Question 1

Monetary policy refers to the actions the

Accepted Answer

A) Prime Minister and Parliament take to manage the money supply and interest rates to pursue their economic objectives. 
B) Bank of Canada takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives. 
C) Prime Minister and Parliament take to manage government spending and taxes to pursue their economic objectives. 
D) Bank of Canada takes to manage government spending and taxes to pursue its economic objectives. 
E) Commercial bank decisions determining when and to whom to make loans. 
A) Prime Minister and Parliament take to manage the money supply and interest rates to pursue their economic objectives. 
B) Bank of Canada takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives. 
C) Prime Minister and Parliament take to manage government spending and taxes to pursue their economic objectives. 
D) Bank of Canada takes to manage government spending and taxes to pursue its economic objectives. 
E) Commercial bank decisions determining when and to whom to make loans.

Question 2

List the Bank of Canada's four main monetary goals.

Accepted Answer

1.Price stability
2.High emplo

Question 3

The Bank of Canada can directly affect its monetary policy ________, which then affect its monetary policy ________.

Accepted Answer

A) goals; targets 
B) goals; tools 
C) targets; goals 
D) targets; tools 
E) goals; levers 
A) goals; targets 
B) goals; tools 
C) targets; goals 
D) targets; tools 
E) goals; levers

Question 4

With the Troubled Asset Relief Program (TARP), the U.S.Treasury provided funds to banks in exchange for stock.

Accepted Answer

A) True 
 B)False

Question 5

To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S.Congress used two government sponsored enterprises, Fannie Mae and Freddie Mac, to stand between investors and banks that grant mortgages.Fannie Mae and Freddie Mac

Accepted Answer

A) sell mortgages to investors and use the funds to purchase bonds from banks. 
B) sell bonds to investors and use the funds to purchase mortgages from banks. 
C) sell bonds to banks and use the funds to purchase mortgages from investors. 
D) sell mortgages to banks and use the funds to purchase bonds from investors. 
E) use government tax revenue to insure mortgage issuers against defaults. 
A) sell mortgages to investors and use the funds to purchase bonds from banks. 
B) sell bonds to investors and use the funds to purchase mortgages from banks. 
C) sell bonds to banks and use the funds to purchase mortgages from investors. 
D) sell mortgages to banks and use the funds to purchase bonds from investors. 
E) use government tax revenue to insure mortgage issuers against defaults.

Question 6

By the 2000s, an important market change occurred when U.S.investment banks became significant participants in the secondary market for

Accepted Answer

A) mortgages. 
B) government securities. 
C) corporate bonds. 
D) currency. 
E) foreign exchange. 
A) mortgages. 
B) government securities. 
C) corporate bonds. 
D) currency. 
E) foreign exchange.

Question 7

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

Accepted Answer

A) True 
 B)False

Question 8

The Bank of Canada system's four monetary policy goals are

Accepted Answer

A) low government budget deficits, low current account deficits, high employment, and a high foreign exchange value of the dollar. 
B) rate of bank failures, high reserve ratios, price stability, and economic growth. 
C) price stability, high employment, economic growth, and stability of financial markets and institutions. 
D) price stability, low government budget deficits, low current account deficits, and low rate of bank failures. 
E) price stability, high levels of retirement savings, economic growth, and financial market stability. 
A) low government budget deficits, low current account deficits, high employment, and a high foreign exchange value of the dollar. 
B) rate of bank failures, high reserve ratios, price stability, and economic growth. 
C) price stability, high employment, economic growth, and stability of financial markets and institutions. 
D) price stability, low government budget deficits, low current account deficits, and low rate of bank failures. 
E) price stability, high levels of retirement savings, economic growth, and financial market stability.

Question 9

From an initial long-run macroeconomic equilibrium, if the Bank of Canada anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Bank of Canada would most likely

Accepted Answer

A) decrease interest rates. 
B) increase interest rates. 
C) decrease income tax rates. 
D) increase income tax rates. 
E) leave interest rates unchanged. 
A) decrease interest rates. 
B) increase interest rates. 
C) decrease income tax rates. 
D) increase income tax rates. 
E) leave interest rates unchanged.

Question 10

Which of the following is true?

Accepted Answer

A) The money market model is essentially a model that determines the short-term nominal rate of interest. 
B) The money market model is essentially a model that determines the short-term real rate of interest. 
C) The loanable funds model is essentially a model that determines the short-term real rate of interest. 
D) The loanable funds model is essentially a model that determines the long-term nominal rate of interest. 
E) The money market model is essentially a model that determines the long-term nominal rate of interest. 
A) The money market model is essentially a model that determines the short-term nominal rate of interest. 
B) The money market model is essentially a model that determines the short-term real rate of interest. 
C) The loanable funds model is essentially a model that determines the short-term real rate of interest. 
D) The loanable funds model is essentially a model that determines the long-term nominal rate of interest. 
E) The money market model is essentially a model that determines the long-term nominal rate of interest.

Question 11

In 2008, the U.S.Treasury and the U.S.Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing.Which of the following is one reason why these measures were taken?

Accepted Answer

A) The Emergency Economic Stabilization Act required the Fed and the Treasury to provide financial assistance to firms that participated in regular open market actions with the Fed. 
B) The bankruptcy of a large financial firm would force the firm to sell its holdings of securities, which could cause other firms that hold these securities to also fail. 
C) The Fed and the Treasury wanted to allow Freddie Mac and Fannie Mae more time to buy the firms before they went bankrupt. 
D) The failure of these firms would have forced the Fed to increase interest rates, which could have led to a severe recession. 
E) The bankruptcy of these firms would have damaged the value of government employees' pension funds. 
A) The Emergency Economic Stabilization Act required the Fed and the Treasury to provide financial assistance to firms that participated in regular open market actions with the Fed. 
B) The bankruptcy of a large financial firm would force the firm to sell its holdings of securities, which could cause other firms that hold these securities to also fail. 
C) The Fed and the Treasury wanted to allow Freddie Mac and Fannie Mae more time to buy the firms before they went bankrupt. 
D) The failure of these firms would have forced the Fed to increase interest rates, which could have led to a severe recession. 
E) The bankruptcy of these firms would have damaged the value of government employees' pension funds.

Question 12

Inflation targeting is a framework for carrying out monetary policy whereby

Accepted Answer

A) the central bank adopts a rigid target for inflation and ignores declines in output. 
B) the central bank commits to achieving a publicly announced level of inflation. 
C) the central bank commits to achieving a target level of inflation that is never announced publicly. 
D) the central bank commits to a monetary growth rule. 
E) the central bank commits to achieving a level of inflation equal to the rate of real GDP growth. 
A) the central bank adopts a rigid target for inflation and ignores declines in output. 
B) the central bank commits to achieving a publicly announced level of inflation. 
C) the central bank commits to achieving a target level of inflation that is never announced publicly. 
D) the central bank commits to a monetary growth rule. 
E) the central bank commits to achieving a level of inflation equal to the rate of real GDP growth.

Question 13

The money demand curve has a negative slope because

Accepted Answer

A) lower interest rates cause households and firms to switch from money to financial assets. 
B) lower interest rates cause households and firms to switch from financial assets to money. 
C) lower interest rates cause households and firms to switch from money to stocks. 
D) lower interest rates cause households and firms to switch from money to bonds. 
E) lower interest rates cause households and firms to take more risks. 
A) lower interest rates cause households and firms to switch from money to financial assets. 
B) lower interest rates cause households and firms to switch from financial assets to money. 
C) lower interest rates cause households and firms to switch from money to stocks. 
D) lower interest rates cause households and firms to switch from money to bonds. 
E) lower interest rates cause households and firms to take more risks.

Question 14

An increase in the demand for government of Canada securities will

Accepted Answer

A) increase the price of government of Canada securities. 
B) increase the interest rate on government of Canada securities. 
C) increase the opportunity cost of holding money vs.government of Canada securities. 
D) eventually cause households to hold less money. 
E) an increase in government debt. 
A) increase the price of government of Canada securities. 
B) increase the interest rate on government of Canada securities. 
C) increase the opportunity cost of holding money vs.government of Canada securities. 
D) eventually cause households to hold less money. 
E) an increase in government debt.

Question 15

In 2008, the U.S.Treasury Department and U.S.Federal Reserve took several actions in response to the deepening financial crisis.One action was the creation of the Term Securities Lending Facility, under which the U.S.Federal Reserve will loan up to $200 billion of treasury securities in exchange for

Accepted Answer

A) common stock. 
B) mortgage-backed securities. 
C) corporate bonds. 
D) required bank reserves. 
E) preferred shares. 
A) common stock. 
B) mortgage-backed securities. 
C) corporate bonds. 
D) required bank reserves. 
E) preferred shares.

Question 16

Suppose that the economy is producing below potential GDP and the Bank of Canada implements the correct change in monetary policy, but not until after the economy has passed the trough of the recession.Then

Accepted Answer

A) the Bank of Canada's contractionary policy will result in too large of a decrease in GDP. 
B) the Bank of Canada's contractionary policy will result in too small of a decrease in GDP. 
C) the Bank of Canada's expansionary policy will result in too small of a decrease in GDP. 
D) the Bank of Canada's expansionary policy will result in too large of an increase in GDP. 
A) the Bank of Canada's contractionary policy will result in too large of a decrease in GDP. 
B) the Bank of Canada's contractionary policy will result in too small of a decrease in GDP. 
C) the Bank of Canada's expansionary policy will result in too small of a decrease in GDP. 
D) the Bank of Canada's expansionary policy will result in too large of an increase in GDP.

Question 17

If the Bank of Canada orders a contractionary monetary policy, describe what will happen to the following variables relative to what would have happened without the policy:
a.The money supply
b.Interest rates
c.Investment
d.Consumption
e.Net Exports
f.The aggregate demand curve
g.Real GDP
h.The price level

Accepted Answer

a.The money supply decreases.
b.Interest

Question 18

Give an example of a monetary policy target.Explain why the Bank of Canada uses policy targets.

Accepted Answer

One possible monetary target is the mone

Question 19

Central banks around the world have pursued historically low interest rates in an effort to

Accepted Answer

A) redistribute wealth from lenders to borrowers. 
B) reduce government interest payment on past borrowing thus allowing more to be spent on social programs. 
C) provide governments with a justification for running large budget deficits. 
D) to encourage consumers to spend more and thus shift aggregate demand to the right. 
E) to reduce the incomes of capitalists. 
A) redistribute wealth from lenders to borrowers. 
B) reduce government interest payment on past borrowing thus allowing more to be spent on social programs. 
C) provide governments with a justification for running large budget deficits. 
D) to encourage consumers to spend more and thus shift aggregate demand to the right. 
E) to reduce the incomes of capitalists.

Question 20

An increase in the money supply will

Accepted Answer

A) increase the interest rate. 
B) decrease the interest rate. 
C) have no effect on the interest rate. 
D) decrease the equilibrium quantity of money in the economy. 
E) cause a future rise in the interest rate. 
A) increase the interest rate. 
B) decrease the interest rate. 
C) have no effect on the interest rate. 
D) decrease the equilibrium quantity of money in the economy. 
E) cause a future rise in the interest rate.

Monetary policy refers to the actions the

List the Bank of Canada's four main monetary goals.

The Bank of Canada can directly affect its monetary policy , which then affect its monetary policy .

With the Troubled Asset Relief Program (TARP), the U.S.Treasury provided funds to banks in exchange for stock.

To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S.Congress used two government sponsored enterprises, Fannie Mae and Freddie Mac, to stand between investors and banks that grant mortgages.Fannie Mae and Freddie Mac

By the 2000s, an important market change occurred when U.S.investment banks became significant participants in the secondary market for

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

The Bank of Canada system's four monetary policy goals are

From an initial long-run macroeconomic equilibrium, if the Bank of Canada anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Bank of Canada would most likely

Which of the following is true?

In 2008, the U.S.Treasury and the U.S.Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing.Which of the following is one reason why these measures were taken?

Inflation targeting is a framework for carrying out monetary policy whereby

The money demand curve has a negative slope because

An increase in the demand for government of Canada securities will

In 2008, the U.S.Treasury Department and U.S.Federal Reserve took several actions in response to the deepening financial crisis.One action was the creation of the Term Securities Lending Facility, under which the U.S.Federal Reserve will loan up to $200 billion of treasury securities in exchange for

Suppose that the economy is producing below potential GDP and the Bank of Canada implements the correct change in monetary policy, but not until after the economy has passed the trough of the recession.Then

Give an example of a monetary policy target.Explain why the Bank of Canada uses policy targets.

Central banks around the world have pursued historically low interest rates in an effort to

An increase in the money supply will

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Supply and Demand

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Bank of Canada

Fiscal Policy

Inflation, Unemployment, and Bank of Canada Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

Exam 11: Monetary Policy

Monetary policy refers to the actions the

List the Bank of Canada's four main monetary goals.

The Bank of Canada can directly affect its monetary policy ________, which then affect its monetary policy ________.

With the Troubled Asset Relief Program (TARP), the U.S.Treasury provided funds to banks in exchange for stock.

To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S.Congress used two government sponsored enterprises, Fannie Mae and Freddie Mac, to stand between investors and banks that grant mortgages.Fannie Mae and Freddie Mac

By the 2000s, an important market change occurred when U.S.investment banks became significant participants in the secondary market for

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

The Bank of Canada system's four monetary policy goals are

From an initial long-run macroeconomic equilibrium, if the Bank of Canada anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Bank of Canada would most likely

Which of the following is true?

In 2008, the U.S.Treasury and the U.S.Federal Reserve took action to save large financial firms such as Bear Stearns and AIG from failing.Which of the following is one reason why these measures were taken?

Inflation targeting is a framework for carrying out monetary policy whereby

The money demand curve has a negative slope because

An increase in the demand for government of Canada securities will

Suppose that the economy is producing below potential GDP and the Bank of Canada implements the correct change in monetary policy, but not until after the economy has passed the trough of the recession.Then

Give an example of a monetary policy target.Explain why the Bank of Canada uses policy targets.

Central banks around the world have pursued historically low interest rates in an effort to

An increase in the money supply will

Economics: Foundations and Models

Trade-Offs, Comparative Advantage, and the Market System

Where Prices Come From: The Interaction of Supply and Demand

GDP: Measuring Total Production and Income

Unemployment and Inflation

Economic Growth, The Financial System, and Business Cycles

Long-Run Economic Growth: Sources and Policies

Aggregate Expenditure and Output in the Short Run

Aggregate Demand and Aggregate Supply Analysis

Money, Banks, and the Bank of Canada

Fiscal Policy

Inflation, Unemployment, and Bank of Canada Policy

Macroeconomics in an Open Economy

The International Financial System

Filters

The Bank of Canada can directly affect its monetary policy , which then affect its monetary policy .