Question 1

When the Bank of Canada lowers the overnight loans rate, the Canadian interest rate differential ________ and the Canadian dollar ________ on the foreign exchange market.

Accepted Answer

A) rises; appreciates 
B) rises; depreciates 
C) falls; appreciates 
D) falls; depreciates 
E) falls; changes to equal the value of the U.S. dollar 
A) rises; appreciates 
B) rises; depreciates 
C) falls; appreciates 
D) falls; depreciates 
E) falls; changes to equal the value of the U.S. dollar

Question 2

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 3

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 4

When the Bank of Canada raises the overnight loans rate, other short-term interest rates

Accepted Answer

A) fall, consumption expenditure, investment and net exports increase, and the aggregate demand curve shifts rightward. 
B) fall, consumption expenditure, investment and net exports decrease, and the aggregate demand curve shifts leftward. 
C) rise, consumption expenditure, investment and net exports decrease, and the aggregate demand curve shifts leftward. 
D) rise, consumption expenditure, investment and net exports increase, and the aggregate demand curve shifts rightward. 
E) none of the above 
A) fall, consumption expenditure, investment and net exports increase, and the aggregate demand curve shifts rightward. 
B) fall, consumption expenditure, investment and net exports decrease, and the aggregate demand curve shifts leftward. 
C) rise, consumption expenditure, investment and net exports decrease, and the aggregate demand curve shifts leftward. 
D) rise, consumption expenditure, investment and net exports increase, and the aggregate demand curve shifts rightward. 
E) none of the above

Question 5

Who are the members of the Bank of Canada's Governing Council?

Accepted Answer

A) the Ministers of Finance from each province as well as the Federal Minister of Finance 
B) the Prime Minister, the Minister of Finance, and the Bank's Governor 
C) the Minister of Finance, the Governor, and four Deputy Governors 
D) the Bank's Governor, Senior Deputy Governor, and four Deputy governors who are appointed by the Prime Minister to represent the public interest 
E) the Bank's Governor, Senior Deputy Governor, and four Deputy Governors 
A) the Ministers of Finance from each province as well as the Federal Minister of Finance 
B) the Prime Minister, the Minister of Finance, and the Bank's Governor 
C) the Minister of Finance, the Governor, and four Deputy Governors 
D) the Bank's Governor, Senior Deputy Governor, and four Deputy governors who are appointed by the Prime Minister to represent the public interest 
E) the Bank's Governor, Senior Deputy Governor, and four Deputy Governors

Question 6

When the Bank of Canada fights recession by lowering the overnight loans rate, the supply of reserves curve shifts ________ and the supply of money curve shifts ________.

Accepted Answer

A) leftward; leftward 
B) leftward; rightward 
C) rightward; leftward 
D) rightward; rightward 
E) rightward; rightward, and the demand for loanable funds increases 
A) leftward; leftward 
B) leftward; rightward 
C) rightward; leftward 
D) rightward; rightward 
E) rightward; rightward, and the demand for loanable funds increases

Question 7

The current Governor of the Bank of Canada is

Accepted Answer

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

Question 8

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 9

In the short run, lowering the overnight loans rate shifts the ________ curve ________ and ________ real GDP.

Accepted Answer

A) aggregate demand; leftward; decreases 
B) aggregate demand; rightward; increases 
C) short-run aggregate supply; rightward; increases 
D) aggregate demand; leftward; increases 
E) long-run aggregate supply; rightward; increases 
A) aggregate demand; leftward; decreases 
B) aggregate demand; rightward; increases 
C) short-run aggregate supply; rightward; increases 
D) aggregate demand; leftward; increases 
E) long-run aggregate supply; rightward; increases

Question 10

If the Bank of Canada lowers the overnight loans rate,

Accepted Answer

A) other short-term interest rates fall. 
B) other short-term interest rates rise. 
C) the exchange rate falls. 
D) the long-term interest rate falls. 
E) A, C, and D are correct. 
A) other short-term interest rates fall. 
B) other short-term interest rates rise. 
C) the exchange rate falls. 
D) the long-term interest rate falls. 
E) A, C, and D are correct.

Question 11

In response to an inflationary gap, the Bank of Canada

Accepted Answer

A) waits until the price level falls before acting. 
B) lowers the overnight loans rate by selling securities. 
C) raises the overnight loans rate by selling securities. 
D) lowers the overnight loans rate by buying securities. 
E) raises the overnight loans rate by buying securities. 
A) waits until the price level falls before acting. 
B) lowers the overnight loans rate by selling securities. 
C) raises the overnight loans rate by selling securities. 
D) lowers the overnight loans rate by buying securities. 
E) raises the overnight loans rate by buying securities.

Question 12

If the overnight rate is above 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 13

Which of the following statements about the overnight loans rate is false?

Accepted Answer

A) The overnight loans rate and the treasury bill rate move closely together. 
B) The overnight loans rate and the long-term bond rate trend in the same direction. 
C) The overnight loans rate is most often less than the long-term bond rate. 
D) The long-term bond rate fluctuates less than the short-term rates. 
E) The higher the overnight loans rate, the greater the quantity of money. 
A) The overnight loans rate and the treasury bill rate move closely together. 
B) The overnight loans rate and the long-term bond rate trend in the same direction. 
C) The overnight loans rate is most often less than the long-term bond rate. 
D) The long-term bond rate fluctuates less than the short-term rates. 
E) The higher the overnight loans rate, the greater the quantity of money.

Question 14

Suppose the Bank of Canada uses the Taylor rule to set the overnight loans rate. If the inflation rate is 3 percent, and the output gap is 0 percent, then the Taylor rule sets the overnight rate equal to

Accepted Answer

A) 5 percent. 
B) 5.5 percent. 
C) 0 percent. 
D) 2.5 percent. 
E) 6 percent. 
A) 5 percent. 
B) 5.5 percent. 
C) 0 percent. 
D) 2.5 percent. 
E) 6 percent.

Question 15

Use the information below to answer the following questions.
Fact 30.1.1 Inflation Control Target Renewal
The 2011 inflation control target agreement between the Government of Canada and the Bank of Canada runs to the end of 2016.
Source: Bank of Canada, November 2011
-Refer to Fact 30.1.1. Choose the statement that is incorrect.

Accepted Answer

A) It is important to renew the agreement because the target provides an anchor for low inflation expectations. 
B) It is important to renew the agreement because knowing that the Bank of Canada is striving to reach the target makes the short-run output-inflation tradeoff as favourable as possible. 
C) It is important to renew the agreement because with the agreement the inflation rate will always remain between 1 and 3 percent a year. 
D) Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits the unemployment rate to rise. 
E) Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits real GDP growth to suffer. 
A) It is important to renew the agreement because the target provides an anchor for low inflation expectations. 
B) It is important to renew the agreement because knowing that the Bank of Canada is striving to reach the target makes the short-run output-inflation tradeoff as favourable as possible. 
C) It is important to renew the agreement because with the agreement the inflation rate will always remain between 1 and 3 percent a year. 
D) Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits the unemployment rate to rise. 
E) Obstacles to the renewal of the agreement may occur because some critics argue that by focusing on inflation, the Bank sometimes permits real GDP growth to suffer.

Question 16

If the Bank of Canada buys government bonds, all of the following happens except

Accepted Answer

A) bank reserves increase. 
B) the quantity of money increases. 
C) the supply of loanable funds increases. 
D) the bank rate rises. 
E) net exports increase. 
A) bank reserves increase. 
B) the quantity of money increases. 
C) the supply of loanable funds increases. 
D) the bank rate rises. 
E) net exports increase.

Question 17

If the Bank of Canada wants to eliminate an inflationary gap, which of the following would be an appropriate policy?

Accepted Answer

A) Raise the overnight loans rate. 
B) Lower the overnight loans rate. 
C) Buy government securities. 
D) Decease the government budget deficit. 
E) Lower the exchange rate. 
A) Raise the overnight loans rate. 
B) Lower the overnight loans rate. 
C) Buy government securities. 
D) Decease the government budget deficit. 
E) Lower the exchange rate.

Question 18

Use the information below to answer the following questions.
Fact 30.1.1 Inflation Control Target Renewal
The 2011 inflation control target agreement between the Government of Canada and the Bank of Canada runs to the end of 2016.
Source: Bank of Canada, November 2011
-Refer to Fact 30.1.1. In the inflation control agreement, the Government of Canada and the Bank of Canada agree to all of the following except that

Accepted Answer

A) the target will continue to be defined in terms of the 12-month rate of change in the total CPI. 
B) the inflation target will continue to be 2 percent. 
C) the agreement will run until December 31, 2016. 
D) if the CPI becomes too volatile, in the future the target will be defined in terms of the 12-month rate of change in the core CPI. 
E) the inflation-control range is 1 percent to 3 percent a year. 
A) the target will continue to be defined in terms of the 12-month rate of change in the total CPI. 
B) the inflation target will continue to be 2 percent. 
C) the agreement will run until December 31, 2016. 
D) if the CPI becomes too volatile, in the future the target will be defined in terms of the 12-month rate of change in the core CPI. 
E) the inflation-control range is 1 percent to 3 percent a year.

Question 19

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."

Question 20

The overnight loans rate is the interest rate

Accepted Answer

A) banks charge their 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 banks. 
E) on overnight loans that the big banks make to each other. 
A) banks charge their 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 banks. 
E) on overnight loans that the big banks make to each other.

Exam 30: Monetary Policy

When the Bank of Canada lowers the overnight loans rate, the Canadian interest rate differential ________ and the Canadian dollar ________ on the foreign exchange market.

The purchase of government bonds by the Bank of Canada

The bank rate is the interest rate

When the Bank of Canada raises the overnight loans rate, other short-term interest rates

Who are the members of the Bank of Canada's Governing Council?

When the Bank of Canada fights recession by lowering the overnight loans rate, the supply of reserves curve shifts ________ and the supply of money curve shifts ________.

The current Governor of the Bank of Canada is

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.

In the short run, lowering the overnight loans rate shifts the ________ curve ________ and ________ real GDP.

If the Bank of Canada lowers the overnight loans rate,

In response to an inflationary gap, the Bank of Canada

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

Which of the following statements about the overnight loans rate is false?

Suppose the Bank of Canada uses the Taylor rule to set the overnight loans rate. If the inflation rate is 3 percent, and the output gap is 0 percent, then the Taylor rule sets the overnight rate equal to

If the Bank of Canada buys government bonds, all of the following happens except

If the Bank of Canada wants to eliminate an inflationary gap, which of the following would be an appropriate policy?

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

The overnight loans rate is the interest rate

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When the Bank of Canada lowers the overnight loans rate, the Canadian interest rate differential and the Canadian dollar on the foreign exchange market.

When the Bank of Canada fights recession by lowering the overnight loans rate, the supply of reserves curve shifts and the supply of money curve shifts .

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.

In the short run, lowering the overnight loans rate shifts the curve and real GDP.

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