as gold. 
D) a means of payment. 
E) currency plus coins.

Exam 24: Money, the Price Level, and Inflation

The Bank of Canada does not do which of the following?

The money creation process begins when

If you can find someone to swap what you have for what you want, then

If the price level doubles, all else constant, the quantity of

When the interest rate falls in the money market, the quantity of money demanded ________ and the quantity of money supplied ________.

Use the figure below to answer the following questions. Figure 24.5.1 -Refer to Figure 24.5.1. Everything else remaining the same, which graph best shows an increase in real GDP?

When the Bank of Canada makes an open market sale, its assets ________ and its liabilities ________.

Which one of the following is a component of M2 but not of M1?

In the United Kingdom, the currency drain ratio is 0.38 and the desired reserve ratio is 0.002. The U.K. money multiplier is

If the interest rate is above the equilibrium rate, how is equilibrium achieved in the money market?

Choose the statement that is incorrect.

The money multiplier can also be calculated as ________, where a is the currency drain ratio and b is the desired reserve ratio.

When the nominal interest rate rises, the opportunity cost of holding money

On the average in Canada, the inflation rate and the money growth rate minus real GDP growth rate

Money market equilibrium occurs

If households and firms find they are holding less money than desired, they will

A bank can create money by

Money's function as a unit of account can best be described as

Money is

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

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Governments Actions in Markets

Global Markets in Action

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Possibilities, Preferences, and Choices

Organizing Production

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Perfect Competition

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Public Goods and Common Resources

Markets for Factors of Production

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Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Finance, Saving, and Investment

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

Macro Only: International Trade Policy

Filters

When the interest rate falls in the money market, the quantity of money demanded and the quantity of money supplied .

When the Bank of Canada makes an open market sale, its assets and its liabilities .