Question 1

Which of the following would provide the most accurate description of events when monetary authorities increase the size of chartered banks' excess reserves?

Accepted Answer

A)  A fall in interest rates decreases the money supply, causing an increase in investment spending, output, and employment.
B)  A rise in interest rates increases the money supply, causing a decrease in investment spending, output, and employment.
C)  The money supply is decreased, which increases the interest rate, and causes investment spending, output, and employment to decrease.
D)  The money supply is increased, which decreases the interest rate, and causes investment spending, output, and employment to increase.E) A) and D)
F) B) and C)

Question 2

Assume that the desired reserve ratio is 20 percent.Suppose that the Bank of Canada sells $500 of government securities to chartered banks and buys $500 of securities from individuals, who deposit the cash in chequing accounts.Refer to the above information.As a result of these transactions, reserves in the banking system will:

Accepted Answer

A)  remain unchanged.
B)  rise by $100.
C)  fall by $100.
D)  fall by $1,000.E) A) and B)
F) A) and C)

Question 3

An expansionary monetary policy will likely:

Accepted Answer

A)  increase the prime interest rate.
B)  reduce the overnight lending rate.
C)  increase the bank rate.
D)  increase the federal budget deficit.E) A) and C)
F) B) and D)

Question 4

The overnight lending rate is the rate at which:

Accepted Answer

A)  The Bank of Canada borrows from investment dealers.
B)  The Bank of Canada borrows from the chartered banks.
C)  the chartered banks, investment dealers, and other financial market participants borrow and lend funds for one day.
D)  The Bank of Canada lends to the Department of Finance.E) A) and B)
F) A) and C)

Question 5

The "net export effect":

Accepted Answer

A)  strengthens the stimulative effect of an expansionary fiscal policy.
B)  strengthens the stimulative effect of an expansionary monetary policy
C)  weakens the stimulative effect of an expansionary monetary policy.
D)  has no perceptible impact upon stabilization policies.E) All of the above
F) A) and B)

Question 6

The price of a bond with no expiration date is $1,000 and the fixed annual interest payment is $100.If the price of the bond falls to $800, the interest rate to a new buyer of the bond is now 8.5 percent.

Accepted Answer

A) True 
 B)False

Question 7

If the Bank of Canada buys government securities from chartered banks and the public:

Accepted Answer

A)  chartered bank reserves will decline.
B)  chartered bank reserves will be unaffected.
C)  it will be easier to obtain loans at chartered banks.
D)  the money supply will contract.E) A) and B)
F) None of the above

Question 8

A shortcoming of monetary policy is that:

Accepted Answer

A)  a severe recession may undermine business confidence to the degree that even a reduction in interest rate does not increase the investment.
B)  a severe recession will increase the investment demand which contributes to inflation.
C)  a severe recession will increase the interest rate and thus lowers the investment.
D)  a severe recession will reduce interest rate and increases investment demand.E) A) and B)
F) B) and C)

Question 9

Assume the Bank of Canada creates excess reserves in the banking system by buying government bonds, but banks do not make more loans because economic conditions are bad.This situation is a problem of:

Accepted Answer

A)  cyclical asymmetry.
B)  a restrictive monetary policy.
C)  the net export effect.
D)  a decrease in the velocity of money.E) A) and B)
F) B) and C)

Question 10

The job of the monetary authorities in limiting the supply of money may be made more complex if chartered banks initially have substantial excess reserves.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is the most important function of the Bank of Canada?

Accepted Answer

A)  the collection or clearing of cheques among chartered banks
B)  regulating the supply of money
C)  acting as a fiscal agent for the federal government
D)  holding the reserves of chartered banksE) A) and B)
F) A) and C)

Question 12

According to the Taylor Rule:

Accepted Answer

A)  for each 1 percent increase in the inflation rate above its target of 2 percent, the central bank should raise the real overnight lending rate by one percent point.
B)  for each 1 percent increase in the inflation rate above its target of 2 percent, the central bank should raise the real overnight lending rate by one-half a percent point.
C)  for each 1 percent increase in the inflation rate above its target of 2 percent, the central bank should lower the real overnight lending rate by one percent point.
D)  for each 1 percent increase in the inflation rate above its target of 2 percent, the central bank should lower the real overnight lending rate by one-half a percent point.E) A) and D)
F) C) and D)

Question 13

The fundamental objective of monetary policy is to assist the economy in achieving:

Accepted Answer

A)  a rapid pace of economic growth.
B)  a money supply which is based on the gold standard.
C)  a full-employment, noninflationary level of total output.
D)  a balanced-budget consistent with full-employment.E) C) and D)
F) B) and C)

Question 14

Refer to the table below.If the transactions demand for money is $400 billion, an increase in the money supply from $800 billion to $900 billion would cause the equilibrium interest rate to:

Accepted Answer

A)  rise to 7 percent.
B)  rise to 6 percent.
C)  fall to 4 percent.
D)  remain at 5 percent.E) A) and D)
F) A) and C)

Question 15

If the government pursues an expansionary monetary policy, then it will tend to:

Accepted Answer

A)  lower domestic interest rates, cause the dollar to appreciate, and decrease net exports.
B)  lower domestic interest rates, cause the dollar to depreciate, and increase net exports.
C)  lower domestic interest rates, cause the dollar to depreciate, and decrease net exports.
D)  raise domestic interest rates, cause the dollar to appreciate, and decrease net exports.E) B) and C)
F) A) and D)

Question 16

Refer to the market for money diagram below.Other things being equal, if the Bank of Canada increases the stock of money, the:

Accepted Answer

A)  S curve would shift leftward and the equilibrium interest rate would rise.
B)  S curve would shift rightward and the equilibrium interest rate would fall.
C)  D would shift leftward and the equilibrium interest rate would fall.
D)  S curve would shift rightward, but the effect on the equilibrium interest rate would be uncertain.E) B) and D)
F) C) and D)

Question 17

The asset demand for money curve is:

Accepted Answer

A)  vertical.
B)  horizontal.
C)  downward sloping.
D)  upward sloping.E) A) and D)
F) C) and D)

Question 18

The asset demand for money is most closely related to money functioning as a:

Accepted Answer

A)  unit of account.
B)  medium of exchange.
C)  store of value.
D)  measure of value.E) None of the above
F) B) and D)

Question 19

The transactions demand for money will shift to the:

Accepted Answer

A)  right when the interest rate increases.
B)  left when the interest rate decreases.
C)  right when aggregate income increases.
D)  right when aggregate income decreases.E) A) and B)
F) A) and C)

Question 20

In terms of the aggregate demand and aggregate supply model, an expansionary monetary policy is designed to shift the:

Accepted Answer

A)  aggregate demand curve rightward.
B)  aggregate demand curve leftward.
C)  aggregate supply curve rightward.
D)  aggregate supply curve leftward.E) A) and C)
F) None of the above

Exam 15: Part B: Interest Rates and Monetary Policy

A shortcoming of monetary policy is that:

Correct Answer
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The overnight lending rate is the rate at which:

Correct Answer
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Assume the Bank of Canada creates excess reserves in the banking system by buying government bonds, but banks do not make more loans because economic conditions are bad.This situation is a problem of:

Correct Answer
verified

The job of the monetary authorities in limiting the supply of money may be made more complex if chartered banks initially have substantial excess reserves.

Correct Answer
verified

Which of the following is the most important function of the Bank of Canada?

Correct Answer
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The fundamental objective of monetary policy is to assist the economy in achieving:

Correct Answer
verified

Refer to the market for money diagram below.Other things being equal, if the Bank of Canada increases the stock of money, the:

Correct Answer
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In terms of the aggregate demand and aggregate supply model, an expansionary monetary policy is designed to shift the:

Correct Answer
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The "net export effect":

Correct Answer
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Refer to the table below.If the transactions demand for money is $400 billion, an increase in the money supply from $800 billion to $900 billion would cause the equilibrium interest rate to:

Correct Answer
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The transactions demand for money will shift to the:

Correct Answer
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The price of a bond with no expiration date is $1,000 and the fixed annual interest payment is $100.If the price of the bond falls to $800, the interest rate to a new buyer of the bond is now 8.5 percent.

Correct Answer
verified

The asset demand for money curve is:

Correct Answer
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According to the Taylor Rule:

Correct Answer
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If the government pursues an expansionary monetary policy, then it will tend to:

Correct Answer
verified

An expansionary monetary policy will likely:

Correct Answer
verified

Which of the following would provide the most accurate description of events when monetary authorities increase the size of chartered banks' excess reserves?

Correct Answer
verified

Correct Answer
verified

If the Bank of Canada buys government securities from chartered banks and the public:

Correct Answer
verified

The asset demand for money is most closely related to money functioning as a:

Correct Answer
verified

Exam 15: Part B: Interest Rates and Monetary Policy

A shortcoming of monetary policy is that:

Correct AnswerverifiedShow Answer

The overnight lending rate is the rate at which:

Correct AnswerverifiedShow Answer

Assume the Bank of Canada creates excess reserves in the banking system by buying government bonds, but banks do not make more loans because economic conditions are bad.This situation is a problem of:

Correct AnswerverifiedShow Answer

The job of the monetary authorities in limiting the supply of money may be made more complex if chartered banks initially have substantial excess reserves.

Correct AnswerverifiedShow Answer

Which of the following is the most important function of the Bank of Canada?

Correct AnswerverifiedShow Answer

The fundamental objective of monetary policy is to assist the economy in achieving:

Correct AnswerverifiedShow Answer

Refer to the market for money diagram below.Other things being equal, if the Bank of Canada increases the stock of money, the:

Correct AnswerverifiedShow Answer

In terms of the aggregate demand and aggregate supply model, an expansionary monetary policy is designed to shift the:

Correct AnswerverifiedShow Answer

The "net export effect":

Correct AnswerverifiedShow Answer

Refer to the table below.If the transactions demand for money is $400 billion, an increase in the money supply from $800 billion to $900 billion would cause the equilibrium interest rate to:

Correct AnswerverifiedShow Answer

The transactions demand for money will shift to the:

Correct AnswerverifiedShow Answer

The price of a bond with no expiration date is $1,000 and the fixed annual interest payment is $100.If the price of the bond falls to $800, the interest rate to a new buyer of the bond is now 8.5 percent.

Correct AnswerverifiedShow Answer

The asset demand for money curve is:

Correct AnswerverifiedShow Answer

According to the Taylor Rule:

Correct AnswerverifiedShow Answer

If the government pursues an expansionary monetary policy, then it will tend to:

Correct AnswerverifiedShow Answer

An expansionary monetary policy will likely:

Correct AnswerverifiedShow Answer

Which of the following would provide the most accurate description of events when monetary authorities increase the size of chartered banks' excess reserves?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the Bank of Canada buys government securities from chartered banks and the public:

Correct AnswerverifiedShow Answer

The asset demand for money is most closely related to money functioning as a:

Correct AnswerverifiedShow Answer

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