Question 1

When the Bank of Canada sells a government security to a commercial bank,

Accepted Answer

A) the cash reserves of the commercial bank decrease. 
B) the net worth of the commercial bank increases. 
C) the loans of the commercial bank will increase. 
D) the balance sheet of the commercial bank is thrown off balance. 
A) the cash reserves of the commercial bank decrease. 
B) the net worth of the commercial bank increases. 
C) the loans of the commercial bank will increase. 
D) the balance sheet of the commercial bank is thrown off balance.

Question 2

Initially,all banks have zero excess reserves and the desired reserve ratio is 10%.The Bank of Canada buys $1 million in government securities from a bond dealer who deposits the cheque in Bank A.The bank makes as large a loan as it can to a construction company,which buys materials from a lumber company who deposits the cheque in Bank B.Bank B makes as large a loan as possible to a car dealership.By how much has the money supply grown to this point?

Accepted Answer

A) $3 million. 
B) $2.71 million. 
C) $1.81 million. 
D) $1.71 million. 
A) $3 million. 
B) $2.71 million. 
C) $1.81 million. 
D) $1.71 million.

Question 3

An assumption used in the quantity theory of money is that

Accepted Answer

A) the price level is constant. 
B) velocity is constant. 
C) nominal income is constant. 
D) the money supply is constant. 
A) the price level is constant. 
B) velocity is constant. 
C) nominal income is constant. 
D) the money supply is constant.

Question 4

Assume (other things constant)that the Bank of Canada increases the money supply.The mechanism through which aggregate demand increases is,according to Keynesians,

Accepted Answer

A) increase in the money supply → fall in money balances held → increase in interest rates → decrease in planned investment spending → increase in aggregate demand. 
B) increase in money supply → increase in money balances held → decrease in interest rates → decrease in planned investment spending → increase in aggregate demand. 
C) increase in money supply → decrease in money balances held → decrease in interest rates → increase in planned investment spending → increase in aggregate demand. 
D) increase in money supply → decrease in interest rates → increase in planned investment spending → increase in aggregate demand. 
A) increase in the money supply → fall in money balances held → increase in interest rates → decrease in planned investment spending → increase in aggregate demand. 
B) increase in money supply → increase in money balances held → decrease in interest rates → decrease in planned investment spending → increase in aggregate demand. 
C) increase in money supply → decrease in money balances held → decrease in interest rates → increase in planned investment spending → increase in aggregate demand. 
D) increase in money supply → decrease in interest rates → increase in planned investment spending → increase in aggregate demand.

Question 5

If V = 5,P = $3,and Q = 50,then the money supply equals

Accepted Answer

A) $10. 
B) $30. 
C) $150. 
D) $300. 
A) $10. 
B) $30. 
C) $150. 
D) $300.

Question 6

In the classical model,the demand for money curve

Accepted Answer

A) slopes upward with respect to the rate of interest. 
B) is not affected by the price level. 
C) slopes downward with respect to the rate of interest. 
D) is vertical. 
A) slopes upward with respect to the rate of interest. 
B) is not affected by the price level. 
C) slopes downward with respect to the rate of interest. 
D) is vertical.

Question 7

The transactions demand for money exists because households

Accepted Answer

A) are insensitive to interest rate changes. 
B) must save for unexpected emergencies. 
C) do not like the fact that money is a liquid asset. 
D) do not receive their incomes at the same time they wish to make purchases. 
A) are insensitive to interest rate changes. 
B) must save for unexpected emergencies. 
C) do not like the fact that money is a liquid asset. 
D) do not receive their incomes at the same time they wish to make purchases.

Question 8

An increase in the money supply typically leads to

Accepted Answer

A) a reduction in the rate of interest. 
B) a decrease in the price level. 
C) a reduction in the velocity of money. 
D) an inward shift in money demand. 
A) a reduction in the rate of interest. 
B) a decrease in the price level. 
C) a reduction in the velocity of money. 
D) an inward shift in money demand.

Question 9

Figure 14-1  
-In Figure 14-1,suppose the economy is at a short run equilibrium at point D.Which of the following is the best policy option for the Bank of Canada?

Accepted Answer

A) moral suasion 
B) increase the bank rate 
C) increase taxes 
D) open market purchase of bonds 
A) moral suasion 
B) increase the bank rate 
C) increase taxes 
D) open market purchase of bonds

Question 10

The type of analysis that assumes that money supply growth stimulates the economy primarily by lowering the interest rate and encouraging investment is

Accepted Answer

A) Keynesian analysis. 
B) classical monetary analysis. 
C) modern monetary analysis. 
D) pre-Keynesian analysis. 
A) Keynesian analysis. 
B) classical monetary analysis. 
C) modern monetary analysis. 
D) pre-Keynesian analysis.

Question 11

If the quantity of output of society is 250 million units,actual money balances held by the nonbanking public equals $100 million,and the average price is $20 per unit of national output,then velocity is

Accepted Answer

A) 5) 
B) 10. 
C) 25. 
D) 50. 
A) 5) 
B) 10. 
C) 25. 
D) 50.

Question 12

If the commercial banking system's excess reserves are zero and the reserve requirement is 10 percent,in order for the banking system to increase deposits by $2.5 million,the Bank of Canada must

Accepted Answer

A) permit the system to have prolonged reserve deficiencies. 
B) sell $2.5 million of government securities to the general public. 
C) sell $250,000 of government securities to the general public. 
D) buy $250,000 of government securities from the public. 
A) permit the system to have prolonged reserve deficiencies. 
B) sell $2.5 million of government securities to the general public. 
C) sell $250,000 of government securities to the general public. 
D) buy $250,000 of government securities from the public.

Question 13

A contractionary monetary policy may

Accepted Answer

A) cause an increase in net exports. 
B) cause a deterioration in the trade balance of Canada. 
C) be associated with lower interest rates and reduced demand for Canadian financial instruments. 
D) cause lower interest rates in other countries. 
A) cause an increase in net exports. 
B) cause a deterioration in the trade balance of Canada. 
C) be associated with lower interest rates and reduced demand for Canadian financial instruments. 
D) cause lower interest rates in other countries.

Question 14

The Bank of Canada acts as the government's fiscal agent by

Accepted Answer

A) auditing taxpayers. 
B) providing chequing account services for the government. 
C) preparing the budget the Prime Minister presents to Parliament every year. 
D) determining how to finance a deficit. 
A) auditing taxpayers. 
B) providing chequing account services for the government. 
C) preparing the budget the Prime Minister presents to Parliament every year. 
D) determining how to finance a deficit.

Question 15

Figure 14-1  
-In Figure 14-1,if the economy is initially at an equilibrium output at point A and the interest rate is r₁,then an open market purchase of bonds by the Bank of Canada will

Accepted Answer

A) cause interest rates to increase and output to decline. 
B) cause interest rates to decline to r₂,investment to increase to I2 and the AD curve to shift upward to the right. 
C) cause interest rates to decline to r₂,investment to decline,and aggregate demand to shift inward to the left. 
D) not have any impact on the short or long run equilibrium output level. 
A) cause interest rates to increase and output to decline. 
B) cause interest rates to decline to r₂,investment to increase to I2 and the AD curve to shift upward to the right. 
C) cause interest rates to decline to r₂,investment to decline,and aggregate demand to shift inward to the left. 
D) not have any impact on the short or long run equilibrium output level.

Question 16

How can the Bank of Canada direct the money supply?

Accepted Answer

The Bank of Canada can direct the money

Question 17

What happens to the price of bonds when the Bank of Canada is selling bonds? What happens to the interest rate? What happens to the money supply?

Accepted Answer

If the Bank of Canada sells bonds,the su

Question 18

According to both the equation of exchange and the quantity theory of money,

Accepted Answer

A) an increase in the money supply will increase real output. 
B) an increase in the money supply will decrease real output. 
C) a decrease in the money supply will decrease the velocity of money. 
D) a decrease in the money supply will decrease the price level. 
A) an increase in the money supply will increase real output. 
B) an increase in the money supply will decrease real output. 
C) a decrease in the money supply will decrease the velocity of money. 
D) a decrease in the money supply will decrease the price level.

Question 19

To decrease the money supply

Accepted Answer

A) the Bank of Canada should sell government securities. 
B) the Bank of Canada should decrease reserve requirements. 
C) commercial banks should increase their loans. 
D) commercial banks should sell government securities. 
A) the Bank of Canada should sell government securities. 
B) the Bank of Canada should decrease reserve requirements. 
C) commercial banks should increase their loans. 
D) commercial banks should sell government securities.

Question 20

In the Keynesian view,

Accepted Answer

A) an increase in money supply will increase interest rates. 
B) an increase in money supply will decrease interest rates. 
C) a decrease in money supply will decrease interest rates. 
D) a decrease in money supply will not change interest rates. 
A) an increase in money supply will increase interest rates. 
B) an increase in money supply will decrease interest rates. 
C) a decrease in money supply will decrease interest rates. 
D) a decrease in money supply will not change interest rates.

When the Bank of Canada sells a government security to a commercial bank,

An assumption used in the quantity theory of money is that

Assume (other things constant)that the Bank of Canada increases the money supply.The mechanism through which aggregate demand increases is,according to Keynesians,

If V = 5,P = $3,and Q = 50,then the money supply equals

In the classical model,the demand for money curve

The transactions demand for money exists because households

An increase in the money supply typically leads to

Figure 14-1 -In Figure 14-1,suppose the economy is at a short run equilibrium at point D.Which of the following is the best policy option for the Bank of Canada?

The type of analysis that assumes that money supply growth stimulates the economy primarily by lowering the interest rate and encouraging investment is

If the quantity of output of society is 250 million units,actual money balances held by the nonbanking public equals $100 million,and the average price is $20 per unit of national output,then velocity is

If the commercial banking system's excess reserves are zero and the reserve requirement is 10 percent,in order for the banking system to increase deposits by $2.5 million,the Bank of Canada must

A contractionary monetary policy may

The Bank of Canada acts as the government's fiscal agent by

Figure 14-1 -In Figure 14-1,if the economy is initially at an equilibrium output at point A and the interest rate is r₁,then an open market purchase of bonds by the Bank of Canada will

How can the Bank of Canada direct the money supply?

What happens to the price of bonds when the Bank of Canada is selling bonds? What happens to the interest rate? What happens to the money supply?

According to both the equation of exchange and the quantity theory of money,

To decrease the money supply

In the Keynesian view,

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

When the Bank of Canada sells a government security to a commercial bank,

An assumption used in the quantity theory of money is that

Assume (other things constant)that the Bank of Canada increases the money supply.The mechanism through which aggregate demand increases is,according to Keynesians,

If V = 5,P = $3,and Q = 50,then the money supply equals

In the classical model,the demand for money curve

The transactions demand for money exists because households

An increase in the money supply typically leads to

Figure 14-1 -In Figure 14-1,suppose the economy is at a short run equilibrium at point D.Which of the following is the best policy option for the Bank of Canada?

The type of analysis that assumes that money supply growth stimulates the economy primarily by lowering the interest rate and encouraging investment is

If the quantity of output of society is 250 million units,actual money balances held by the nonbanking public equals $100 million,and the average price is $20 per unit of national output,then velocity is

If the commercial banking system's excess reserves are zero and the reserve requirement is 10 percent,in order for the banking system to increase deposits by $2.5 million,the Bank of Canada must

A contractionary monetary policy may

The Bank of Canada acts as the government's fiscal agent by

Figure 14-1 -In Figure 14-1,if the economy is initially at an equilibrium output at point A and the interest rate is r₁,then an open market purchase of bonds by the Bank of Canada will

How can the Bank of Canada direct the money supply?

What happens to the price of bonds when the Bank of Canada is selling bonds? What happens to the interest rate? What happens to the money supply?

According to both the equation of exchange and the quantity theory of money,

To decrease the money supply

In the Keynesian view,

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