Question 1

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 E

Question 2

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 lowering the overnight loans rate?

Accepted Answer

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

Question 3

Suppose the inflation rate is 2.5 percent, and the output gap is 1 percent. Using the Taylor rule, the Bank of Canada sets the overnight loans rate equal to

Accepted Answer

A) 3 percent. 
B) 3.5 percent. 
C) 5.25 percent. 
D) 5.5 percent. 
E) 5.75 percent. 
A) 3 percent. 
B) 3.5 percent. 
C) 5.25 percent. 
D) 5.5 percent. 
E) 5.75 percent. C

Question 4

Two monetary policy instruments that the Bank of Canada can use are

Accepted Answer

A) the federal government budget balance and the real interest rate. 
B) the quantity of Canadian dollars held in Canadian banks and the quantity fo Canadian dollars held by foreign central banks. 
C) the monetary base and the short-term interest rate. 
D) the foreign exchange rate and the government budget balance. 
E) the current account balance and the capital and financial account balance. 
A) the federal government budget balance and the real interest rate. 
B) the quantity of Canadian dollars held in Canadian banks and the quantity fo Canadian dollars held by foreign central banks. 
C) the monetary base and the short-term interest rate. 
D) the foreign exchange rate and the government budget balance. 
E) the current account balance and the capital and financial account balance.

Question 5

On September 15, 2014, the OECD predicted that global growth would continue at a moderate rate and that Canada's economic growth will strengthen. If the OECD forecasts turn out to be correct, and Canada is in a below full-employment equilibrium in 2014 (but close to full employment), then in 2015 and 2016 the output gap will ________ and unemployment will ________.

Accepted Answer

A) increase; decrease 
B) decrease or even reverse; increase 
C) decrease or even reverse; decrease 
D) increase; increase 
E) decrease; not change 
A) increase; decrease 
B) decrease or even reverse; increase 
C) decrease or even reverse; decrease 
D) increase; increase 
E) decrease; not change

Question 6

Choose the statement that is incorrect.

Accepted Answer

A) The Bank of Canada's choice of policy instrument is the overnight loans rate. 
B) When the Bank of Canada wants to slow inflation, it raises the overnight loans rate. 
C) The Bank has established 12 fixed dates each year on which it announces its overnight rate target for the coming period. 
D) Recently, the overnight loans rate has been at historically low levels because the Bank is leaning in the direction of avoiding recession. 
E) The overnight rate was a bit more than 8 percent a year in 1995. 
A) The Bank of Canada's choice of policy instrument is the overnight loans rate. 
B) When the Bank of Canada wants to slow inflation, it raises the overnight loans rate. 
C) The Bank has established 12 fixed dates each year on which it announces its overnight rate target for the coming period. 
D) Recently, the overnight loans rate has been at historically low levels because the Bank is leaning in the direction of avoiding recession. 
E) The overnight rate was a bit more than 8 percent a year in 1995.

Question 7

How does the Bank of Canada set the bank rate?

Accepted Answer

A) The Bank of Canada does not determine the bank rate. 
B) The bank rate is set at a quarter percentage point above the prime lending rate. 
C) The bank rate is set at a quarter percentage point above the target overnight loans rate. 
D) The bank rate is set at a quarter percentage point below the overnight loans rate. 
E) The bank rate is set at 25 basis points above the operating band. 
A) The Bank of Canada does not determine the bank rate. 
B) The bank rate is set at a quarter percentage point above the prime lending rate. 
C) The bank rate is set at a quarter percentage point above the target overnight loans rate. 
D) The bank rate is set at a quarter percentage point below the overnight loans rate. 
E) The bank rate is set at 25 basis points above the operating band.

Question 8

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 9

A monetary policy aimed at increasing domestic expenditure will

Accepted Answer

A) increase interest rates and decrease the exchange rate. 
B) have no impact on interest rates, but increase the exchange rate. 
C) have no impact on interest rates nor on the exchange rate. 
D) decrease interest rates and increase the exchange rate. 
E) decrease interest rates and the exchange rate. 
A) increase interest rates and decrease the exchange rate. 
B) have no impact on interest rates, but increase the exchange rate. 
C) have no impact on interest rates nor on the exchange rate. 
D) decrease interest rates and increase the exchange rate. 
E) decrease interest rates and the exchange rate.

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 and 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 and 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

Which of the following does not occur as a result of the Bank of Canada raising the overnight loans rate?

Accepted Answer

A) The supply of loanable funds decreases. 
B) The long-term real interest rate rises. 
C) Exports decrease. 
D) Aggregate demand increases. 
E) Imports increase. 
A) The supply of loanable funds decreases. 
B) The long-term real interest rate rises. 
C) Exports decrease. 
D) Aggregate demand increases. 
E) Imports increase.

Question 12

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 13

Suppose that the Reserve Bank of New Zealand is following the Taylor rule. In 2009, it sets the official cash rate (the N.Z. equivalent of the overnight loans rate)at 4.0 percent a year. If the inflation rate in New Zealand is 2.0 percent a year, what is its output gap?

Accepted Answer

A) 0 percent 
B) 1 percent 
C) 2 percent 
D) 3 percent 
E) 0.5 percent 
A) 0 percent 
B) 1 percent 
C) 2 percent 
D) 3 percent 
E) 0.5 percent

Question 14

Which of the following issues is a concern that critics express about the use of an inflation-control target?

Accepted Answer

A) The policy control rests in the hands of civil servants rather than in the hands of elected officials. 
B) The policy control rests in the hands of elected officials rather than in the hands of civil servants. 
C) It encourages a focus on real GDP growth at the expense of employment and of inflation. 
D) It encourages a focus on inflation at the expense of employment and real GDP growth. 
E) Monetary policy tends to be sensitive to the state of employment while focusing on inflation control targets. 
A) The policy control rests in the hands of civil servants rather than in the hands of elected officials. 
B) The policy control rests in the hands of elected officials rather than in the hands of civil servants. 
C) It encourages a focus on real GDP growth at the expense of employment and of inflation. 
D) It encourages a focus on inflation at the expense of employment and real GDP growth. 
E) Monetary policy tends to be sensitive to the state of employment while focusing on inflation control targets.

Question 15

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 16

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 17

A decrease in the overnight loans rate leads to all of the following except

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) an increase in imports. 
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) an increase in imports.

Question 18

Which statement below best expresses the relationship between the 3-month Treasury bill rate and the overnight loans rate? The rates are

Accepted Answer

A) not similar because banks can not readily substitute between them. 
B) similar because they are both required to remain with the Bank of Canada's operating band. 
C) similar because banks can readily substitute between them. 
D) not similar because the treasury bill rate is established through the financial markets whereas the overnight loans rate is set by the Bank of Canada. 
E) not similar because the treasury bill rate is set by the Government of Canada whereas the overnight loans rate is set by the Bank of Canada. 
A) not similar because banks can not readily substitute between them. 
B) similar because they are both required to remain with the Bank of Canada's operating band. 
C) similar because banks can readily substitute between them. 
D) not similar because the treasury bill rate is established through the financial markets whereas the overnight loans rate is set by the Bank of Canada. 
E) not similar because the treasury bill rate is set by the Government of Canada whereas the overnight loans rate is set by the Bank of Canada.

Question 19

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 20

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.

Exam 30: Monetary Policy

The Bank of Canada can lower the overnight loans rate by

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 lowering the overnight loans rate?

Suppose the inflation rate is 2.5 percent, and the output gap is 1 percent. Using the Taylor rule, the Bank of Canada sets the overnight loans rate equal to

Two monetary policy instruments that the Bank of Canada can use are

Choose the statement that is incorrect.

How does the Bank of Canada set the bank rate?

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

A monetary policy aimed at increasing domestic expenditure will

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

Which of the following does not occur as a result of the Bank of Canada raising the overnight loans rate?

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

Suppose that the Reserve Bank of New Zealand is following the Taylor rule. In 2009, it sets the official cash rate (the N.Z. equivalent of the overnight loans rate)at 4.0 percent a year. If the inflation rate in New Zealand is 2.0 percent a year, what is its output gap?

Which of the following issues is a concern that critics express about the use of an inflation-control target?

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.

A decrease in the overnight loans rate leads to all of the following except

Which statement below best expresses the relationship between the 3-month Treasury bill rate and the overnight loans rate? The rates are

An increase in the quantity of money leads to

An open market operation

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments 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 Business Cycle, Inflation, and Deflation

Fiscal Policy

Macro Only: International Trade Policy

Filters

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.