Question 1

Suppose output is at its potential level and then there is a sudden increase in food and energy prices.This increase

Accepted Answer

A) makes inflation targeting easier because it makes these problems less relevant. 
B) makes inflation targeting harder because these are closely related to excess demand in the economy. 
C) would be unlikely to lead to an immediate policy response because it would not appear in "core" inflation. 
D) would be offset by a decline in the Canadian dollar,making these price increases irrelevant. 
E) would lead to an immediate policy response to prevent the opening of an inflationary gap. 
A) makes inflation targeting easier because it makes these problems less relevant. 
B) makes inflation targeting harder because these are closely related to excess demand in the economy. 
C) would be unlikely to lead to an immediate policy response because it would not appear in "core" inflation. 
D) would be offset by a decline in the Canadian dollar,making these price increases irrelevant. 
E) would lead to an immediate policy response to prevent the opening of an inflationary gap. C

Question 2

Suppose the Bank of Canada wants to raise short-term market interest rates.To do so,the Bank will

Accepted Answer

A) purchase government securities in the open market. 
B) increase its target for the overnight rate. 
C) increase the commercial banks' required reserves. 
D) adjust the rate paid on Treasury bills. 
E) lower the reserve requirement. 
A) purchase government securities in the open market. 
B) increase its target for the overnight rate. 
C) increase the commercial banks' required reserves. 
D) adjust the rate paid on Treasury bills. 
E) lower the reserve requirement. B

Question 3

The interest rate that the Bank of Canada charges commercial banks for loans is called the

Accepted Answer

A) term interest rate. 
B) prime rate. 
C) overnight interest rate. 
D) bank rate. 
E) preferred lending rate. 
A) term interest rate. 
B) prime rate. 
C) overnight interest rate. 
D) bank rate. 
E) preferred lending rate. D

Question 4

Suppose Canadian real GDP is currently equal to potential GDP.Then,because of events elsewhere in the world,European investors decide to hold fewer Canadian financial assets,which leads to a sustained depreciation of the Canadian dollar.If the Bank of Canada is committed to its inflation target then it should

Accepted Answer

A) implement an expansionary monetary policy by increasing its target for the overnight interest rate. 
B) implement an expansionary monetary policy by decreasing its target for the overnight interest rate. 
C) not intervene in the economy at all since this shock will not have any real effects in the short run. 
D) implement a contractionary monetary policy by increasing its target for the overnight interest rate. 
E) implement a contractionary monetary policy by decreasing its target for the overnight interest rate. 
A) implement an expansionary monetary policy by increasing its target for the overnight interest rate. 
B) implement an expansionary monetary policy by decreasing its target for the overnight interest rate. 
C) not intervene in the economy at all since this shock will not have any real effects in the short run. 
D) implement a contractionary monetary policy by increasing its target for the overnight interest rate. 
E) implement a contractionary monetary policy by decreasing its target for the overnight interest rate.

Question 5

One reason the Bank of Canada does not try to influence the money supply directly is that

Accepted Answer

A) the Bank of Canada has many other policy tools with which it can influence aggregate demand. 
B) the Bank of Canada does not have the mandate to change the money supply. 
C) because the money demand curve is almost horizontal,changes in the money supply would have little or no effect on the interest rate. 
D) because the investment demand curve is almost vertical,any change in the interest rate resulting from a change in money supply would have little or no effect on desired investment expenditure. 
E) the slope of the money demand curve is not precisely known,and so the effect on the interest rate of a change in money supply is uncertain. 
A) the Bank of Canada has many other policy tools with which it can influence aggregate demand. 
B) the Bank of Canada does not have the mandate to change the money supply. 
C) because the money demand curve is almost horizontal,changes in the money supply would have little or no effect on the interest rate. 
D) because the investment demand curve is almost vertical,any change in the interest rate resulting from a change in money supply would have little or no effect on desired investment expenditure. 
E) the slope of the money demand curve is not precisely known,and so the effect on the interest rate of a change in money supply is uncertain.

Question 6

If the Bank of Canada wants to influence real economic variables in the short run,it uses

Accepted Answer

A) policy instruments such as the exchange rate and investment to influence the economy. 
B) its only policy instrument-the overnight interest rate target-to influence aggregate demand. 
C) policy variables such as the exchange rate and investment to influence aggregate demand. 
D) policy variables such as open-market operations to influence aggregate demand. 
E) policy variables such as the money supply to influence investment and aggregate supply. 
A) policy instruments such as the exchange rate and investment to influence the economy. 
B) its only policy instrument-the overnight interest rate target-to influence aggregate demand. 
C) policy variables such as the exchange rate and investment to influence aggregate demand. 
D) policy variables such as open-market operations to influence aggregate demand. 
E) policy variables such as the money supply to influence investment and aggregate supply.

Question 7

Suppose the actual overnight interest rate is 3.5%.If the Bank of Canada raises its target for the overnight interest rate to 4%,and longer-term interest rates in the market rise as a result,

Accepted Answer

A) the demand for loans from commercial banks falls,the commercial banks sell government securities to the Bank of Canada,and the money supply falls. 
B) the demand for loans from commercial banks rises,the commercial banks buy government securities from the Bank of Canada,and the money supply falls. 
C) the demand for loans from commercial banks rises,the commercial banks sell government securities to the Bank of Canada,and the money supply rises. 
D) the demand for loans from commercial banks falls,the commercial banks buy government securities from the Bank of Canada,and the money supply falls. 
E) the demand for loans from commercial banks rises the commercial banks buy government securities from the Bank of Canada,and the money supply rises. 
A) the demand for loans from commercial banks falls,the commercial banks sell government securities to the Bank of Canada,and the money supply falls. 
B) the demand for loans from commercial banks rises,the commercial banks buy government securities from the Bank of Canada,and the money supply falls. 
C) the demand for loans from commercial banks rises,the commercial banks sell government securities to the Bank of Canada,and the money supply rises. 
D) the demand for loans from commercial banks falls,the commercial banks buy government securities from the Bank of Canada,and the money supply falls. 
E) the demand for loans from commercial banks rises the commercial banks buy government securities from the Bank of Canada,and the money supply rises.

Question 8

Suppose Canadian real GDP is currently equal to potential GDP.Then the Canadian dollar depreciates due to the reduced demand by European producers to purchase Canadian-made raw materials.If the Bank of Canada is committed to its inflation target then it should

Accepted Answer

A) implement an expansionary monetary policy by increasing its target for the overnight interest rate. 
B) implement an expansionary monetary policy by decreasing its target for the overnight interest rate. 
C) not intervene in the economy at all since this shock will not have any real effects in the short run. 
D) implement a contractionary monetary policy by increasing its target for the overnight interest rate. 
E) implement a contractionary monetary policy by decreasing its target for the overnight interest rate. 
A) implement an expansionary monetary policy by increasing its target for the overnight interest rate. 
B) implement an expansionary monetary policy by decreasing its target for the overnight interest rate. 
C) not intervene in the economy at all since this shock will not have any real effects in the short run. 
D) implement a contractionary monetary policy by increasing its target for the overnight interest rate. 
E) implement a contractionary monetary policy by decreasing its target for the overnight interest rate.

Question 9

If we observe that the bank rate has fallen,we can conclude that the

Accepted Answer

A) Bank of Canada has implemented a contractionary monetary policy. 
B) Bank of Canada has abandoned its inflation target. 
C) Government of Canada has reduced the money supply. 
D) Bank of Canada has implemented an expansionary monetary policy. 
E) Bank of Canada has adjusted the rate it pays on Treasury bills. 
A) Bank of Canada has implemented a contractionary monetary policy. 
B) Bank of Canada has abandoned its inflation target. 
C) Government of Canada has reduced the money supply. 
D) Bank of Canada has implemented an expansionary monetary policy. 
E) Bank of Canada has adjusted the rate it pays on Treasury bills.

Question 10

If we observe that short-term market interest rates have fallen,we can certainly conclude that the

Accepted Answer

A) Bank of Canada has implemented an expansionary monetary policy. 
B) Bank of Canada has implemented a contractionary monetary policy. 
C) Bank of Canada has abandoned its inflation target. 
D) Government of Canada has reduced the money supply. 
E) It is not possible to conclude any of the above. 
A) Bank of Canada has implemented an expansionary monetary policy. 
B) Bank of Canada has implemented a contractionary monetary policy. 
C) Bank of Canada has abandoned its inflation target. 
D) Government of Canada has reduced the money supply. 
E) It is not possible to conclude any of the above.

Question 11

Economists at the Bank of Canada estimate that time lags in monetary policy imply that

Accepted Answer

A) monetary policy is totally ineffective in changing overnight lending rates in the short run. 
B) monetary policy is totally ineffective in changing core inflation rates in the long run. 
C) monetary policy can cause changes in real GDP to occur in 9-12 months and changes in core inflation to occur in 18-24 months. 
D) monetary policy can cause changes in core inflation to occur in 9-12 months and changes in the exchange rate to occur in 18-24 months. 
E) monetary policy can cause changes in core inflation to occur in 9 to 12 months and changes in real GDP to occur in 18-24 months. 
A) monetary policy is totally ineffective in changing overnight lending rates in the short run. 
B) monetary policy is totally ineffective in changing core inflation rates in the long run. 
C) monetary policy can cause changes in real GDP to occur in 9-12 months and changes in core inflation to occur in 18-24 months. 
D) monetary policy can cause changes in core inflation to occur in 9-12 months and changes in the exchange rate to occur in 18-24 months. 
E) monetary policy can cause changes in core inflation to occur in 9 to 12 months and changes in real GDP to occur in 18-24 months.

Question 12

In general,if a central bank chooses to target the interest rate in its implementation of monetary policy,then

Accepted Answer

A) it is more difficult to communicate this policy to the public than a change in money supply. 
B) the central bank can more easily control the process of deposit creation by the commercial banks. 
C) the money supply is determined by the Minister of Finance. 
D) the implementation of policy is more straightforward because the central bank knows precisely the slope and position of the money demand curve. 
E) it conducts the necessary open-market operations to accommodate the resulting change in money demand. 
A) it is more difficult to communicate this policy to the public than a change in money supply. 
B) the central bank can more easily control the process of deposit creation by the commercial banks. 
C) the money supply is determined by the Minister of Finance. 
D) the implementation of policy is more straightforward because the central bank knows precisely the slope and position of the money demand curve. 
E) it conducts the necessary open-market operations to accommodate the resulting change in money demand.

Question 13

Suppose the Bank of Canada announces its target for the overnight interest rate at 2.75%.What is the Bank's target range for the overnight interest rate?

Accepted Answer

A) 1.75 - 3.75% 
B) 2.25 - 3.25% 
C) 2.5 - 3.00% 
D) 2.7 - 2.8% 
E) 2.74 - 2.76% 
A) 1.75 - 3.75% 
B) 2.25 - 3.25% 
C) 2.5 - 3.00% 
D) 2.7 - 2.8% 
E) 2.74 - 2.76%

Question 14

If we observe that the bank rate has increased,we can conclude that the

Accepted Answer

A) Bank of Canada has abandoned its inflation target. 
B) Government of Canada has reduced the money supply. 
C) Bank of Canada has adjusted the rate it pays on Treasury bills. 
D) Bank of Canada has implemented an expansionary monetary policy. 
E) Bank of Canada has implemented a contractionary monetary policy. 
A) Bank of Canada has abandoned its inflation target. 
B) Government of Canada has reduced the money supply. 
C) Bank of Canada has adjusted the rate it pays on Treasury bills. 
D) Bank of Canada has implemented an expansionary monetary policy. 
E) Bank of Canada has implemented a contractionary monetary policy.

Question 15

In the early 1980s,when the Bank of Canada was focusing its attention on reducing the growth rate of the money supply,an unplanned surge in ________ led to an unintended tight monetary policy which caused ________.

Accepted Answer

A) money demand; decreased inflation and a serious recession 
B) money supply; a drop in the overnight lending rate and increased investment 
C) desired investment; inflation to increase 
D) desired investment; the Bank of Canada to adopt a core inflation targeting policy 
E) money supply; the Bank of Canada to apologize to the public for its policy error 
A) money demand; decreased inflation and a serious recession 
B) money supply; a drop in the overnight lending rate and increased investment 
C) desired investment; inflation to increase 
D) desired investment; the Bank of Canada to adopt a core inflation targeting policy 
E) money supply; the Bank of Canada to apologize to the public for its policy error

Question 16

Which of the following would constitute an expansionary monetary policy by the Bank of Canada?

Accepted Answer

A) moral suasion to increase the commercial banks' target reserve ratio 
B) moral suasion to reduce lending by commercial banks 
C) an open-market sale of government securities 
D) a reduction of the Bank's target for the overnight interest rate 
E) None of the above would be expansionary. 
A) moral suasion to increase the commercial banks' target reserve ratio 
B) moral suasion to reduce lending by commercial banks 
C) an open-market sale of government securities 
D) a reduction of the Bank's target for the overnight interest rate 
E) None of the above would be expansionary.

Question 17

Suppose the Bank of Canada wants to reduce short-term market interest rates.To do so,the Bank will

Accepted Answer

A) reduce its target for the overnight rate. 
B) decrease the commercial banks' reserves. 
C) decrease the money supply directly. 
D) adjust the rate paid on Treasury bills. 
E) reduce the commercial banks' reserve requirements. 
A) reduce its target for the overnight rate. 
B) decrease the commercial banks' reserves. 
C) decrease the money supply directly. 
D) adjust the rate paid on Treasury bills. 
E) reduce the commercial banks' reserve requirements.

Question 18

The long-run target currently used by the Bank of Canada is to set

Accepted Answer

A) M2 = real GDP/M1. 
B) a long-run target range for the overnight lending rate. 
C) a long-run target range for the Canadian-U.S.exchange rate. 
D) a long-run target range for the 5-year mortgage rate. 
E) a long-run target range for the inflation rate. 
A) M2 = real GDP/M1. 
B) a long-run target range for the overnight lending rate. 
C) a long-run target range for the Canadian-U.S.exchange rate. 
D) a long-run target range for the 5-year mortgage rate. 
E) a long-run target range for the inflation rate.

Question 19

When the Bank of Canada increases the interest rate we call this a contractionary monetary policy.Why?

Accepted Answer

A) The higher interest rate leads to an increase in the level of national saving. 
B) The higher interest rate causes a contraction of money demand. 
C) The higher interest rate causes the money demand curve to shift to the left. 
D) The higher interest rate leads to a leftward shift of the aggregate demand curve. 
E) The higher interest rate causes the money supply curve to shift to the right. 
A) The higher interest rate leads to an increase in the level of national saving. 
B) The higher interest rate causes a contraction of money demand. 
C) The higher interest rate causes the money demand curve to shift to the left. 
D) The higher interest rate leads to a leftward shift of the aggregate demand curve. 
E) The higher interest rate causes the money supply curve to shift to the right.

Question 20

If we observe that the actual rate of CPI inflation has fallen,we can certainly conclude that the

Accepted Answer

A) Bank of Canada has implemented an expansionary monetary policy. 
B) Bank of Canada has implemented a contractionary monetary policy. 
C) Bank of Canada has abandoned its inflation target. 
D) Government of Canada has reduced the money supply. 
E) It is not possible to conclude any of the above. 
A) Bank of Canada has implemented an expansionary monetary policy. 
B) Bank of Canada has implemented a contractionary monetary policy. 
C) Bank of Canada has abandoned its inflation target. 
D) Government of Canada has reduced the money supply. 
E) It is not possible to conclude any of the above.

Suppose output is at its potential level and then there is a sudden increase in food and energy prices.This increase

Suppose the Bank of Canada wants to raise short-term market interest rates.To do so,the Bank will

The interest rate that the Bank of Canada charges commercial banks for loans is called the

One reason the Bank of Canada does not try to influence the money supply directly is that

If the Bank of Canada wants to influence real economic variables in the short run,it uses

Suppose the actual overnight interest rate is 3.5%.If the Bank of Canada raises its target for the overnight interest rate to 4%,and longer-term interest rates in the market rise as a result,

Suppose Canadian real GDP is currently equal to potential GDP.Then the Canadian dollar depreciates due to the reduced demand by European producers to purchase Canadian-made raw materials.If the Bank of Canada is committed to its inflation target then it should

If we observe that the bank rate has fallen,we can conclude that the

If we observe that short-term market interest rates have fallen,we can certainly conclude that the

Economists at the Bank of Canada estimate that time lags in monetary policy imply that

In general,if a central bank chooses to target the interest rate in its implementation of monetary policy,then

Suppose the Bank of Canada announces its target for the overnight interest rate at 2.75%.What is the Bank's target range for the overnight interest rate?

If we observe that the bank rate has increased,we can conclude that the

In the early 1980s,when the Bank of Canada was focusing its attention on reducing the growth rate of the money supply,an unplanned surge in led to an unintended tight monetary policy which caused .

Which of the following would constitute an expansionary monetary policy by the Bank of Canada?

Suppose the Bank of Canada wants to reduce short-term market interest rates.To do so,the Bank will

The long-run target currently used by the Bank of Canada is to set

When the Bank of Canada increases the interest rate we call this a contractionary monetary policy.Why?

If we observe that the actual rate of CPI inflation has fallen,we can certainly conclude that the

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Real Gdp and the Price Level in the Short Run

From the Short Run to the Long Run: the Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Money, interest Rates, and Economic Activity

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

Exam 28: Monetary Policy in Canada

Suppose output is at its potential level and then there is a sudden increase in food and energy prices.This increase

Suppose the Bank of Canada wants to raise short-term market interest rates.To do so,the Bank will

The interest rate that the Bank of Canada charges commercial banks for loans is called the

One reason the Bank of Canada does not try to influence the money supply directly is that

If the Bank of Canada wants to influence real economic variables in the short run,it uses

Suppose the actual overnight interest rate is 3.5%.If the Bank of Canada raises its target for the overnight interest rate to 4%,and longer-term interest rates in the market rise as a result,

Suppose Canadian real GDP is currently equal to potential GDP.Then the Canadian dollar depreciates due to the reduced demand by European producers to purchase Canadian-made raw materials.If the Bank of Canada is committed to its inflation target then it should

If we observe that the bank rate has fallen,we can conclude that the

If we observe that short-term market interest rates have fallen,we can certainly conclude that the

Economists at the Bank of Canada estimate that time lags in monetary policy imply that

In general,if a central bank chooses to target the interest rate in its implementation of monetary policy,then

Suppose the Bank of Canada announces its target for the overnight interest rate at 2.75%.What is the Bank's target range for the overnight interest rate?

If we observe that the bank rate has increased,we can conclude that the

In the early 1980s,when the Bank of Canada was focusing its attention on reducing the growth rate of the money supply,an unplanned surge in ________ led to an unintended tight monetary policy which caused ________.

Which of the following would constitute an expansionary monetary policy by the Bank of Canada?

Suppose the Bank of Canada wants to reduce short-term market interest rates.To do so,the Bank will

The long-run target currently used by the Bank of Canada is to set

When the Bank of Canada increases the interest rate we call this a contractionary monetary policy.Why?

If we observe that the actual rate of CPI inflation has fallen,we can certainly conclude that the

Economic Issues and Concepts

Economic Theories, data, and Graphs

Demand, supply, and Price

What Macroeconomics Is All About

The Measurement of National Income

The Simplest Short-Run Macro Model

Adding Government and Trade to the Simple Macro Model

Real Gdp and the Price Level in the Short Run

From the Short Run to the Long Run: the Adjustment of Factor Prices

Long-Run Economic Growth

Money and Banking

Money, interest Rates, and Economic Activity

Inflation and Disinflation

Unemployment Fluctuations and the Nairu

Government Debt and Deficits

The Gains From International Trade

Trade Policy

Exchange Rates and the Balance of Payments

Filters

In the early 1980s,when the Bank of Canada was focusing its attention on reducing the growth rate of the money supply,an unplanned surge in led to an unintended tight monetary policy which caused .