Question 1

Which of the following is correct?

Accepted Answer

A)   The asset demand for money is downward sloping because the opportunity cost of holding money declines as the interest rate rises.
B)   The asset demand for money is downward sloping because the opportunity cost of holding money increases as the interest rate rises.
C)   The transactions demand for money is downward sloping because the opportunity cost of holding money varies inversely with the interest rate.
D)   The asset demand for money is downward sloping because bond prices and the interest rate are directly related.E) B) and C)
F) All of the above

Question 2

Which of the following statements is correct? Other things being equal:

Accepted Answer

A)   a decline in real output will shift both the transactions demand curve for money and the total money demand curve to the right.
B)   a decline in the interest rate will shift the asset demand curve for money to the right, but leave the total money demand curve unchanged.
C)   deflation will shift both the transactions demand curve for money and the total money demand curve to the left.
D)   inflation will shift the transactions demand curve for money to the right, but leave the total money demand curve unchanged.E) B) and C)
F) B) and D)

Question 3

-Refer to the above information. The total demand for money curve in this market for money would graph as a:

Accepted Answer

A)   vertical line.
B)   horizontal line.
C)   line sloping upward to the right.
D)   line sloping downward to the right.E) All of the above
F) B) and C)

Question 4

The bank rate is the rate of interest at which:

Accepted Answer

A)   the Bank of Canada lends to chartered banks.
B)   financial institutions lend to some builders.
C)   the Bank of Canada lends to large corporations.
D)   chartered banks lend to large corporations.E) A) and B)
F) B) and D)

Question 5

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) C) and D)
F) B) and D)

Question 6

-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) B) and D)
F) None of the above

Question 7

The price of a bond with no expiration date is originally $5,000 and it pays an annual interest payment of $500. If the price of the bond falls to $3,000, then the effective interest rate yield to a new buyer of the bond is:

Accepted Answer

A)   14.4 percent.
B)   16.6 percent.
C)   11.0 percent.
D)   9.0 percent.McConnell - Chapter 13 #70E) None of the above
F) A) and C)

Question 8

If the supply of money is reduced, we would expect:

Accepted Answer

A)   the demand for money to increase.
B)   interest rates to fall
C)   bond prices to fall.
D)   none of the above to occur.E) All of the above
F) A) and C)

Question 9

-Refer to the above information. The equilibrium interest rate is:

Accepted Answer

A)   2 percent.
B)   4 percent.
C)   6 percent.
D)   8 percent.E) B) and C)
F) A) and B)

Question 10

The interest rate at which the Bank of Canada lends to chartered banks is called:

Accepted Answer

A)   the prime rate.
B)   the short-term rate.
C)   the bank rate.
D)   the government bonds rate.E) A) and B)
F) A) and C)

Question 11

1. B)  D2. C)  D3. D)  none of the above." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above diagram. The asset demand for money is shown by:

Accepted Answer

A)   D1.
B)   D2.
C)   D3.
D)   none of the above.E) A) and B)
F) A) and C)

Question 12

The opportunity cost of holding money:

Accepted Answer

A)   is zero because money is not an economic resource.
B)   varies inversely with the interest rate.
C)   varies directly with the interest rate.
D)   varies inversely with the level of economic activity.E) A) and D)
F) A) and C)

Question 13

m and Sm, an interest rate of i3 is not sustainable because: A)  the supply of bonds in the bond market will decline and the interest rate will rise. B)  the supply of bonds in the bond market will increase and the interest rate will decline. C)  the demand for bonds in the bond market will decline and the interest rate will rise. D)  the demand for bonds in the bond market will rise and the interest rate will fall." class="answers-bank-image d-inline" rel="preload" >
-Refer to the above market for money diagram. Given Dm and Sm, an interest rate of i3 is not sustainable because:

Accepted Answer

A)   the supply of bonds in the bond market will decline and the interest rate will rise.
B)   the supply of bonds in the bond market will increase and the interest rate will decline.
C)   the demand for bonds in the bond market will decline and the interest rate will rise.
D)   the demand for bonds in the bond market will rise and the interest rate will fall.E) A) and D)
F) None of the above

Question 14

-Refer to the above table. Suppose the transactions demand for money is $300 billion and the money supply is $700 billion. A decrease in the money supply to $600 billion would cause the interest rate to:

Accepted Answer

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

Question 15

On a diagram wherein the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the total demand for money can be found by:

Accepted Answer

A)   horizontally adding the transactions and the asset demand for money.
B)   vertically subtracting the transactions demand from the asset demand for money.
C)   horizontally subtracting the asset demand from the transactions demand for money.
D)   vertically adding the transactions and the asset demand for money.E) A) and B)
F) A) and C)

Question 16

In recent years, the Bank of Canada has:

Accepted Answer

A)   paid closer attention to M1 than M2 in setting monetary targets.
B)   relied more on changes in the prime rate than open-market operations in establishing monetary policy.
C)   has increased M2 at a fixed annual rate, regardless of the health of the economy.
D)   taken an activist, pragmatic approach to monetary policy, has a publicized target on the overnight lending rate and has adopted the inflation targeting strategy.E) All of the above
F) C) and D)

Question 17

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) A) and D)
F) B) and C)

Question 18

A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000. If the price of this bond decreases by $2000, the interest rate in effect will:

Accepted Answer

A)   decrease by 1.5 percentage points.
B)   decrease by 2.5 percentage points.
C)   increase by 1.5 percentage points.
D)   increase by 2.5 percentage points.E) A) and B)
F) A) and C)

Question 19

In the Canadian economy, the money supply is controlled by:

Accepted Answer

A)   Parliament.
B)   the House of Commons Committee on Finance.
C)   the Department of Finance the Bank of Canada.
D)   the Bank of Canada.E) None of the above
F) A) and C)

Question 20

If the monetary authority wished to follow a restrictive monetary policy, it would buy government securities in the open market.

Accepted Answer

A) True 
 B)False

Exam 13: Interest Rates and Monetary Policy

The price of a bond with no expiration date is originally $5,000 and it pays an annual interest payment of $500. If the price of the bond falls to $3,000, then the effective interest rate yield to a new buyer of the bond is:

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-Refer to the above diagram. The asset demand for money is shown by:

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-Refer to the above information. The equilibrium interest rate is:

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In recent years, the Bank of Canada has:

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If the supply of money is reduced, we would expect:

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Which of the following statements is correct? Other things being equal:

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The bank rate is the rate of interest at which:

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-Refer to the above table. Suppose the transactions demand for money is $300 billion and the money supply is $700 billion. A decrease in the money supply to $600 billion would cause the interest rate to:

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The opportunity cost of holding money:

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If the monetary authority wished to follow a restrictive monetary policy, it would buy government securities in the open market.

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-Refer to the above market for money diagram. Given Dm and Sm, an interest rate of i3 is not sustainable because:

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-Refer to the above information. The total demand for money curve in this market for money would graph as a:

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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:

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A bond with no expiration has an original price of $10,000 and a fixed annual interest payment of $1000. If the price of this bond decreases by $2000, the interest rate in effect will:

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Which of the following is correct?

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On a diagram wherein the interest rate and the quantity of money demanded are shown on the vertical and horizontal axes respectively, the total demand for money can be found by:

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

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The interest rate at which the Bank of Canada lends to chartered banks is called:

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In the Canadian economy, the money supply is controlled by:

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

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-Refer to the above market for money diagram. Given D_m and S_m, an interest rate of i₃ is not sustainable because:

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