Question 1

All depository institutions

Accepted Answer

A) keep all of their deposits at the Bank of Canada district bank except their vault cash. 
B) keep a certain percentage of their deposits at the Bank of Canada district bank or as vault cash. 
C) charge the interest rates and pay the interest rates determined by their Bank of Canada district bank. 
D) limit their loans to households to a certain percentage of all their loans,and the limit is set by the Bank of Canada. 
A) keep all of their deposits at the Bank of Canada district bank except their vault cash. 
B) keep a certain percentage of their deposits at the Bank of Canada district bank or as vault cash. 
C) charge the interest rates and pay the interest rates determined by their Bank of Canada district bank. 
D) limit their loans to households to a certain percentage of all their loans,and the limit is set by the Bank of Canada. B

Question 2

When the Bank of Canada wants to undertake open market operations,it

Accepted Answer

A) can require all commercial banks to buy from or sell to it. 
B) can require all member banks to buy from or sell to it. 
C) buys or sells securities by writing a cheque. 
D) buys from or sells to the Canadian Treasury. 
A) can require all commercial banks to buy from or sell to it. 
B) can require all member banks to buy from or sell to it. 
C) buys or sells securities by writing a cheque. 
D) buys from or sells to the Canadian Treasury. C

Question 3

In an open economy,expansionary fiscal policy that creates deficit spending by Canadian government borrowing is likely to lead to

Accepted Answer

A) an increase in exports. 
B) a reduction in exports. 
C) an appreciation of foreign currency relative to the dollar. 
D) a decrease in Canadian interest rates. 
A) an increase in exports. 
B) a reduction in exports. 
C) an appreciation of foreign currency relative to the dollar. 
D) a decrease in Canadian interest rates. B

Question 4

The transaction demand for money is the demand to hold money to

Accepted Answer

A) make regular,expected purchases. 
B) meet unplanned expenditures. 
C) store one's wealth. 
D) purchase bonds when interest rates increase. 
A) make regular,expected purchases. 
B) meet unplanned expenditures. 
C) store one's wealth. 
D) purchase bonds when interest rates increase.

Question 5

The Bank of Canada sells a Canadian government security and a bank dealer writes a cheque for the amount.When the cheque clears,

Accepted Answer

A) reserves remain unchanged because the decrease of reserves at the dealer's bank are offset by an increase in the reserves at the Bank of Canada. 
B) reserves have fallen by the amount of the cheque because the Bank of Canada clears the cheque by reducing the bank's deposits at the Bank of Canada. 
C) reserves increase by the amount of the cheque because the Bank of Canada clears the cheque by increasing the amount of the bank's deposits with the Bank of Canada. 
D) reserves have fallen by the amount of the reserves times the desired reserve ratio,and the money supply falls by the difference between the amount of the cheque and the fall in the reserves. 
A) reserves remain unchanged because the decrease of reserves at the dealer's bank are offset by an increase in the reserves at the Bank of Canada. 
B) reserves have fallen by the amount of the cheque because the Bank of Canada clears the cheque by reducing the bank's deposits at the Bank of Canada. 
C) reserves increase by the amount of the cheque because the Bank of Canada clears the cheque by increasing the amount of the bank's deposits with the Bank of Canada. 
D) reserves have fallen by the amount of the reserves times the desired reserve ratio,and the money supply falls by the difference between the amount of the cheque and the fall in the reserves.

Question 6

In the Keynesian view,

Accepted Answer

A) an increase in reserve requirements will lower interest rates. 
B) a decrease in reserve requirements will lower interest rates. 
C) a decrease in reserve requirements will not affect interest rates. 
D) an increase in reserve requirements will not affect interest rates. 
A) an increase in reserve requirements will lower interest rates. 
B) a decrease in reserve requirements will lower interest rates. 
C) a decrease in reserve requirements will not affect interest rates. 
D) an increase in reserve requirements will not affect interest rates.

Question 7

The Bank of Canada buys $1 million in bonds from a bond dealer.The bond dealer's bank experiences

Accepted Answer

A) an increase in assets of $1 million as its reserves increase and a decrease in liabilities as its deposits fall. 
B) no change in assets or liabilities.Assets both increased and decreased by the amount of the cheque. 
C) a decrease in assets of $1 million as the chequing account of the bond dealer increased,and a decrease in liabilities as the bank's deposits with the Bank of Canada increased by $1 million. 
D) an increase in assets of $1 million as its reserves increase and an increase in liabilities of $1 million as the deposits in the bond dealer's chequing account increases by $1 million. 
A) an increase in assets of $1 million as its reserves increase and a decrease in liabilities as its deposits fall. 
B) no change in assets or liabilities.Assets both increased and decreased by the amount of the cheque. 
C) a decrease in assets of $1 million as the chequing account of the bond dealer increased,and a decrease in liabilities as the bank's deposits with the Bank of Canada increased by $1 million. 
D) an increase in assets of $1 million as its reserves increase and an increase in liabilities of $1 million as the deposits in the bond dealer's chequing account increases by $1 million.

Question 8

When the Bank of Canada buys Canadian government securities,the money supply

Accepted Answer

A) decreases because excess reserves are now held by the bond dealer's bank. 
B) decreases because there is a decrease in demand deposits at the bank of the bond dealer,but there is no offsetting increase at any other bank. 
C) increases because there is an increase in demand deposits at the bank of the bond dealer,but there is no decrease in demand deposits at any other bank. 
D) stays the same until the bank starts to make some loans. 
A) decreases because excess reserves are now held by the bond dealer's bank. 
B) decreases because there is a decrease in demand deposits at the bank of the bond dealer,but there is no offsetting increase at any other bank. 
C) increases because there is an increase in demand deposits at the bank of the bond dealer,but there is no decrease in demand deposits at any other bank. 
D) stays the same until the bank starts to make some loans.

Question 9

When a person holds money,they give up

Accepted Answer

A) the pleasure associated with spending money. 
B) the pleasure associated with saving money. 
C) the interest that could have been earned if the money had been changed into an interest-bearing asset. 
D) nothing,since the person can always use the money to buy goods or services or interest-bearing assets. 
A) the pleasure associated with spending money. 
B) the pleasure associated with saving money. 
C) the interest that could have been earned if the money had been changed into an interest-bearing asset. 
D) nothing,since the person can always use the money to buy goods or services or interest-bearing assets.

Question 10

The desired reserve ratio is 10%.The bank of a bond dealer has $100 million in deposits,$8 million in vault cash,and $7 million in deposits at the Bank of Canada.The Bank of Canada sells $1 million in securities to the bond dealer.As a result of the transaction,

Accepted Answer

A) the money supply falls by $1 million,total reserves fall by $1 million,and excess reserves fall by $900,000. 
B) the money supply falls by $1 million,total reserves fall by $1 million and excess reserves fall by $1 million. 
C) the money supply falls by $1 million,total reserves fall by $900,000 and excess reserves fall by $900,000. 
D) the money supply falls by $1 million,but reserves don't change since the bank had $5 million in excess reserves before the transaction. 
A) the money supply falls by $1 million,total reserves fall by $1 million,and excess reserves fall by $900,000. 
B) the money supply falls by $1 million,total reserves fall by $1 million and excess reserves fall by $1 million. 
C) the money supply falls by $1 million,total reserves fall by $900,000 and excess reserves fall by $900,000. 
D) the money supply falls by $1 million,but reserves don't change since the bank had $5 million in excess reserves before the transaction.

Question 11

The desired reserve ratio is 10%,and originally there are no excess reserves in any bank.If the Bank of Canada buys $1 million of Canadian government securities from a bond dealer,and the dealer deposits the Bank of Canada's cheque in her bank,then

Accepted Answer

A) the bank can make additional loans up to $1 million. 
B) the bank can make additional loans up to $900,000. 
C) the bank can make additional loans up to $90,000. 
D) the bank has to call in loans of at least $1 million. 
A) the bank can make additional loans up to $1 million. 
B) the bank can make additional loans up to $900,000. 
C) the bank can make additional loans up to $90,000. 
D) the bank has to call in loans of at least $1 million.

Question 12

Keynesians argue that for a change in the money supply (with constant prices),the mechanism through which aggregate demand changes is

Accepted Answer

A) change in the money supply → change in speculative balances → change in transactions balances → change in planned investment → change in aggregate demand. 
B) change in the money supply → change in planned investment → change in government spending → change in aggregate demand. 
C) change in the money supply → change in interest rates → change in planned investment → change in aggregate demand. 
D) change in the money supply → change in interest rates → change in transactions balances → change in government spending → change in aggregate demand. 
A) change in the money supply → change in speculative balances → change in transactions balances → change in planned investment → change in aggregate demand. 
B) change in the money supply → change in planned investment → change in government spending → change in aggregate demand. 
C) change in the money supply → change in interest rates → change in planned investment → change in aggregate demand. 
D) change in the money supply → change in interest rates → change in transactions balances → change in government spending → change in aggregate demand.

Question 13

An increase in the money supply will affect aggregate demand

Accepted Answer

A) only if the increase in the money supply causes interest rates to rise. 
B) only if the increase in the money supply causes people to buy less goods and services. 
C) only if the increase in the money supply causes people to increase their saving. 
D) if the increase in the money supply causes interest rates to fall and/or causes people to buy more goods and services. 
A) only if the increase in the money supply causes interest rates to rise. 
B) only if the increase in the money supply causes people to buy less goods and services. 
C) only if the increase in the money supply causes people to increase their saving. 
D) if the increase in the money supply causes interest rates to fall and/or causes people to buy more goods and services.

Question 14

The desired reserve ratio is 10 percent,Bank A has $1 million in excess reserves,and all other banks have zero excess reserves.If the Bank of Canada buys $1 million of government securities and the cheque is deposited in Bank A,but Bank A refuses to grant any loans or buy any financial securities,then

Accepted Answer

A) the money supply does not increase. 
B) the money supply increases by $900,000. 
C) the money supply increases by $1 million. 
D) the money supply increases by more than $1 million. 
A) the money supply does not increase. 
B) the money supply increases by $900,000. 
C) the money supply increases by $1 million. 
D) the money supply increases by more than $1 million.

Question 15

According to the quantity theory of money,

Accepted Answer

A) real national income is directly related to changes in the money supply in the long run. 
B) velocity varies indirectly with the rate of growth of the money supply. 
C) a proportionate increase in the money supply leads to a less than proportionate increase in real national income,at least in the long run. 
D) a proportionate increase in the money supply leads to a proportionate increase in the price level. 
A) real national income is directly related to changes in the money supply in the long run. 
B) velocity varies indirectly with the rate of growth of the money supply. 
C) a proportionate increase in the money supply leads to a less than proportionate increase in real national income,at least in the long run. 
D) a proportionate increase in the money supply leads to a proportionate increase in the price level.

Question 16

Figure 14-1  
-In Figure 14-1,suppose the economy is at a short run equilibrium at point B and the interest rate is r₂.Which of the following policy options for the Bank of Canada will help solve the short run situation?

Accepted Answer

A) lowering the bank rate 
B) open market purchase of bonds 
C) moral suasion 
D) open market sale of bonds 
A) lowering the bank rate 
B) open market purchase of bonds 
C) moral suasion 
D) open market sale of bonds

Question 17

In the long run,the effect of an increase in the money supply is to

Accepted Answer

A) increase the price level only. 
B) increase real national income only. 
C) increase both the price level and real national income. 
D) increase the price level and decrease real national income. 
A) increase the price level only. 
B) increase real national income only. 
C) increase both the price level and real national income. 
D) increase the price level and decrease real national income.

Question 18

When households hold money (currency)for unplanned expenditures and emergencies,it is called

Accepted Answer

A) the speculative demand for money. 
B) the transactions demand for money. 
C) the demand for "hot" money. 
D) the precautionary demand for money. 
A) the speculative demand for money. 
B) the transactions demand for money. 
C) the demand for "hot" money. 
D) the precautionary demand for money.

Question 19

The asset demand for money is related to the function of money called

Accepted Answer

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

Question 20

If the money multiplier is 2.4 and the Bank of Canada buys $8 million in securities on the open market,demand deposits could potentially

Accepted Answer

A) increase by $19.2 million. 
B) increase by $8 million. 
C) decrease by $19.2 million. 
D) decrease by $16.5 million. 
A) increase by $19.2 million. 
B) increase by $8 million. 
C) decrease by $19.2 million. 
D) decrease by $16.5 million.

All depository institutions

When the Bank of Canada wants to undertake open market operations,it

In an open economy,expansionary fiscal policy that creates deficit spending by Canadian government borrowing is likely to lead to

The transaction demand for money is the demand to hold money to

The Bank of Canada sells a Canadian government security and a bank dealer writes a cheque for the amount.When the cheque clears,

In the Keynesian view,

The Bank of Canada buys $1 million in bonds from a bond dealer.The bond dealer's bank experiences

When the Bank of Canada buys Canadian government securities,the money supply

When a person holds money,they give up

The desired reserve ratio is 10%.The bank of a bond dealer has $100 million in deposits,$8 million in vault cash,and $7 million in deposits at the Bank of Canada.The Bank of Canada sells $1 million in securities to the bond dealer.As a result of the transaction,

The desired reserve ratio is 10%,and originally there are no excess reserves in any bank.If the Bank of Canada buys $1 million of Canadian government securities from a bond dealer,and the dealer deposits the Bank of Canada's cheque in her bank,then

Keynesians argue that for a change in the money supply (with constant prices),the mechanism through which aggregate demand changes is

An increase in the money supply will affect aggregate demand

According to the quantity theory of money,

Figure 14-1 -In Figure 14-1,suppose the economy is at a short run equilibrium at point B and the interest rate is r₂.Which of the following policy options for the Bank of Canada will help solve the short run situation?

In the long run,the effect of an increase in the money supply is to

When households hold money (currency)for unplanned expenditures and emergencies,it is called

The asset demand for money is related to the function of money called

If the money multiplier is 2.4 and the Bank of Canada buys $8 million in securities on the open market,demand deposits could potentially

The Nature of Economics

Production Possibilities and Economic Systems

Demand and Supply

Introduction to Macroeconomics

Measuring the Economys Performance

Modelling Real Gdp and the Price Level in the Long Run

Economic Growth and Development

Modelling Real Gdp and the Price Level in the Short Run

Consumption, investment, and the Multiplier

The Public Sector

Fiscal Policy and the Public Debt

Money and the Banking System

Money Creation and Deposit Insurance

Issues in Stabilization Policy

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

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Exam 14: The Bank of Canada and Monetary Policy

All depository institutions

When the Bank of Canada wants to undertake open market operations,it

In an open economy,expansionary fiscal policy that creates deficit spending by Canadian government borrowing is likely to lead to

The transaction demand for money is the demand to hold money to

The Bank of Canada sells a Canadian government security and a bank dealer writes a cheque for the amount.When the cheque clears,

In the Keynesian view,

The Bank of Canada buys $1 million in bonds from a bond dealer.The bond dealer's bank experiences

When the Bank of Canada buys Canadian government securities,the money supply

When a person holds money,they give up

The desired reserve ratio is 10%.The bank of a bond dealer has $100 million in deposits,$8 million in vault cash,and $7 million in deposits at the Bank of Canada.The Bank of Canada sells $1 million in securities to the bond dealer.As a result of the transaction,

The desired reserve ratio is 10%,and originally there are no excess reserves in any bank.If the Bank of Canada buys $1 million of Canadian government securities from a bond dealer,and the dealer deposits the Bank of Canada's cheque in her bank,then

Keynesians argue that for a change in the money supply (with constant prices),the mechanism through which aggregate demand changes is

An increase in the money supply will affect aggregate demand

According to the quantity theory of money,

Figure 14-1 -In Figure 14-1,suppose the economy is at a short run equilibrium at point B and the interest rate is r₂.Which of the following policy options for the Bank of Canada will help solve the short run situation?

In the long run,the effect of an increase in the money supply is to

When households hold money (currency)for unplanned expenditures and emergencies,it is called

The asset demand for money is related to the function of money called

If the money multiplier is 2.4 and the Bank of Canada buys $8 million in securities on the open market,demand deposits could potentially

The Nature of Economics

Production Possibilities and Economic Systems

Demand and Supply

Introduction to Macroeconomics

Measuring the Economys Performance

Modelling Real Gdp and the Price Level in the Long Run

Economic Growth and Development

Modelling Real Gdp and the Price Level in the Short Run

Consumption, investment, and the Multiplier

The Public Sector

Fiscal Policy and the Public Debt

Money and the Banking System

Money Creation and Deposit Insurance

Issues in Stabilization Policy

Comparative Advantage and the Open Economy

Exchange Rates and the Balance of Payments

Filters