Question 1

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion,then on average each dollar will be spent about four times.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following is correct?

Accepted Answer

A)   An expansionary monetary policy will cause the dollar to depreciate and will increase Canadian net exports.
B)   An expansionary monetary policy will cause the dollar to depreciate and will decrease Canadian net exports.
C)   An expansionary monetary policy will cause the dollar to appreciate and will increase Canadian net exports.
D)   An expansionary monetary policy will cause the dollar to appreciate and will decrease Canadian net exports.E) All of the above
F) A) and C)

Question 3

Quantitative easing refers to:

Accepted Answer

A)   the selling of bonds to the private sector by a country's central bank in order to ease the money supply.
B)   the purchasing of private sector assets by a country's central bank in order to provide liquidity to the financial system.
C)   the selling of bonds by a country's central bank to the private sector in order to provide liquidity.
D)   the purchasing of private sector assets by a country's central bank in order to tighten liquidity.E) A) and C)
F) A) and B)

Question 4

-Refer to the above market for money diagram.If the interest rate was at 3 percent,people would:

Accepted Answer

A)   sell bonds,which would cause bond prices to fall and the interest rate to rise.
B)   buy bonds,which would cause bond prices to fall and the interest rate to rise.
C)   sell bonds,which would cause bond prices to rise and the interest rate to rise.
D)   buy bonds,which would cause bond prices to rise but have an uncertain effect upon the interest rate.E) B) and D)
F) None of the above

Question 5

The equilibrium rate of interest in the market for money is determined by:

Accepted Answer

A)   the intersection of the supply of money and the asset demand for money.
B)   the intersection of the supply of money and the transactions demand for money.
C)   the intersection of the supply of money and the total demand for money.
D)   none of the above.E) A) and B)
F) B) and C)

Question 6

If there is an increase in nominal GDP,we would expect:

Accepted Answer

A)   the demand for money to increase.
B)   the interest rate to rise.
C)   bond prices to fall.
D)   all of the above to occur.E) All of the above
F) None of the above

Question 7

Which of the following statements is not correct?

Accepted Answer

A)   Given the supply of money,a decline in the demand for money will tend to reduce the equilibrium GDP.
B)   Given the supply of money,the equilibrium interest rate will vary directly with the level of money GDP.
C)   Given the demand for money,the equilibrium interest rate will vary inversely with the supply of money.
D)   Given the supply of money,the equilibrium interest rate will vary directly with the demand for money.E) B) and D)
F) A) and C)

Question 8

The so-called Taylor Rule states that:

Accepted Answer

A)   monetary policy should only respond to the changes in real GDP and not in inflation.
B)   monetary policy should only respond to the changes in inflation and not in real GDP.
C)   monetary policy should respond to changes in both real GDP and inflation.
D)   Monetary policy should only respond to changes in unemployment rate.E) None of the above
F) A) and C)

Question 9

Because of the liquidity trap,the Bank of Canada's creation of billions of dollars in excess reserves during the great recession had:

Accepted Answer

A)   little or no effect on lending by the chartered banks.
B)   a significant effect on lending by the chartered banks.
C)   the effect of increasing the overnight lending rate.
D)   the effect of increasing the bank rate.E) C) and D)
F) B) and D)

Question 10

The following are simplified consolidated balance sheets for the chartered banking system and the Bank of Canada.Do not cumulate your answers;that is,do return to the data given in the original balance sheets in answering each question.Assume a desired reserve ratio of 5 percent for the chartered banks.All figures are in billions of dollars.
CONSOLIDATED BALANCE SHEET: CHARTERED BANKING SYSTEM
  BALANCE SHEET: BANK OF CANADA
 
-Which of the following is correct? When the Bank of Canada buys bonds on the open market,the money supply:

Accepted Answer

A)   contracts and chartered bank reserves increase.
B)   expands and chartered bank reserves decrease.
C)   contracts and chartered bank reserves decrease.
D)   expands and chartered bank reserves increase.E) A) and C)
F) A) and D)

Question 11

The strengths of monetary policy compared to fiscal policy are generally thought to include all of the following except greater:

Accepted Answer

A)   speed.
B)   flexibility.
C)   impact on taxation.
D)   isolation from political pressure.E) None of the above
F) B) and D)

Question 12

Refer to the graph below,in which Dt is the transactions demand for money,Dm is the total demand for money,and Sm is the supply of money.If the market for money is in equilibrium at a 6 percent rate of interest and the money supply increases,then Sm2 will shift to: t is the transactions demand for money,Dm is the total demand for money,and Sm is the supply of money.If the market for money is in equilibrium at a 6 percent rate of interest and the money supply increases,then Sm2 will shift to:   A)  Sm3 and the interest rate will be 4 percent. B)  Sm3 and the interest rate will be 8 percent. C)  Sm1 and the interest rate will be 8 percent. D)  Sm1 and the interest rate will be 4 percent." class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   Sm3 and the interest rate will be 4 percent.
B)   Sm3 and the interest rate will be 8 percent.
C)   Sm1 and the interest rate will be 8 percent.
D)   Sm1 and the interest rate will be 4 percent.E) None of the above
F) A) and C)

Question 13

1,AD2,and AD3 labels indicate the level of investment spending associated with each curve.All figures are in billions.The economy is at equilibrium at point c on the aggregate demand curve.What policy should the monetary authorities pursue to achieve a non-inflationary full-employment level of real GDP? A)  increase the money supply from $75 to $150 billion B)  increase the money supply from $150 to $225 billion C)  decrease the money supply from $225 to $150 billion D)  make no change in the money supply" class="answers-bank-image d-inline" rel="preload" > 
 1,AD2,and AD3 labels indicate the level of investment spending associated with each curve.All figures are in billions.The economy is at equilibrium at point c on the aggregate demand curve.What policy should the monetary authorities pursue to achieve a non-inflationary full-employment level of real GDP? A)  increase the money supply from $75 to $150 billion B)  increase the money supply from $150 to $225 billion C)  decrease the money supply from $225 to $150 billion D)  make no change in the money supply" class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagrams,in which the numbers in parentheses after the AD1,AD2,and AD3 labels indicate the level of investment spending associated with each curve.All figures are in billions.The economy is at equilibrium at point c on the aggregate demand curve.What policy should the monetary authorities pursue to achieve a non-inflationary full-employment level of real GDP?

Accepted Answer

A)   increase the money supply from $75 to $150 billion
B)   increase the money supply from $150 to $225 billion
C)   decrease the money supply from $225 to $150 billion
D)   make no change in the money supplyE) A) and D)
F) A) and B)

Question 14

In the autumn of 2010,the Bank of Canada began to:

Accepted Answer

A)   increase interest rates,yet rates stayed at historic lows throughout 2012.
B)   decrease interest rates even further to the point that they were at their lowest by 2012.
C)   increase interest rates,but then decreased them again in 2012.
D)   decrease interest rates,but then started increasing them again in 2012.E) B) and D)
F) B) and C)

Question 15

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 16

The purpose of an expansionary monetary policy is to shift the:

Accepted Answer

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

Question 17

In comparison with fiscal policy,monetary policy faces:

Accepted Answer

A)   recognition lag,administrative lag,but avoids operational lag.
B)   recognition lag,administrative lag,and operational lag.
C)   recognition lag,operational lag,but avoids administrative lag.
D)   administrative lag,operational lag,but avoids recognition lag.E) B) and C)
F) None of the above

Question 18

-Which line in the above graph would best reflect the slope of the transactions demand for money curve?

Accepted Answer

A)   line 1
B)   line 2
C)   line 3
D)   line 4E) A) and B)
F) All of the above

Question 19

In 2004,the Bank of Canada reduced the overnight rate to as low as:

Accepted Answer

A)   4 percent,in an effort to slow down the economy.
B)   2 percent,in an effort to slow down the growth of the economy.
C)   2 percent,in an effort to stimulate the economy.
D)   3 percent,in an effort to stimulate the economy.E) All of the above
F) B) and C)

Question 20

1. B)  i2. C)  i3. D)  not determinable without further information." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above market for money diagram.The equilibrium interest rate is:

Accepted Answer

A)   i1.
B)   i2.
C)   i3.
D)   not determinable without further information.E) A) and C)
F) B) and D)

Exam 15: Interest Rates and Monetary Policy

Refer to the graph below,in which D_t is the transactions demand for money,D_m is the total demand for money,and S_m is the supply of money.If the market for money is in equilibrium at a 6 percent rate of interest and the money supply increases,then S_m2 will shift to:

Correct Answer
verified

-Which line in the above graph would best reflect the slope of the transactions demand for money curve?

Correct Answer
verified

In comparison with fiscal policy,monetary policy faces:

Correct Answer
verified

The purpose of an expansionary monetary policy is to shift the:

Correct Answer
verified

Because of the liquidity trap,the Bank of Canada's creation of billions of dollars in excess reserves during the great recession had:

Correct Answer
verified

The equilibrium rate of interest in the market for money is determined by:

Correct Answer
verified

In 2004,the Bank of Canada reduced the overnight rate to as low as:

Correct Answer
verified

The strengths of monetary policy compared to fiscal policy are generally thought to include all of the following except greater:

Correct Answer
verified

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion,then on average each dollar will be spent about four times.

Correct Answer
verified

-Refer to the above market for money diagram.If the interest rate was at 3 percent,people would:

Correct Answer
verified

Quantitative easing refers to:

Correct Answer
verified

Which of the following statements is not correct?

Correct Answer
verified

-Refer to the above market for money diagram.The equilibrium interest rate is:

Correct Answer
verified

Correct Answer
verified

Which of the following is correct?

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

Correct Answer
verified

In the autumn of 2010,the Bank of Canada began to:

Correct Answer
verified

The so-called Taylor Rule states that:

Correct Answer
verified

If there is an increase in nominal GDP,we would expect:

Correct Answer
verified

Exam 15: Interest Rates and Monetary Policy

Refer to the graph below,in which Dt is the transactions demand for money,Dm is the total demand for money,and Sm is the supply of money.If the market for money is in equilibrium at a 6 percent rate of interest and the money supply increases,then Sm2 will shift to:

Correct AnswerverifiedShow Answer

-Which line in the above graph would best reflect the slope of the transactions demand for money curve?

Correct AnswerverifiedShow Answer

In comparison with fiscal policy,monetary policy faces:

Correct AnswerverifiedShow Answer

The purpose of an expansionary monetary policy is to shift the:

Correct AnswerverifiedShow Answer

Because of the liquidity trap,the Bank of Canada's creation of billions of dollars in excess reserves during the great recession had:

Correct AnswerverifiedShow Answer

The equilibrium rate of interest in the market for money is determined by:

Correct AnswerverifiedShow Answer

In 2004,the Bank of Canada reduced the overnight rate to as low as:

Correct AnswerverifiedShow Answer

The strengths of monetary policy compared to fiscal policy are generally thought to include all of the following except greater:

Correct AnswerverifiedShow Answer

If nominal GDP is $2,000 billion and the amount of money demanded for transactions purposes is $500 billion,then on average each dollar will be spent about four times.

Correct AnswerverifiedShow Answer

-Refer to the above market for money diagram.If the interest rate was at 3 percent,people would:

Correct AnswerverifiedShow Answer

Quantitative easing refers to:

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

-Refer to the above market for money diagram.The equilibrium interest rate is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is correct?

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

Correct AnswerverifiedShow Answer

In the autumn of 2010,the Bank of Canada began to:

Correct AnswerverifiedShow Answer

The so-called Taylor Rule states that:

Correct AnswerverifiedShow Answer

If there is an increase in nominal GDP,we would expect:

Correct AnswerverifiedShow Answer

Refer to the graph below,in which D_t is the transactions demand for money,D_m is the total demand for money,and S_m is the supply of money.If the market for money is in equilibrium at a 6 percent rate of interest and the money supply increases,then S_m2 will shift to:

Correct Answer
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