Question 1

Assume a starting position of macroeconomic equilibrium at the full-employment level of real GDP.In the short run,what effect will a decrease in the money supply have?

Accepted Answer

A)  It will lower real interest rates, raise the price level, and increase real GDP.
B)  It will raise real interest rates, lower the price level, and leave real GDP unchanged.
C)  It will raise nominal interest rates, lower the price level, and leave real GDP unchanged.
D)  It will raise real interest rates, lower the price level, and reduce real GDP. D

Question 2

What is the problem associated with the Bank of Canada targeting money supply as a method of monetary policy?

Accepted Answer

A)  Interest rates will be too low and create a recession.
B)  Interest rates will fluctuate depending on the demand for money.
C)  The Bank of Canada will print too much money.
D)  Interest rates will be too low and increase prices. B

Question 3

Under what circumstances is profitable investment most effectively promoted?

Accepted Answer

A)  when inflation is rising rapidly
B)  when monetary policy is unanticipated
C)  when the money supply and price level are stable
D)  when persistent inflation increases uncertainty C

Question 4

What would the result be if the income stream of the average family suddenly became more unpredictable?

Accepted Answer

A)  Households would want to hold larger cash balances.
B)  Demand for money would shift to the left.
C)  Households would want to hold smaller cash balances.
D)  The money supply would shift to the right.

Question 5

If inflation is underestimated by decision makers in the economy when it is rising,what will the shape of the SRAS curve tend to be?

Accepted Answer

A)  downward sloping
B)  horizontal
C)  upward sloping
D)  vertical

Question 6

Monetary policy can influence interest rates,which in turn can change spending.

Accepted Answer

A) True 
 B)False

Question 7

When the Bank of Canada increases the money supply,why will it cause an increase in aggregate demand?

Accepted Answer

A)  because the dollar will appreciate on the foreign exchange market, leading to an increase in net exports
B)  because interest rates will fall, stimulating business investment and consumer purchases
C)  because consumers will expect prices to rise and will increase current consumption
D)  because lower interest rates will tend to decrease asset prices, which increases wealth and thereby stimulates current consumption

Question 8

In the long run,what is the most likely effect of a sustained increase in money supply growth relative to the growth rate of potential real output?

Accepted Answer

A)  It will cause the real interest rate to fall.
B)  It will cause the nominal interest rate to fall.
C)  It will reduce the natural rate of unemployment.
D)  It will increase the price level.

Question 9

The problem of time lags in making policy changes is less acute for monetary policy than it is for fiscal policy.

Accepted Answer

A) True 
 B)False

Question 10

If money supply and money demand both fell,but money supply fell more than money demand,what would be the effect on interest rates and investment?

Accepted Answer

A)  Interest rates would decrease, and investment would decrease.
B)  Interest rates would decrease, and investment would increase.
C)  Interest rates would increase, and investment would increase.
D)  Interest rates would increase, and investment would decrease.

Question 11

Which of the following statements describes an important limitation of monetary policy?

Accepted Answer

A)  When the Bank of Canada tries to buy bonds, it is often unable to find a seller.
B)  It must be conducted through the chartered banking system, and the Bank of Canada cannot always make banks do what it wants them to do.
C)  When the Bank of Canada tries to sell bonds, it is often unable to find a buyer.
D)  It is conducted by people in Parliament who are under pressure to get re-elected.

Question 12

Why is the time lag for fiscal policy changes longer than for monetary policy changes?

Accepted Answer

The answer of Why is the time lag for fiscal...

Question 13

The money supply is very sensitive to changes in the rate of interest.

Accepted Answer

A) True 
 B)False

Question 14

When money demand increases,the Bank of Canada cannot keep the money supply from rising and the interest rate from rising at the same time.

Accepted Answer

A) True 
 B)False

Question 15

If the unemployment rate and the inflation rate both increase simultaneously,what curve will shift right?

Accepted Answer

A)  the Phillips curve
B)  the SRAS
C)  the LRAS
D)  the AD

Question 16

If employees and employers always accurately forecast inflation,what is the shape of the Phillips curve?

Accepted Answer

A)  It is upward sloping in the short run, and horizontal in the long run.
B)  It is vertical in the short run, and upward sloping in the long run.
C)  It is vertical in the short run and in the long run.
D)  It is downward sloping in the short run, and vertical in the long run.

Question 17

Suppose the Bank of Canada purchases $100 million of government bonds from the public.If the desired reserve ratio is 20 percent and all banks keep zero excess reserves,what will the total impact of this action on the money supply be?

Accepted Answer

A)  $100 million decrease in the money supply
B)  $100 million increase in the money supply
C)  $200 million increase in the money supply
D)  $500 million increase in the money supply

Question 18

To what extent should monetary policy be used to fine-tune the economy?

Accepted Answer

The answer of To what extent should monetary policy be...

Question 19

Your roommate has just run into the room in a panic.Her study group asked her about monetary policy tools.Since she knew you were studying for a midterm exam in your class with Dr.Sexton,briefly outline to her the policy choices for contractionary and expansionary options of the Bank of Canada.

Accepted Answer

The answer of Your roommate has just run into the...

Question 20

The steeper the SRAS curve,what can we conclude?

Accepted Answer

A)  The more unemployment will change in the short run for a given change in AD.
B)  The more real output will change in the short run for a given change in AD.
C)  The more real output, unemployment, and the price level will change in the short run for a given change in AD.
D)  The more the price level will change in the short run for a given change in AD.

Exam 13: Monetary Policy

Assume a starting position of macroeconomic equilibrium at the full-employment level of real GDP.In the short run,what effect will a decrease in the money supply have?

What is the problem associated with the Bank of Canada targeting money supply as a method of monetary policy?

Under what circumstances is profitable investment most effectively promoted?

What would the result be if the income stream of the average family suddenly became more unpredictable?

If inflation is underestimated by decision makers in the economy when it is rising,what will the shape of the SRAS curve tend to be?

Monetary policy can influence interest rates,which in turn can change spending.

When the Bank of Canada increases the money supply,why will it cause an increase in aggregate demand?

In the long run,what is the most likely effect of a sustained increase in money supply growth relative to the growth rate of potential real output?

The problem of time lags in making policy changes is less acute for monetary policy than it is for fiscal policy.

If money supply and money demand both fell,but money supply fell more than money demand,what would be the effect on interest rates and investment?

Which of the following statements describes an important limitation of monetary policy?

Why is the time lag for fiscal policy changes longer than for monetary policy changes?

The money supply is very sensitive to changes in the rate of interest.

When money demand increases,the Bank of Canada cannot keep the money supply from rising and the interest rate from rising at the same time.

If the unemployment rate and the inflation rate both increase simultaneously,what curve will shift right?

If employees and employers always accurately forecast inflation,what is the shape of the Phillips curve?

Suppose the Bank of Canada purchases $100 million of government bonds from the public.If the desired reserve ratio is 20 percent and all banks keep zero excess reserves,what will the total impact of this action on the money supply be?

To what extent should monetary policy be used to fine-tune the economy?

Your roommate has just run into the room in a panic.Her study group asked her about monetary policy tools.Since she knew you were studying for a midterm exam in your class with Dr.Sexton,briefly outline to her the policy choices for contractionary and expansionary options of the Bank of Canada.

The steeper the SRAS curve,what can we conclude?