Question 1

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Accepted Answer

A)  A decrease in the money supply will lower the interest rate, increase investment spending, and increase GDP.
B)  A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease GDP.
C)  An increase in the money supply will raise the interest rate, decrease investment spending, and decrease GDP.
D)  An increase in the money supply will lower the interest rate, decrease investment spending, and increase GDP.E) A) and B)
F) A) and C)

Question 2

If the Bank of Canada sells government securities to the public, which of the following transactions take place?

Accepted Answer

A)  The demand deposits of chartered banks are unchanged, but their reserves increase.
B)  The demand deposits and reserves of chartered banks both decrease.
C)  The demand deposits of chartered banks are unchanged, but their reserves decrease.
D)  The demand deposits and reserves of chartered banks are both unchanged.E) B) and C)
F) A) and B)

Question 3

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
 Refer to the above information.Suppose the Bank of Canada buys $2 in securities from the public.As a result of this transaction, the supply of money will:

Accepted Answer

A)  directly increase by $2 and the money-creating potential of the chartered banking system will increase by $38.
B)  directly increase by $40 and the money-creating potential of the chartered banking system will increase by $800.
C)  directly increase by $2 and the money-creating potential of the chartered banking system will be unaffected.
D)  be unaffected but the money-creating potential of the chartered banking system will increase by $40.E) A) and B)
F) B) and C)

Question 4

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

Question 5

In terms of the aggregate demand and aggregate supply model, the sale of government bonds by the Bank of Canada to chartered banks will:

Accepted Answer

A)  increase aggregate supply.
B)  decrease aggregate supply.
C)  increase aggregate demand.
D)  decrease aggregate demand.E) B) and D)
F) B) and C)

Question 6

The bank rate is the interest rate at which chartered banks lend to their best corporate customers.

Accepted Answer

A) True 
 B)False

Question 7

An expansionary monetary policy will decrease net exports.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Refer to the above information.All else equal, the transaction demand for money in this table would increase if:

Accepted Answer

A)  nominal GDP increased.
B)  the interest rate fell.
C)  the supply of money increased.
D)  the supply of money decreased.E) A) and D)
F) B) and D)

Question 10

The following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent.Refer to the above information.If the price of this bond increases to $1,250, the interest rate in effect will:

Accepted Answer

A)  fall to 9 percent.
B)  fall to 8 percent.
C)  rise to 11 percent.
D)  rise to 12 percent.E) A) and B)
F) A) and C)

Question 11

An expansionary monetary policy is appropriate for the alleviation of domestic:

Accepted Answer

A)  unemployment and compatible with the goal of correcting a trade deficit.
B)  unemployment and compatible with the goal of correcting a trade surplus.
C)  inflation and compatible with the goal of correcting a trade deficit.
D)  inflation and compatible with the goal of correcting a trade surplus.E) A) and D)
F) All of the above

Question 12

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

Question 13

In 2018, the Bank of Canada set an annual inflation target range of:

Accepted Answer

A)  1 percent to 3 percent.
B)  2 percent to 4 percent.
C)  3 percent to 4 percent.
D)  2 percent to 3 percent.E) B) and C)
F) A) and D)

Question 14

Assume that the desired reserve ratio for the chartered banks is 25 percent.If Bank of Canada buys $3 billion in government securities from chartered banks we can say that, as a result of this transaction, the lending ability of the chartered banking system will:

Accepted Answer

A)  decrease by $9 billion.
B)  increase by $9 billion.
C)  increase by $15 billion.
D)  increase by $12 billion.E) C) and D)
F) None of the above

Question 15

The bank rate is the rate of interest at which

Accepted Answer

A)  chartered banks lend to large corporations.
B)  the Bank of Canada lends to large corporations.
C)  savings and loan associations lend to home builders.
D)  the Bank of Canada lends to chartered banks.E) A) and B)
F) B) and D)

Question 16

The prime interest rate:

Accepted Answer

A)  affects investment spending while the overnight rate affects consumption spending.
B)  affects consumption spending while the overnight rate affects investment spending.
C)  has no effect on exchange rates and net exports.
D)  affects investment spending while the overnight rate affects overnight borrowing of bank reserves.E) B) and C)
F) A) and B)

Question 17

A decline in the equilibrium level of GDP is most likely to be caused by:

Accepted Answer

A)  a downshift in the investment schedule.
B)  an upshift in the investment schedule.
C)  a downshift in the consumption schedule.
D)  an upshift in the saving schedule.E) B) and D)
F) All of the above

Question 18

Which of the following is correct?

Accepted Answer

A)  A restrictive monetary policy will cause the dollar to appreciate and Canadian net exports to increase.
B)  A restrictive monetary policy will cause the dollar to appreciate and Canadian net exports to decrease.
C)  A restrictive monetary policy will cause the dollar to depreciate and Canadian net exports to increase.
D)  A restrictive monetary policy will cause the dollar to depreciate and Canadian net exports to decrease.E) B) and C)
F) C) and D)

Question 19

An increase in the money supply will tend to:

Accepted Answer

A)  lower interest rates and lower the equilibrium GDP.
B)  lower interest rates and increase the equilibrium GDP.
C)  increase interest rates and increase the equilibrium GDP.
D)  increase interest rates and lower the equilibrium GDP.E) B) and C)
F) B) and D)

Question 20

Refer to the above market for money diagram.If the interest rate was at 8 percent, people would:

Accepted Answer

A)  sell bonds, which would cause bond prices to fall and the interest rate to fall.
B)  buy bonds, which would cause bond prices to rise and the interest rate to fall.
C)  have insufficient liquidity, which would cause them to reduce their spending on consumer goods.
D)  buy bonds, which would cause bond prices to fall and the interest rate to rise.E) None of the above
F) C) and D)

Exam 15: B: Interest Rates and Monetary Policy

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
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An expansionary monetary policy will decrease net exports.

Correct Answer
verified

If the Bank of Canada sells government securities to the public, which of the following transactions take place?

Correct Answer
verified

In terms of the aggregate demand and aggregate supply model, the sale of government bonds by the Bank of Canada to chartered banks will:

Correct Answer
verified

Which of the following is correct?

Correct Answer
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An increase in the money supply will tend to:

Correct Answer
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The following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent.Refer to the above information.If the price of this bond increases to $1,250, the interest rate in effect will:

Correct Answer
verified

A decline in the equilibrium level of GDP is most likely to be caused by:

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

Correct Answer
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Refer to the above market for money diagram.If the interest rate was at 8 percent, people would:

Correct Answer
verified

In 2018, the Bank of Canada set an annual inflation target range of:

Correct Answer
verified

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

Correct Answer
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An expansionary monetary policy is appropriate for the alleviation of domestic:

Correct Answer
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The prime interest rate:

Correct Answer
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Refer to the above information.All else equal, the transaction demand for money in this table would increase if:

Correct Answer
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The bank rate is the rate of interest at which

Correct Answer
verified

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Correct Answer
verified

The bank rate is the interest rate at which chartered banks lend to their best corporate customers.

Correct Answer
verified

Assume that the desired reserve ratio for the chartered banks is 25 percent.If Bank of Canada buys $3 billion in government securities from chartered banks we can say that, as a result of this transaction, the lending ability of the chartered banking system will:

Correct Answer
verified

Exam 15: B: Interest Rates and Monetary Policy

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

An expansionary monetary policy will decrease net exports.

Correct AnswerverifiedShow Answer

If the Bank of Canada sells government securities to the public, which of the following transactions take place?

Correct AnswerverifiedShow Answer

In terms of the aggregate demand and aggregate supply model, the sale of government bonds by the Bank of Canada to chartered banks will:

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

An increase in the money supply will tend to:

Correct AnswerverifiedShow Answer

The following information for a bond having no expiration date: bond price = $1,000; bond fixed annual interest payment = $100; bond annual interest rate = 10 percent.Refer to the above information.If the price of this bond increases to $1,250, the interest rate in effect will:

Correct AnswerverifiedShow Answer

A decline in the equilibrium level of GDP is most likely to be caused by:

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

Correct AnswerverifiedShow Answer

Refer to the above market for money diagram.If the interest rate was at 8 percent, people would:

Correct AnswerverifiedShow Answer

In 2018, the Bank of Canada set an annual inflation target range of:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An expansionary monetary policy is appropriate for the alleviation of domestic:

Correct AnswerverifiedShow Answer

The prime interest rate:

Correct AnswerverifiedShow Answer

Refer to the above information.All else equal, the transaction demand for money in this table would increase if:

Correct AnswerverifiedShow Answer

The bank rate is the rate of interest at which

Correct AnswerverifiedShow Answer

Which of the following best describes the cause-effect chain of a restrictive monetary policy?

Correct AnswerverifiedShow Answer

The bank rate is the interest rate at which chartered banks lend to their best corporate customers.

Correct AnswerverifiedShow Answer

Assume that the desired reserve ratio for the chartered banks is 25 percent.If Bank of Canada buys $3 billion in government securities from chartered banks we can say that, as a result of this transaction, the lending ability of the chartered banking system will:

Correct AnswerverifiedShow Answer

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